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


By avm February 5, 2016 In
Proposed IRS regulations to eliminate discounts for family limited partnerships (FLPs) are to be released comment, but never seem to arrive.  The Obama Administration proposed changing the law over several annual budget proposals in order to restrict or eliminate valuation discounts on transfers of interests in family-controlled entities. The Administration was not successful in having the...
By avm February 5, 2016 In
Since mid-2012, a steady increase in median revenue from $350,000 to $450,000, led to higher small business sale prices. Overall, this year's small business transaction data is following the trend of the past few years: steady activity along with improving financials. Although total transactions are on pace to fall three percent from peak 2014 levels,...
By avm February 5, 2016 In
INTRODUCTION The valuation process typically does not assess the underlying company accounting policy and procedures. However, it is important for stakeholders to be aware of accounting conventions, and to vet them in any due diligence effort. The following is a discussion of different accounting policies and what risks they might introduce. Accounting guidelines allow companies...
By avm February 5, 2016 In
BUSINESS GOODWILL IN CALIFORNIA FAMILY LAW Three issues must be addressed in valuing business interests for the purposes of property settlements in family law. They are: Personal vs. Institutional Goodwill (Personal and Professional Goodwill are similar in nature – personal applies to all types of companies and professional applies to professional practices (i.e. medical practice,...
By avm February 5, 2016 In
Once a simple concept – reward employees for participating in the growth of a company’s value via stock options – incentive compensation has now become a very complicated area of tax regulation and accounting. At least since the creation of “qualifying stock options” in 1981, the IRS has required that options be priced at or...