Valuing the Intangible: Where to Start?The Full Family of Intellectual Property and

Other Intangibles

Sponsored by Sheppard MullinDecember 22, 2009

Presented by:CONSOR® Intellectual Asset Management

www.consor.com

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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?

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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.

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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

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Business IA and IP

Intellectual Property

PATENTS

COPYRIGHTS

TRADEMARKS

TRADESECRETS

Intangible Assets

Data &Knowledge

Bases

COPYRIGHTS

Customer& VendorRelations

ProprietarySoftware

InternetAssets

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IP Valuation Tools and Methodologies

Traditional Methodologies Market Approach Cost Approach Income Approach

Proprietary Methodologies VALMATRIX®

VALCALC® BVEQ™

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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

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Case Study #1: Woody Allen

Client:

Context:

Components:

Cause:

Approach:

Concept of Value:

Total Damages:

Woody Allen

Litigation – unauthorized use of name

Comparable product endorsement fees

Publicity rights infringement

Consumer impressions

Market Approach

$5.0 Million

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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

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Case Study #2: adidas

Client:

Context:

Components:

Approach:

Concept of Value:

Awarded Damages:

adidas

Trademark / trade dress infringement

Valuation of trademark

Establishment of trade dress component Establishment of total damages

Valuation of damages to trade dress

Components of value

Market Approach, Relief from Royalty

$304.6 Million

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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

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Case Study #3: Tower Records

Client:

Context:

Components:

Approach:

Concept of Value:

Total Damages:

Tower Records

Bankruptcy

Trademarks

Domain names

Website / Internet platforms

Databases

Franchise agreements

Sequestered auction

Liquidation

$4.5 Million

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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

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Case Study #4: The Estate of Marlon Brando

Client:

Context:

Components:

Cause:

Approach:

Concept of Value:

Total Value:

The Estate of Marlon Brando

Estate planning and tax issues

Post-mortem rights of publicity

Estate value

IRS audit

Analysis of historical income

Income approach

$1.4 million

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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

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Case Study #5: Sara Lee vs. Jimmy Dean

Client:

Context:

Components:

Cause:

Approach:

Concept of Value:

Sara Lee

Contract dispute

Valuation of stock distribution

Valuation of dividend income

Valuation of payments

Valuation of retirement benefits

Trademark infringement

Discounted cash flows

Income Approach

Enterprise Valuation

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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

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Case Study #6: IP Securitization

Client:

Context:

Components:

Cause:

Approach:

Concept of Value:

Global Real Estate Services Franchisor

Several hundred million dollar IP-backed securitization

Trademarks and brand assets

Franchise services

Corporate restructuring

Revenue projections

Royalty cash flow allocation

Market approach

Income approach

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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

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Discussion of Current Cases&

Questions