What is your Intellectual Property Worth? Methods for Determining Value

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  • 1. What Is Your Intellectual Property Worth? Methods for Determining Value Presented by: Weston Anson CONSOR Intellectual Asset Management 800.454.9091 www.consor.com 25 th National CLE Conference Vail, Colorado January 5, 2008 ®
  • 2. Understanding IP Value - Why Value? Transaction due diligence ROI assessment Impairment testing Litigation Transfer pricing Use as collateral Bankruptcy ®
  • 3. 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 ®
  • 4. 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 ®
  • 5. 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 ®
  • 6. Context of the Valuation IP Value is Context Specific: Brand/TM Patent/Technical IT/Software Joint Venture or Sale Litigation Internal Development Licensing External ®
  • 7. 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 ®
  • 8. IP Valuation Tools and Methodologies Traditional Methodologies Market Approach Cost Approach Income Approach Proprietary Methodologies VALMATRIX® VALCALC® BVEQ™ ®
  • 9. Lost Profits Disgorgement of Profits Reasonable Royalties Loss in Business Value Economic Damages ®
  • 10. 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 2 1 15 U.S.C.§ 1117(a) Lanham Act. 2 Litigation Support Handbook, Russell Parr, p.192. ®
  • 11. Case Study #1 After-market parts supplier Litigation Lost profits Disgorgement of profits Loss in business value Reasonable royalties Copyright infringement Revenue projections Discounted cash flows Income Approach Company: Context: Components: Cause: Approach: Concept of Value: ®
  • 12. Case Study #1 (cont.) $ 25,000 NA Alternative reasonable royalties $ 450,000 $ 45,000,000 TOTAL DAMAGES 150,000 20,000,000 Loss in business value NA 10,000,000 Lost profits $ 300,000 $ 15,000,000 Disgorgement of profits Rebuttal Plaintiff Category ®
  • 13. Case Study #2 Food Manufacturer Litigation Lost royalty income Brand valuation Trademark infringement Revenue projections Discounted cash flows Income Approach Relief from Royalty Company: Context: Components: Cause: Approach: Concept of Value: ®
  • 14. Case Study #2 (cont.) $ 35,000,000 $ 38,250,000 4.5% $ 850,000,000 Retail Food $ 185,000,000 $ 50,000,000 BRAND VALUATION $ 52,875,000 $ 14,625,000 LOST ROYALTIES NA 1.5% Royalty rate $1,825,000,000 $ 975,000,000 Infringing sales Total Foodservice Category
  • 15. Case Study #3 Auto parts manufacturer Litigation Lost profits Reasonable royalties Breach of contract Trademark infringement Revenue projections Discounted cash flows Income Approach Company: Context: Components: Cause: Approach: Concept of Value: ®
  • 16. Case Study #3 (cont.) $ 1,415,000 635,000 0 $ 360,000 420,000 Plaintiff $ 695,000 1,250,000 (1,310,000) $ 540,000 215,000 Rebuttal $ 720,000 TOTAL DAMAGES (615,000 1,310,000 Unjust enrichment (post- termination) Less: mitigation $ (180,000) 205,000 Breach of contract Counterfeit units Lost Profits: Variance Category
  • 17. Case Study #4 Conglomerate Litigation 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 Company: Context: Components: Cause: Approach: Concept of Value: ®
  • 18. Case Study #4 (cont.) 10,000,000 Retirement benefits $ 325,000,000 TOTAL VALUE 85,000,000 Dividend income 30,000,000 Payments $ 200,000,000 Stock distribution Estimated Value Category ®
  • 19. IP Valhalla Brands Oldsmobile Blatz Commodore Eastern Airlines Technology 5 ½ Floppy Disks 8 Track Cartridges Analog Cell Phones IBM Selectric ®