What Is Your Intellectual Property Worth? Methods for Determining Value

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Berniece Gregory
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What Is Your Intellectual Property Worth? Methods for Determining Value Presented by: Weston Anson CONSOR Intellectual Asset Management 800.454.9091 www.consor.

1 What Is Your Intellectual Property Worth? Methods for Determining Value Presented by: Weston Anson CONSOR Intellectual Asset Management th National CLE Conference Vail, Colorado January 5, CONSOR 1 Understanding IP Value - Why Value? Transaction due diligence ROI assessment Transfer pricing Impairment testing Use as collateral Bankruptcy 2009 CONSOR 2 G:\Bible\Speeches & Presentations\ABA 1

2 Marketing Bundle Primary trademark Corporate name and logo Marketing umbrella Sub-brand names Core brand Copyrights Secondary trademarks Packaging design and copyrights Trade dress Characters 2009 CONSOR 3 Technical Bundle Key patents Trade secrets Formulae Packaging technology and sources Shapes and sizes Process technology Design technology Proprietary test results Plant and production design Product specifications Operating platforms 2009 CONSOR 4 G:\Bible\Speeches & Presentations\ABA 2

3 IT Bundle Platform Software Data Warehouses Software Licenses Source Code Databases E-Commerce Sites Credit/Payment Systems Shrink Wrap Software Contracts Mask Works Data Mining Devices 2009 CONSOR 5 Context of the Valuation IP Value is Context Specific: Brand/TM Patent/Technical IT/Software Internal Development Joint Venture or Sale Licensing External 2009 CONSOR 6 G:\Bible\Speeches & Presentations\ABA 3

4 Other Context Parameters Time specific parameters Current value - The value of the assets as they are currently employed Potential value - The value of the assets resulting from a new endeavor Historical value - The value of the assets at a certain point in the past 2009 CONSOR 7 IP Valuation Tools and Methodologies Traditional Methodologies Market Approach Cost Approach Income Approach Proprietary Methodologies VALMATRIX VALCALC BVEQ 2009 CONSOR 8 G:\Bible\Speeches & Presentations\ABA 4

5 Economic Damages Lost Profits Disgorgement of Profits Reasonable Royalties Loss in Business Value 2009 CONSOR 9 Economic Damages Damages Assessment 1 Plaintiff s burden is to prove Defendant s revenues stemming from the alleged infringement Defendant must identify all expenses associated with the alleged infringing sales activity Profit Calculation The court allows for a deduction of a portion of the defendant s general expenses, such as overhead, operating expenses, and federal income taxes. This approach of interpreting profits is recognized in the Second, Fourth, and Ninth Circuits U.S.C. 1117(a) Lanham Act. 2 Support Handbook, Russell Parr, p CONSOR 10 G:\Bible\Speeches & Presentations\ABA 5

6 Case Study #1 Company: Context: Components: Cause: Approach: Concept of Value: After-market parts supplier Lost profits Disgorgement of profits Loss in business value Reasonable royalties Copyright infringement Revenue projections Discounted cash flows Income Approach 2009 CONSOR 11 Case Study #1 (cont.) Category Disgorgement of profits Lost profits Loss in business value TOTAL DAMAGES Plaintiff $ 15,000,000 10,000,000 20,000,000 $ 45,000,000 Rebuttal $ 300,000 NA 150,000 $ 450,000 Alternative reasonable royalties NA $ 25, CONSOR 12 G:\Bible\Speeches & Presentations\ABA 6

7 Case Study #2 Company: Context: Components: Cause: Approach: Concept of Value: Food Manufacturer Lost royalty income Brand valuation Trademark infringement Revenue projections Discounted cash flows Income Approach Relief from Royalty 2009 CONSOR 13 Case Study #2 (cont.) Category Retail Food Foodservice Total Infringing sales $ 850,000,000 $ 975,000,000 $1,825,000,000 Royalty rate 4.5% 1.5% NA LOST ROYALTIES $ 38,250,000 $ 14,625,000 $ 52,875,000 BRAND VALUATION $ 35,000,000 $ 50,000,000 $ 185,000, CONSOR 14 G:\Bible\Speeches & Presentations\ABA 7

8 Case Study #3 Company: Context: Components: Cause: Approach: Concept of Value: Auto parts manufacturer Lost profits Reasonable royalties Breach of contract Trademark infringement Revenue projections Discounted cash flows Income Approach 2009 CONSOR 15 Case Study #3 (cont.) Category Plaintiff Rebuttal Variance Lost Profits: Breach of contract Counterfeit units $ 360, ,000 $ 540, ,000 $ (180,000) 205,000 Unjust enrichment (posttermination) Less: mitigation 635, ,250,000 (1,310,000) (615,000 1,310,000 TOTAL DAMAGES $ 1,415,000 $ 695,000 $ 720, CONSOR 16 G:\Bible\Speeches & Presentations\ABA 8

9 Case Study #4 Company: Context: Components: Cause: Approach: Concept of Value: Conglomerate Valuation of stock distribution Valuation of dividend income Valuation of payments Valuation of retirement benefits Trademark infringement (Celebrity) Discounted cash flows Income Approach Enterprise Valuation 2009 CONSOR 17 Case Study #4 (cont.) Category Estimated Value Stock distribution Dividend income Payments Retirement benefits TOTAL VALUE $ 200,000,000 85,000,000 30,000,000 10,000,000 $ 325,000, CONSOR 18 G:\Bible\Speeches & Presentations\ABA 9

10 IP Valhalla Brands Technology Oldsmobile Blatz 5 ½ Floppy Disks 8 Track Cartridges Commodore Analog Cell Phones Eastern Airlines IBM Selectric 2009 CONSOR 19 G:\Bible\Speeches & Presentations\ABA 10

Accurate IP valuation in multiple environments

Accurate IP valuation in multiple environments This text first appeared in the February/March issue of Intellectual Asset Management. For further information please visit www.iam-magazine.com Accurate