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The Importance and Hurdles of Business-Related IP Valuation

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The Importance and Hurdles of Business-Related IP Valuation

Submitted by Efua Halm
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Time Zone
Europe/Zurich
Expert Name

André Gorius graduated from the Ecole Normale Supérieure (Paris, 1985), where he obtained the titles of « Docteur de Troisième Cycle » and « Professeur Agrégé » in Physics. In 1988, he obtained his PhD (“Doctorat d’Etat ès Sciences”) in Chemical Engineering.

During his career in the Solvay Group spanning more than 30 years, he occupied the positions of R&D Director and Industrial Director in France, USA and Italy. Since 2006, he has been involved in the economic aspects of technology transfer, was Licensing Director, and created the position of Intellectual Assets Valorization Director which he occupied until June 2019.

He specializes in valuation of intangible and IP assets and start-ups, in the general frames of Technology Transfer, Mergers & Acquisitions, and Transfer Pricing, Litigation, etc., always leveraging his scientific and technology background to assess the underlying technology strengths and weaknesses, and the way enterprises manage these assets.

He also is involved in numerous valuations of companies. The spectrum of his activities ranges from start-ups in creation to SMEs and large multinational enterprises (>$20 Billion sales).

Dr. Gorius teaches the general concepts of economy to engineers, teaches IP Valuation and created in 2021 the course “Valuation of Intangible Assets” in the EMLyon Business School in France. He tries to develop novel approaches of intangible assets valuation by analogy with the known theories of classical and quantum physics. Acting since July 2019 as a Consultant and CEO, he is member, among others, of the “Association d’Experts en Evaluation d’Entreprises” (Enterprise Valuation Experts), and chairs the IP Valuation Committee within the LESI (Licensing Executives Society International).

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Comments

Reply by Andre GORIUS

In reply to by Efua Halm

In 2006, the company I worked for had a huge issue with the value of an IP asset, and faced an enormous tax reassessment. After several jobs of Industrial and R&D Director, I was in charge of the Group's Innovation Excellence Department, and was, say, known to be also interested in the mathematical and financial aspects of R&D. A friend asked me for an advice concerning the case. I understood that the value at stake was obviously completely different from what the tax experts had written. I jumped in the subject, helped save the case, and created 4 years later my job of Intellectual Valorization.

Reply by Efua Halm

What was the most challenging case you faced in your career in IP valuation? What made it so challenging?

Reply by Andre GORIUS

In reply to by Efua Halm

The first case I was involved in was a tax litigation. The impacts of a negative outcome would have been visible on the P&L of the multi-billion multinational enterprise I was in. The challenge was to demonstrate to the tax authority that the valuation they made for a technology was impossible, a bit like the Veritas case I showed. The reasons were technological, and related to the types of competencies that were present in the two countries at stake. The challenge was that contractual arrangements did not capture these essential features and that I was the only person who said that the contracts were wrong. Finally, after a mulmi-year long fight, my point of view was accepted, and the rest (calculations) became easy.

Reply by Efua Halm

Which role do you think artificial intelligence and other data processing tools will play in the field of IP valuation?

Reply by Andre GORIUS

In reply to by Efua Halm

Today, AI is essentially, say, smart multidimensional regression. There is a very long way to machines replacing the human brain when we assess the intrinsic qualities of a technology and the human interactions leading to the final value, as I hope I showed in my talk.

But remember intellectual property valuation (IPV) is both a science and an art. I am convinced that already today some "mechanical" aspects of our job could be done more efficiently than what we do. For example, to determine a suitable royalty rate, we use keyword approaches to look for "comparable" licenses. We always limit ourselves to reading a maximum of, say, 50 agreements or so. We read them, and decide, based on rational criteria, to accept some as comparables and reject others. With the present technologies of AI, I am convinced this could be done on much larger samples an of course more rapidly. Human supervision will be needed though for the final assessment.

Reply by Efua Halm

Is the process of determining a discount rate for future cash flows from an IP asset more an art or a science?

Reply by Andre GORIUS

In reply to by Efua Halm

The discount rate captures in particular the risk that is foreseen for the future cash flows (or, more simply, the sales and costs related to the asset) realize. Today, the only recognized "theory" of discount rates is the Capital Asset Pricing Method (CAPM). It is widely used, although it is easy (it takes an excel graph) to show that the underlying assumption of a good correlation between a market evolution and an asset evolution exists, is wrong. To my knowledge, it is the only "theory" which did not evolve at all in more than 60 years, is wrong, and is not even questioned by economists. It is simple to use, so it is popular. As a consequence, we assessors have to rely on intuition, experience, and self-elaborated assessment methods. So, it is a wrong science used in an art. I am working with some friends (economists, statisticians, mathematicians) to derive new theories, which will come out one day. But the road is very long, given the simplicity and universality of usage of CAPM...