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Valuation of IP assets.
Aligning the IP assets being acquired.
Ownership
Valuable Assets
Special Rights
Intangibles
Intellectual Property
Transferable
Time &
cost intensive
Additional Profits
Seth Associates, 2006 All
Rights Reserved
Trademark &
domain names
Copyright
Trade secrets
Patent
Categories of
IP rights
Utility model/Designs
Geographical
Indications
Plant Breeders
rights
Patents
Copyright
Designs
Geographical Indications
Plant Varieties
Patents /
Utility Models
Industrial Designs
Trademarks
Invention
Trademarks,
Ind. Designs,
Geo. Indications
All IP rights
Commercialization
Marketing
Financing
Exporting
Product Design
Licensing
Literary / artistic
creation
Copyright
All IP rights
Seth Associates, 2006 All
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The IP of Gillette
Gillette Company
Value($)
Asset Values in US $
Total
Working Capital
2,850
4.9%
Fixed/other assets
5,131
8.8%
Intangible assets
5,854
10.0%
IP
44,700
76.3%
Total Invested
Capital
58,535
100%
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"Marlboro", worth 31
billion US dollars,
"Coca-Cola", worth 24
billion US dollars,
and "Budweiser", worth
10.2 billion US dollars.
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Coca-Cola
25
20
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Marlboro
10
5
Budweiser
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Performers right-(25 years from the beginning of the calendar year next
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A merges into B
Company A (Owns IP) -> Surviving company (B)
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Fixed assets
People
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Brand valuation
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Intangible benefits-
A) Can help in Capitalization: A Balance Sheet which incorporates a brand value provides a more
realistic picture and goodwill arising from an acquisition can be reduced as goodwill invariable
needs to be amortized where as the brand value can stay in the Balance Sheet giving more realistic
presentation of capitalization
b) Merger & Acquisition: It is of critical importance for an acquirer, as well as for the vendor to
understand and evaluate their real worth for negotiating the correct price. As the valuation report
does not only indicates value, the report also shows as to how the value has been worked out
elaborating all assumptions, which provides the real insight and would be of great value to the
acquirer
C) For taxation purpose: Taxation department desires that all such transfers must be executed at Arms
length transaction. Valuation certification from an independent establishment of repute is the best
way to establish that the value of transaction as reflected is a true value
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Lack of Awareness
Cost of Patenting
Enforcement of IPR
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Ownership strategy.
Protection strategy.
Exploitation strategy.
Enforcement strategy
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Preliminary assessment
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DUE DILIGENCE:
What are some typical provisions that might raise a word of caution?
THE ANALYSIS
Anti-assignment
Silence on assignment
Non-exclusive rights
grants to or from your
client
Covenants not to sue (any
covenant!)
Automatic
reversion/transfer of rights
Government licenses
Ambiguous or ineffectual
rights grants
Termination
Loss of rights
Indemnification (especially
if not limited)
Sublicenses
Assignments
Non-compete
Source code escrow
Unusual jurisdiction
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Important checklist-copyright
Grants Effective
Rights Transferable
No Encumbrances/Liens
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Grants Effective
Rights Transferable
No Encumbrances/Liens
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Proper markings/legends
Employment agreements
Non-disclosure agreements
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Definition of Rights
Registered marks
Pending applications
Trademarks exploited by Target Company but not subject of registration
Ownership
Marks created by Target Company employees
Marks created by independent contractors
Marks assigned to Target Company by third parties
Liens and other mortgages
Third Party Rights
Concurrent use and consent agreements
Licenses from third parties
Freedom to use- Protection/Registration
Status and scope of registered marks
Status and scope of pending applications
Non-registered marks (marketing/registrability)
Proper use of markings
Exploitation
Inventory of products/services on or in connection with which marks are used
Licensing practices- general/misuse
Inter-company licensing practices
Internet use/licensing
Nonuse
Enforcement/Disputes
Target Company threatened, pending actions against third parties
Third party threatened, pending actions against Target Company
Summary, Conclusions, General Comments
Examine and evaluate opinion letter and cease and desist letters.
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LICENSING OF INTELLECTUAL
PROPERTY
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If the Trademark has been maximized to the point that it has lost its cachet in the
market place, reclaiming may be considered.
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Valuation Methods
Others
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Principles of Valuation
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Cost of reproduction
Cost of replacement
Depreciation cost
Original cost
Book cost
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Cost approach
Valuation Process
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Requisites
Market Based
Limitations:
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The amount of
the income
stream that can
be generated by
the property
An assumption
as to the duration
of the income
stream
An assumption
as to the costs
and risks
associated with
the realization
of the
forecasted
income
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Compute Net
Present Value
of future cash
flows (use
appropriate
discount rate
reflecting risk
of investment)
Limitations
Suitable
where fair
Financial
projections
can be made
Estimating
income
Attributab
to intangib
its
economic
life,
appropriat
Discount ra
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Other Approaches
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Tangibl
e
Assets
12%
Intangi
ble
Assets,
88%
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Volkswa
gen
BMW
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Transfer
documents
Supplemental
Closing
Documents
Asset Sale
Purchase
Agreement
Stock Sale
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Stock purchases
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Asset Purchase
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Sale of assets
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Documents
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Tax considerations
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Tax considerations
Entities which create or
acquire IP assets
has the ability to claim
a tax deduction
for their costs
ss 10A 10B,
80IA, and 80IB
of the IT Act.
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