Valuing the Intangible: Where to Start?

The Full Family of Intellectual Property and

Other Intangibles

Sponsored by Sheppard Mullin

December 22, 2009

Presented by:
CONSOR® Intellectual Asset Management
www.consor.com

Topics
 Why are intangibles important in today’s economy?

 Why are they relevant to your practice?

 Defining terms: Intangible Assets and Intellectual Property

 Intangibles as common thread in and out of litigation

 Fundamental problem: what are they worth?

 How are intangibles valued in practice?

 How can intangible-related damages be quantified?

v 3.3WA 1
 Why Should I Care?

 Commercial and litigation business clients rely on protecting

and growing their brands, leveraging them through licensing;
or guarding their technical advances and unique product
features from competitors.

 Beyond specialized IP law practices, business, commercial, tax

and estate practitioners increasingly have to be involved in
identifying, protecting, applying, and defending intangibles
owned by businesses and individuals.

Intangible Assets and Intellectual Property

 Intellectual Property are the various types of rights given

specific legal protection.
 Traditionally including:
 Copyrights
 Patents
 Trademarks
 And increasingly extended to:
 Trade secrets
 Rights of publicity

v 3.3WA 2
 Business IA and IP
Intangible Assets

Intellectual Property

Data & Customer

Knowledge & Vendor
PATENTS TRADE Bases Relations
MARKS

COPY
RIGHTS
Internet Proprietary
COPY TRADE Software
Assets
RIGHTS SECRETS

IP Valuation Tools and Methodologies

 Traditional Methodologies
 Market Approach
 Cost Approach
 Income Approach

 Proprietary Methodologies
 VALMATRIX®
 VALCALC®
 BVEQ™

v 3.3WA 3
 Case Studies
 Case #1 – Woody Allen:
Valuing Celebrity Rights and Rights of Publicity
 Case #2 – adidas:
The Largest Trade Dress Award in History
 Case #3 – Tower Records:
Extracting Value in Bankruptcy
 Case #4 – The Marlon Brando Estate:
Estate Planning and Tax Issues
 Case #5 – Sara Lee vs. Jimmy Dean:
Valuing Intangibles in Contract Disputes
 Case #6 – IP in Corporate Financing Deals

Case Study #1: Woody Allen

Client: Woody Allen

Context: Litigation – unauthorized use of name

Components: Comparable product endorsement fees

Cause: Publicity rights infringement

Approach: Consumer impressions

Concept of Value: Market Approach

Total Damages: $5.0 Million

v 3.3WA 4
 Case Study #1: Woody Allen (cont’d)

 The establishment of value for these intellectual property

rights, both for a deal structure and in litigation

 Customs and practices regarding rights ownership, usage, and

fee structures

 Econometric modeling of litigation outcome

 Precise prediction of settlement amount

Case Study #2: adidas

Client: adidas

Context: Trademark / trade dress infringement

Components: Valuation of trademark

Establishment of trade dress component
Establishment of total damages
Valuation of damages to trade dress

Approach: Components of value

Concept of Value: Market Approach, Relief from Royalty

Awarded Damages: $304.6 Million

10

v 3.3WA 5
 Case Study #2: adidas (cont’d)

 Largest trademark and trade dress award in history

 Defendant: Payless Shoes

 Calculated actual damages of $31.3 million

 Product sourcing fees of $10 million disallowed since Payless

could have procured sourcing independent of adidas

 Data related to actual sales and licensing activities were critical

 Judge reduced damages to 2x our damage calculations

11

Case Study #3: Tower Records

Client: Tower Records

Context: Bankruptcy

Components: Trademarks
Domain names
Website / Internet platforms
Databases
Franchise agreements

Approach: Sequestered auction

Concept of Value: Liquidation

Total Damages: $4.5 Million

12

v 3.3WA 6
 Case Study #3: Tower Records (cont’d)

 Extracting value in bankruptcy

 Sale 9 months after store closures

 Targeted global IP asset sale marketing campaign

 Estimated asset value $1.0 – 2.0 million

 8 international bidders, 36 hour auction process

 + / - $4.5 million

13

Case Study #4: The Estate of Marlon Brando

Client: The Estate of Marlon Brando

Context: Estate planning and tax issues

Components: Post-mortem rights of publicity

Estate value

Cause: IRS audit

Approach: Analysis of historical income

Concept of Value: Income approach

Total Value: $1.4 million

14

v 3.3WA 7
 Case Study #4: The Estate of Marlon Brando (cont’d)

 Estate planning and tax issues

 Value of post-mortem rights of publicity

 Valuation to meet IRC § 2031

 Historical endorsement deals to predict future revenue

 Present value of 10 year future stream of revenue set at $1.35

million

15

Case Study #5: Sara Lee vs. Jimmy Dean

Client: Sara Lee

Context: Contract dispute

Components: Valuation of stock distribution

Valuation of dividend income
Valuation of payments
Valuation of retirement benefits

Cause: Trademark infringement

Approach: Discounted cash flows

Concept of Value: Income Approach

Enterprise Valuation

16

v 3.3WA 8
 Case Study #5: Sara Lee vs. Jimmy Dean (cont.)

Category Estimated Value

Stock distribution $ 200,000,000
Dividend income 85,000,000
Payments 30,000,000
Retirement benefits 10,000,000
TOTAL VALUE $ 325,000,000

17

Case Study #6: IP Securitization

Client: Global Real Estate Services Franchisor

Context: Several hundred million dollar IP-backed

securitization
Components:
Trademarks and brand assets
Franchise services
Cause: Corporate restructuring

Approach: Revenue projections

Royalty cash flow allocation

Concept of Value: Market approach

Income approach

18

v 3.3WA 9
 Case Study: IP Securitization
 Goal: Secure financing for corporate expansion backed by the company’s
cash flows and IP

 Task: Identify and value the bundles of intangibles to be transferred and/or

licensed to the special purpose entities (SPE) that will hold the IP and
provide the franchise support services:
 Performed a Brand Apportionment Analysis to allocate value between the IP
and the Franchise Support Services being provided
 Determined the fair market value of the fully paid-up IP license to be granted
back to the operating company
 Determined the total value of the IP in the US to enhance investor confidence

 Interfaced with the investment bank to support the stress testing scenario
analysis– an essential element to assess the risk profile for the rating
agencies and surety providers
19

Discussion of Current Cases

&
Questions

20

v 3.3WA 10