HOT TOPICS

INTANGIBLE ASSET TRIAGE AND VALUATION

Accurate valuation of intellectual property and intangible assets is increasingly critical for at least three reasons: First, financial reporting and accounting regulations require accurate valuation. Second, corporate government regulations stemming from the Sarbanes-Oxley Act require accurate valuation. Third, the financial community increasingly demands that companies, both private and public, value their intangible assets to as precise a degree as possible—although the degree of precision obviously depends on the type of asset and the marketplace that can be established for that asset.

Prior to the actual valuation process however, it is important to engage in the process of triage and that triage process should be a follow on to the identification and subsequent grouping of similar intangible assets into various bundles. Triage is a word based in Latin, but used primarily as a French word. It means, simply, the division of a group of things, assets or people into three parts. Most commonly, triage is a term used in a military/battle field environment to describe the process that surgeons go through in determining into which group to put a wounded combatant. For example, group A are those that are wounded but will survive with medical treatment group B are those that are wounded but may not survive with medical treatment and group C are those seriously wounded who will probably not survive even with medical treatment. In valuing intangible assets, the triage process is much the same and can be divided into a group A, consisting of intangible assets with significant value that can be both quantified and monetized if necessary. The second, group B, are those assets that may have significant value but are difficult to monetize. Group C are those assets that have little or no value.

In our view, this triage process is a necessary step that follows the identification of bundling of assets, and precedes the actual valuation of those assets. When time or resources are limited, the triage is even more important—as the limited time and resources available should typically be devoted to those assets in group A and to as many of the assets in group B as possible within the constraints of the environment. Oftentimes, given sufficient time and resources, the referral to a triage process can actually result in grouping of intangible assets into as many as five groups (see chapter 4 of the Intangible Assets Handbook published by the American Bar Association 2007).

CELBRITIES AND RIGHTS OF PUBLICITY: THE MARLON BRANDO ESTATE

Over the past few years, the trademark and copyright team here has worked in a number of celebrity valuation and litigation projects. Among them have been individuals as diverse as Jenny Craig, The Estate of Dr. Seuss, Yogi Berra, and most recently the Marlon Brando Estate.

Marlon Brando died as he lived – in a most interesting way with a series of interesting relationships.  The executors of the estate wrestled for several weeks with the value of the post-death publicity rights for Marlon Brando.  While Mr. Brando was an iconic actor, his personal and political life was not always widely popular.  In addition, his acting was episodic at best, with flashes of brilliance in some projects and lack of effort in others.  As a consequence, the valuation of his post-death publicity rights was quite a challenge because we had to take into account all of these factors.  We worked with The Law Offices of Charles Larson over a period of several weeks to identify all of the strengths and potential value elements of The Brando Estate, as well as the issues that would mitigate future ability to earn income or value from those assets.  We have recently concluded the assignment and look forward to continuing our work with celebrities and their estates.

WILL THE NEW PATENT LAW MAKE HIGH TECH INTO LOW TECH?

The Patent Reform Act of 2007 has been passed by the House of Representatives, and now it will face a long battle in the Senate in 2008—particularly in view of all the other issues facing the Senate, ranging from the upcoming elections to the war in Iraq. The bill, as currently constructed, is a landmark shift in the balance of power between patent holders and infringers, and between large high technology companies and the traditional American entrepreneur/inventor.

For large technology companies like Microsoft, Apple and Intel, the system of patents in the United States (notably different from most other industrialized countries in Europe and Asia) is an increasingly difficult field for them to negotiate through. In their view, they find themselves at the mercy of patent trolls and small patent holders and speculators, who buy hundreds of thousands of currently unused patents and use them to attack large technology companies. What is most frightening to these large technology companies is the monster sized infringement lawsuits, such as the $600 million settlement in the Blackberry case, or the $1.5 billion award that Lucent won against Gateway and Microsoft—subsequently overturned, but the case newly reopened.

On the other hand, if we drastically change the country’s patent laws, then we run the risk of disincentivizing the small inventor, the entrepreneur, the free thinker. These basement workshop inventors often have truly unique ideas that can change the world. People like the Segway designer Dean Kaman, or the founders of Apple, immediately come to mind. So the question is, if the new law is passed and we limit the incentive of individual inventors standing at a basement workshop, will there still be enough innovation in corporate labs across our country? From that point of view, the danger of the new patent law as passed by the House of Representatives is that it would potentially enable our country’s larger dominant high technology companies to manage the pace and direction of innovation and change—this could be very good, or, it could lead to and perpetuation of old ideas already imbedded in our very large technology companies. 

How does all this impact the value of each company’s patent portfolio?  The new law may have great benefit for large companies, while reducing the value of smaller companies