Intellectual Property

Intellectual Property is a type of intangible asset for which legal protection was created in the U. S. Constitution, Section 8, and is administered by the U.S. Patent and Trademark Office.  It is generally comprised of four principal types:

  • Patents
  • Trademarks
  • Copyrights
  • Trade Secrets

It is probably the most valuable of all assets of a company. Valuations of IP are normally required for a variety of reasons including:

  • Transactions
  • Bankruptcy
  • Licensing
  • Strategic Alliances
  • Estate and Gift Taxes
  • Marital Dissolution
  • Infringement Damages
  • Financing
  • Accounting Requirements
  • IPO’s
  • Ad Valorem Taxes

Damages.  All types of IP can recover damages for Lost Profits, and are entitled to a Reasonable Royalty.  Except for patents, all can also claim Unjust Enrichment damages (profits of the defendant).

Intangible Assets

The broader category of assets which includes intellectual property is called intangible assets.  Intangible assets do not have a physical presence or an easily determined value so businesses have difficulty determining their worth. Most intangible asset valuations are made to define economic damages in a dispute, or to determine Fair Value to meet current accounting standards. Some other intangible assets outside of intellectual property are:

  • Goodwill
  • Brand
  • Coded Know-how
  • Lease Agreements
  • Employment Contracts
  • Franchise Agreements
  • Use Rights & Licensing Agreements
  • Internet Domain Names
  • Customer Lists
  • Non-Compete Agreements

Experts.  Expert testimony and reports are prepared by Master Analyst in Financial Forensics (MAFF).  The term “forensic” refers to analyses prepared for court, by a qualified expert, which complies with the rules of evidence, and from which if it goes to trial, the expert may testify.

Importance of expert valuation.  About ninety percent of IP cases are resolved by settlement or voluntary dismissal.  Of the 10% or so that actually go to trial, most are decided on a summary judgment.  In the end, only 3% of IP cases end up settled by an actual trial.

Valuation and damages assessment early on is critical to performing well in negotiations.  When both sides have the opportunity to review the valuation of damages, and the respective claims, the parties become conducive to a settlement over the expense of litigation.

If all the economists in the world were laid end to end, it wouldn't be a bad thing.
Peter Lynch

Articles

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