Best Practices in Valuing IP: an eye-witness account

IP Finance is pleased to welcome as a guest contributor Jackie Maguire (CEO, Coller IP Management), who writes:

"I attended the recent Summit on Best Practices in Valuing Intellectual Property. Challenged with making IP Valuation Standards sound interesting to a US audience, my good friend Thayne Forbes and I had accepted the kind invitation from Business Valuation Resources to present an international perspective at Morningstar’s Headquarters in Chicago.

Mike Pellegrino (President, Pellegrino & Associates, LLC) provided excellent opening remarks and gave a very reasoned argument for why Google paid far too much for YouTube’s brand, domain name and software platform, and failed the reasonableness test.

Anxious as to how the US audience would take to the new ISO 10668:2010 Brand Valuation Standards, Thayne explained the differences and similarities between the different IP Valuation standards that are being developed or are in preparation.

It has to be said that that the approach to valuing intangible assets in the Accounting Standards such as IFRS and US GAAP are essentially the same, but currently there is only a requirement from these standards to place a value on intangible assets in the company accounts if those assets are the result of an acquisition.

Accountants and the like, therefore, have a different perspective on Valuing IP compared to those of us with technology or brand investment and development in mind.

The new developments from the International Valuation Standards Council are however starting to move the debate forward beyond the accounting profession. It was a shame that the IVSC declined to talk about their proposed Standards at the Summit, especially as they published an exposure draft and collated feedback on 3 September. For those interested though, a rustling of the pages to No 79 will reveal a whole standard for valuing intangible assets, separating IP from goodwill. These apply to any business and are proposed to come into force in 2011. The standards define the principal classes of intangible assets in an interesting way for the IP non-expert: market-related (such as trade marks, domain names and non-compete agreements), customer- or supplier-related, technology-related and artistic-related. The standards then recognize the three principal approaches of Direct Market Comparison, Income and Cost for valuing intangibles. Essentially, as long as the valuation is carried out by a suitably qualified person who takes a reasoned position, making his/her assumptions clear, our view is that while the Standards are not very specific, covering them off will provide a framework for a robust valuation.

While my job was to report on the development of Valuation Standards at the Summit , I couldn’t leave without a comment on the really good presentation of Navigating US legal minefields in IP valuation from Lisa Brownlee and Jimmy Nguyen. The In re Bilski decision of the Supreme Court has secured value in many business method patents, but futher decisions are also having a strong influence on other IP valuations. Microsoft v i4i, Costco v Omega and HydramediaCorp. v. Hydra Media Group Inc. (here) all impact on the valuation of patents and trade marks, but the cases that took my fancy were those on false markings. Stimulated by Pequignot v. Solo Cup Co, where 300 complaints from the US public were made about the 21 billion cup lids that had been stamped with an expired patent number and the public claimed damages of $500 per event of mismarking, the number of cases for false markings are running amock! A list of False Marking cases of quite considerable length is found here.

On Tuesday a petition for writ of mandamus was filed by a false marking defendant who asks the Federal Circuit to consider the following issue:

"Did the district court clearly err when it denied [defendant's] motion to dismiss Relator's false patent marking case for failure to plead supporting factual allegation sufficient to infer an intent to deceive under this Court's precedent in Pequignot v. Solo Cup Co., 608 F.3d 1356 and Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312?"

The Federal Circuit has now ordered the plaintiff to respond to the mandamus petition within 14 days. A pdf copy of the petition can be found here. A copy of the Federal Circuit's order can be found here.