Lita nelsen, director of the technology licensing office at the massachusetts institute of technology. Cash flow models for valuing technology are increasingly out of touch with marketplace valuations. Use of technology to enhance licensing administration health and safety is the foundation of quality in child care. Cotropia, describing patents as real options, 34 j. Also in line with theoretical predictions, i find that firms that are better able to evaluate an external technology are less likely to purchase options before licensing. Licensing basics for technology and life sciences companies. Approaches to and methods for evaluating new technologies in. We develop a model in which a firm that invests in the development efforts of an innovation can license its technology to a potential competitor. Specifically, 21 related real options theory with technology investment. Licensing metric realtime decision rtd technology realtime decision server 92,000 20,240. Oracle rac is a cluster database with a shared cache architecture that overcomes the limitations of traditional sharednothing and shareddisk approaches to provide highly scalable and available database solutions for all business applications.
Approaches to valuation of licensing deals pharmaceutical. A licensing agreement refers to a written agreement entered into by the contractual owner of a property or activity giving permission to another to use that property or engage. Early exercise is the rule rather than the exception with real options. In todays challenging economy, many industrial companies are trying to capture additional value from their technologies by licensing their intellectual property to other organizations, including direct competitors. Pdf technological innovation, product life cycle and market.
Real options analysis roa can then be employed to develop pricing structures, or options, for such outcomes. Its examples and exercises are grounded in the authors many years in real estate education. Analyzing technology licensing decisions with a real. Technology valuation methods commonly used in technology transfer offices. Real options, real options analysis, investment, investment analysis, developing countries. Real options thinking leads to different perspectives on how patent licensing agreements should be structured properly accounting for which party controls the embedded optionality. Applying practical tools to the volatile process of negotiating prognosticators apply monte carlo analysis mca to determine the likelihood and significance of a complete range of future outcomes. Real options in technology licensing article pdf available in management science 5310. To value option, set up riskfree portfolio as before.
We discuss the characteristics of these options, the context in which they may arise in terms of type of technology, firm size, timing, etc. Real options analysis seeks to value such flexibility both the flexibility embedded within the investment opportunity eg expand, contract etc. Preparing for the real estate appraiser exam can take time. The vehicle through which the right to use the ip is transferred from the owner to the userlicensee is called a licensing agreement, and it is the basis for the licensing business model. Transfer of technology and knowledge sharing for development science, technology and innovation issues for developing countries united nations conference on trade and development transfer of t echnology and knowledge sharing for developmen t unctad cu r r e n t st u d i e s o n sc i e n c e, te c h n o l o g y a n d in n o v at i o n. Incorporating technical risk in compound real option. Describes patents like industry views technological development. Agreement whereby an owner of a technological intellectual property the licensor allows another party the licensee to use, modify, andor resell that property in exchange for a compensation consideration. Such outward transfer of a companys own proprietary technology has only recently become an important dimension of corporate strategy, as part of a trend toward open innovation. Illinois department of financial and professional regulation. Because licensing as a real option remains under investigation, and our study is a modest attempt in this direction, further research could explore more licensing topics through the real options lens, such as the valuation of licensing for future investment opportunities, or the comparison between different types of real options e. We define what options are and give a taxonomy of real options.
Key determinants of the real options logic are in particular the maturity of the licensed technology, and the motivations pursued by the innovator to licenseout the technology. A licence is an agreement involving the transfer of rights from one party the licensor to the other the licensee. Real options reasoning ror is a conceptual approach to strategic investment that takes into. Teaching patents as real options carolina law scholarship. Pdf this paper employs a real options approach to analyze optimal. Most practitioners who use option pricing models to value real options argue for the binomial model over the blackscholes and justify this choice by noting that. Optout options in new product codevelopment partnerships. Richard razgaitis dealmaking shows readers how to apply these powerful valuation tools. In this sense, they integrate these two aspects of your investment decision making in one tractable framework. Technology available for licensing intellectual property office the pennsylvania state university 1 technology center, university park, pa 16802 814. Toward that end, this booklet provides a primer on licensing in general, with a focus, where appropriate, on licensing basics and related issues of interest to technology and life sciences companies. Optout options in new product codevelopment partnerships 3 at a preagreed split.
We identify the main real options that are contained in out licensing and in licensing decisions. Real options in technology licensing management science. The results, seth says, identify a number of conditions for one factor to dominate another. Working in real estate in a different way and with fewer responsibilities may offer you some advantages, such as. Fftw is a c subroutine library for computing the discrete fourier transform dft in one or more dimensions, of arbitrary input size, and of both real and complex data, as well as of evenodd data, i. It is designed to work with personal vehicle trips, producing energy estimates given information such as trip distance andor duration from a survey. Please note that all continuing education requirements must be completed at the time of renewal. Robert pindyck mit lectures on real options part i august, 2008 2 44. It has a studentoriented organization, both within each chapter and from chapter to chapter. Real options and investment decision making 6 assumes that the investment decision is a takeitorleaveit decision at that moment in time. Also in line with theoretical predictions, i find that firms better able to evaluate an external technology are less.
