In a press release this week, ABI Research Director Philp Solis predicted a strong improvement in smartphone royalties as technology switches to LTE. Lost in the narrative, however, is a critical point for valuators and IP owners.
Value of a patent depends upon its remaining useful life, or, as Mike Pellegrino states, its “Economic Life.” The smartphone marketplace is a whirlwind, as technology shifts from 2G to 3G to 4G. GSM, GSM/WCDMA, and GSM/WCDMA/LTE handsets are generating royalty streams. Here the key: Solis states there will be a massive shift in “power” to LTE patents over the next 5 years. The remaining economic life of the 2G patents valued just 5 years ago might have been 5-7 years at the outside. 3G patents being valued today may well have the same remaining economic life.
Smartphones is just one example. In a review of hundreds of purchase price allocations, BVR has noticed many instances when remaining economic life was confused with legal life. A patent may be granted for 20 years, but with many technologies, that is irrelevant with respect to its value.
The complete Table of Contents to Mike Pellegrino’s Guide to Intellectual Property Valuation is presented here. BVR’s research into purchase price allocation benchmarks and living data will be available in May.