Page 10 - Asset Valuation

S10
| Monday, May 16, 2016
| Asset Valuation
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all documentation evidencing the patent reg- istration, including the underlying application and any assignments relating to the patent. Patents are registered with the United States Patent and Trademark office. The scope of a patent is determined by the “claims” and “specification” set forth in the patent registra- tion. In general, the broader the scope of the patent, the greater the potential value of the asset. on the other hand, patents contain- ing numerous claims may suggest that it is easier to substitute elements of the patent to design around the invention. Furthermore, in order to determine the holders’ legal rights to practice in an area without infringing the rights of others, a thorough search of similar registered patents should be undertaken.
Patents are often the subject of a third-par- ty license, reseller or distribution agreement, either granted by, or in favor of, the relevant business. The value of a patent covered by such an agreement must be assessed in the context of the governing agreement and a complete analysis of the scope of, and rights afforded by, the agreement must be under- taken. For example, the non-exclusive license of a patent granted by a holder for a limited duration will generally have less of an impact on valuation than an exclusive license having a longer duration. Additionally, the governing agreement should be thoroughly reviewed to determine whether the parties are in compli- ance with its terms and conditions.
Copyrights. The scope and limitations of a copyright may be assessed generally by a review and analysis of the content of the copyright and related documents recorded with the U.S. Copyright office. A review of the copyright documentation will reveal, for example, if a copyright claim is limited by the fact that the author did not create some of the material for the work. As in the case of patents, if there are licenses or assignments covering the copyrighted material, these need to be analyzed for content, scope, restrictions and compliance.
Ownership, Control and Validity:
Patents. In valuing a patent, it is critical to review the “chain of ownership” of the patent in order to determine that ownership and con- trol may be clearly established. The starting point for determining ownership is to verify inventorship. In the United States, the origi- nal patent applicant is presumed to be the owner of a patent absent an agreement to the contrary.1 The file history of a patent should include a signed declaration by the inventor. If the declaration reflects an owner other than the business itself, the assignment documents in the file history must be reviewed to confirm that the patent was properly assigned to the business by the inventor. In many instances, an employee-inventor will assign inventions to an employer by a separate “work-for- hire” agreement. however, such an assign- ment should be properly documented and recorded. A review of the assignment records of the patent office will reflect whether the assignment was recorded and whether any other assignments were made.
In determining the validity and enforceabil- ity of a patent, it is also necessary to verify
that application maintenance fees have been paid with respect to the patent. In general, fees are payable at the time of three milestone dates following the initial issuance of the pat- ent.2 Failure to pay the required fee may result in the patent being deemed expired with the
3 rights thereunder having lapsed.
Patents are also subject to expiration upon the passage of time. The duration of a patent and its expiration date can be a complicated analysis requiring a careful review of the patent filing history. For example, the expiration date of a patent can vary depending upon whether the original application was filed prior to, or after, June 8, 1995.4 In any event, as the life of a patent ages, its value will likely diminish.
Copyrights. registration of a copyright creates a presumption that the information contained therein is accurate, including the identity of the author/owner.5 In assessing the value of a copyright, ownership should be con- firmed by reviewing copyright filing records. Although registration is not required to protect a creative work, it does confer certain benefits such as statutory damages for infringement of the copyright following registration.
As with patents, a copyright is subject to expiration. Calculating the term of a copyright can be complicated, depending in large part upon when the copyright was “published.” discussion of the rules governing patent and copyright expiration dates is beyond the scope of this article. however, in valu- ing a copyright, the potential duration of the rights afforded by the copyright will need to be considered.
Potential Infringement Liability:
The value of a patent or copyright can be adversely affected by the degree to which the asset may be subject to a third-party infringe- ment claim. Where a patent or copyright is the subject of a legal proceeding or a warning let- ter from a third party, an obvious “red flag” is present which brings into question the value of the asset for the party claiming ownership rights. Intellectual property litigation can be complex, expensive and time-consuming. The resulting cloud of uncertainty will diminish the asset’s value depending upon the nature of the infringement claim. Moreover, success- ful challenges can immediately invalidate the rights of a holder.
Conclusion
The complexities introduced by reference to “fair value” asset valuation increase the uncertainties that parties face when enter- ing into agreements based on fair value. The judgment required to determine fair value may lead to a wide range of valuations. Many of the financial crises we have experienced in recent memory can be attributed, in part, to the subjective nature of some inputs used to determine fair value. Additionally, in valu- ing assets, irrespective of the methodologies utilized, one cannot ignore the significance of legal considerations with respect to the assets being valued.
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1. See 35 U.S.C. §101 and 37 C.F.r. §3.73(a).
2. See generally 35 U.S.C. §41(b); 37 C.F.r. §1.362(d); and 37 C.F.r. §1.362(e).
3. See 35 U.S.C. §21 and 37 C.F.r. §1,362(g). 4. See 35 U.S.C. §154.
5. See 17 U.S.C. §410 (c).
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