Methods and Applications
- New Horizons in Intellectual Property series
Edited by Federico Munari and Raffaele Oriani
6. Advanced valuation methods: the real options approach Raffaele Oriani, Luigi Sereno 6.1 INTRODUCTION As seen in Chapter 2, by its nature, a patent is a legal title granting its holder the right to make use of an invention for a limited geographical area and time. Whereas a patent entails a right for its owner, it does not imply obligations to invest further in the underlying innovation. This is an important form of flexibility whose value should be considered in patent valuation. While cost and income approaches are still largely applied to evaluate patents (see Chapter 5), recent attention has been given to the real options approach, which allows us to account for the intrinsic uncertainty and flexibility of patents. The attractiveness of the real options approach is due to the fact that it considers a patent as a contingent claim on the value of another asset, that is, for instance, the present value of the expected cash flows from a new product based on the underlying innovation. Accordingly, patents can be considered analogous to financial options and evaluated applying the methods developed for these securities. The real options approach has the advantage to consider patent characteristics in a more comprehensive way, but its application is still limited by several problems, of which the most important is the difficulty to transfer the methods developed for financial options to patents. The objective of this chapter is to present the real options approach, explain how it can be applied to patents, illustrate...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.