Table 1. Rating approaches for patents... | Emerald Publishing

Table 1.

Rating approaches for patents based on Parr and Smith (1994)

Approach	Strengths	Weaknesses	Main methods	Authors
Cost	Low demand for assumptions and estimates. Applicable when future benefits from technology values are not evident.	Disregard of the future value of technology. No direct cost related to the development of a technology with potential future earnings. Method can encourage additional spending on R & D.	Accounting methods. Valuation of the cost of IP replacement or reproduction. Sunk Cost.	Pitkethly (1997). World Intellectual Property Organization (2003). Santos and Santiago (2008a). Santos and Santiago (2008b). Kaldos (2011).
Market	Directly valued technology. Useful in case of comparable assets. Useful to check other validation methods.	Difficult to find new technologies similar to assets. Few markets established for application of highly innovative technologies. The higher the PI specificity, the more difficult is the direct comparison with other technologies.	Equity market value. Price/Earnings. Price/EBITDA. Price/Sales. Royalty Rates.	Pitkethly (1997). Parr (2012). Goldscheider, Jarosz, and Mulhern (2007). Santos and Santiago (2008a). Santos and Santiago (2008b). Fernandes, da Silva, and de Barros (2011). Kaldos (2011).
Finance	In the case of DCF, the concept is relatively simple. In case of real-options model, one should consider uncertainties and management decisions.	By estimating future cash flows, the methods may be subjective and bring a lot of uncertainties. The higher the number of periods of the model, the greater the uncertainty in the estimation of risks and cash flows.	Cash flow projected; cash flow discounting (time). Cash flow discounting (uncertainty). Cash flow discounting (flexibility). Pricing options (Black- Scholes binomial model: financial options and real options).	Black and Scholes (1973). Dixit and Pindyck (1994). Trigeorgis (1995). Pitkethly (1997). Copeland & Antikarov (2002). Meirelles, Rebelatto, and Matias (2003). Santos and Santiago (2008a). Santos and Santiago (2008b). Fernandes et al. (2011). Kaldos (2011). Erbas and Memis (2012).

Approach	Strengths	Weaknesses	Main methods	Authors
Cost	Low demand for assumptions and estimates.Applicable when future benefits from technology values are not evident.	Disregard of the future value of technology.No direct cost related to the development of a technology with potential future earnings.Method can encourage additional spending on R & D.	Accounting methods.Valuation of the cost of IP replacement or reproduction.Sunk Cost.	Pitkethly (1997).World Intellectual Property Organization (2003).Santos and Santiago (2008a).Santos and Santiago (2008b).Kaldos (2011).
Market	Directly valued technology.Useful in case of comparable assets.Useful to check other validation methods.	Difficult to find new technologies similar to assets.Few markets established for application of highly innovative technologies.The higher the PI specificity, the more difficult is the direct comparison with other technologies.	Equity market value.Price/Earnings.Price/EBITDA.Price/Sales.Royalty Rates.	Pitkethly (1997).Parr (2012).Goldscheider, Jarosz, and Mulhern (2007).Santos and Santiago (2008a).Santos and Santiago (2008b).Fernandes, da Silva, and de Barros (2011).Kaldos (2011).
Finance	In the case of DCF, the concept is relatively simple.In case of real-options model, one should consider uncertainties and management decisions.	By estimating future cash flows, the methods may be subjective and bring a lot of uncertainties.The higher the number of periods of the model, the greater the uncertainty in the estimation of risks and cash flows.	Cash flow projected; cash flow discounting (time).Cash flow discounting (uncertainty).Cash flow discounting (flexibility).Pricing options (Black- Scholes binomial model: financial options and real options).	Black and Scholes (1973).Dixit and Pindyck (1994).Trigeorgis (1995).Pitkethly (1997).Copeland & Antikarov (2002).Meirelles, Rebelatto, and Matias (2003).Santos and Santiago (2008a).Santos and Santiago (2008b).Fernandes et al. (2011).Kaldos (2011).Erbas and Memis (2012).

Source: Prepared by the authors from survey data