Technology Factor Valuation Process

NPV USING A TECHNOLOGY FACTOR The technology factor is a measure of the extent to which incremental cash flow derived from the practice of a technology is based on that technology asset itself. It is measure the fair market value of the intellectual property. The” Technology Factor Valuation Process” figure shows how this valuation process starts with the patent claims, technology summary, and a business summary, and then defines the boundaries of the technology and its commercial, technical, and legal impact. When comparing the Residual Excess Earnings Method with the Technology Factor Method, the former treats intangible assets as a whole, whereas the latter splits the technology asset value out from the intangible assets value.

EXCESS EARNINGS METHODS These methods are based on the extra earning that a company obtains from an advantaged protected position that is covered by a patent or patent portfolio. The method was developed by the US Treasury Department in 1920. It is included herein for completeness but rarely used in establishing the value of a patent portfolio in a business transaction. The methodology is documented in Appeals And Review Memorandum 34. There are two variants to this approach. One calculates the Residual Excess Earnings and the other uses Comparable Values to determine the “excess”.