Rimons technology licensing attorneys combine legal and business expertise to help companies across the spectrum of their technology licensing needs. Intellectual property licensing attorneys rimon pc. Technology licensing officer the pennsylvania state university phone. Also in line with theoretical predictions, i find that firms better able to evaluate an external technology are less likely to purchase options before licensing. Use of technology to enhance licensing administration. Many inventors will choose to license their technologies because of the following advantages inherent to the licensing model.
Before the second stage commences, and provided the. Cosmetology, esthetics, hair braiding, and nail technology act of 1985 bcent are permitted to teach online theory courses above the current ten percent 10% hour limitation for students who are graduating on or before july 31, 2020. The licensee the third party licensing the technology. The law firm of williams mullen and the university of virginia patent foundation the bene. Analyzing technology licensing decisions with a real options. Microsoft 365 is available in two options, e3 and e5. Technology licensing continues to gain popularity as firms seek new sources of revenue from their product development activities.
We analyze the potential benefits and limits of applying real options to licensing decisions, both from a. Describing patents as real options semantic scholar. Fftw stands for fastest fourier transform in the west. Introduction there has been a growing use of real options analysis as a tool for valuation and strategic decisionmaking in the recent past. Consistent with the basic premise of real options theory, i find that firms are more likely to purchase option contracts for more uncertain technologies. It strikes a superb balance between solid intuition, rigorous analysis, and numerous practical examples. This has potentially significant implications for the construction industry in developing countries. Key determinants of the real options logic are in particular the maturity of the licensed technology, and the motivations pursued by the innovator to licenseout the. Potential applications of real option analysis in the. Tripenergy is a data processing methodology that turns incomplete information on vehicle travel into a predictive estimate of the energy requirements of travel. Drawing on the real options literature, this paper argues that factors related to the top management. How to develop a successful technology licensing program. Impact of licensing on investment and financing of. This paper examines the use of options contracts by firms acquiring rights to commercialize university technologies.
We identify the main real options that are contained in outlicensing and inlicensing decisions. While option pricing models are indeed a superior valuation toolthe usual use of the theorywe believe that real options can also provide a systematic framework serving as a strategic tool and that the real power of real options lies in this strategic application. Approaches to valuation of pharmaceutical licensing deals pharmaceutical licensing deals rarely, if ever, involve a simple one time payment, but encompass multiple payments and royalities, and require longterm cooperation. In future, options thinking and valuation of real options are expected to play an important role in project selection.
Real options in technology licensing pubsonline informs. The compensation may take the form of a 1 lump sum royalty, 2 royalty based on volume of production called. An inventor or author isnt always in the position to make and sell their patented article or authored work themselves. A key decision for the licensor involves whether to distribute marketing control rights associated with licensed technology on a more or less restrictive basis. Marketing control rights and their distribution within. Next, we discuss six case studies where options thinking played a dominant role in accepting modifying the projects. State licensing systems provide a vehicle to ensure that child care programs understand and meet minimum requirements for the health, safety and wellbeing of children in outofhome care. But real options can distil your strategic thinking into focussing on a few, key dynamic processes, where a decisiontree would overflow the largest boardroom whiteboard. Principles of real estate practice in new jersey is streamlined, direct and tothepoint. By the law firm of williams mullen and the university of.
It proposes a comprehensive real options approach to. Her model combines real options and game theory approaches and draws on dynamic capabilities theory, agency theory, and transaction cost economics to examine how four factors interact to influence these choices. Technology is typically transferred through a license agreement in which the universitys technology transfer agent, the penn state research foundation psrf, grants rights in the defined technology to a third party, often limited to a particular field of use andor region of the world. Licensing enables oxford university innovation to maintain ownership, and therefore control, of its ip whilst at the same time generating royalty income from the use of its ip by industry. Were providing licensing flexibility in a single, peruser sku, including cloudfirst, onpremises capable licensing rights to use to help subscribers transition from onpremises environments. Oracle real application clusters is an option to the awardwinning oracle database enterprise edition. While investor psychology and perceptions about the future may drive the marketplace, the theory of real options can go a long way toward closing the valuation gap. Consistent with the basic premise of realoptions theory, i find that firms are more likely to purchase option contracts for more uncertain technologies. Accepted by scott shane, technological innovation, product. Principles of real estate practice in new jersey pdf. In this paper, we explore how licensing contracts can both dissuade other firms from developing alternative technologies and alleviate the financing problem. Value is created as the potential new drug becomes more likely to reach the market and revenue becomes a less distant hope.