BVR Logo February 13, 2019 | Issue #197-2

BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include: 


Supreme Court asked to review entire market value rule (EMVR) standard

A patent holder recently petitioned the U.S. Supreme Court to review the Federal Circuit’s 2018 decision on what a patentee must do to base damages on the entire market value rule (EMVR). According to Power Integrations Inc. (PI), the patent holder, the Federal Circuit “gutted” the existing damages rule and imposed a new standard that makes it practically impossible to invoke the EMVR.

PI, a maker of power supply controller chips that are used in charging electronic devices, sued Fairchild Semiconductor over developing a line of chips that violated PI’s patented technology and caused PI to lose sales. A jury found the defendant liable and, in a separate damages trial, awarded PI $140 million based on the entire value of the infringing chips. The jury found PI had shown its patented technology was the basis for customer demand for the chips.

Fear of undercompensation. On appeal, the Federal Circuit struck the jury award. The reviewing court found that the patented feature that drove customer demand was not a sufficient basis to invoke the EMVR where the accused product had other valuable features, as it did in this case. To use EMVR, the patent holder also must show that the other features do not drive demand, the Federal Circuit said.

Under the apportionment rule, a cornerstone of patent damages, a patentee may only be compensated for the damages attributable to the infringing features. Where an accused product has multiple features, the patent holder must apportion to the value of the patented feature to the accused product. The EMVR is an exception to the general rule. Until now, it was meant to allow for recovery of the entire profit that results from the use of the invention if the patentee can show the patented feature drives consumer demand for the accused product.

The Federal Circuit’s recent ruling throws long-established damages law into disarray, PI contends in its Supreme Court petition. The new rule creates an “insurmountable” obstacle to use of the EMVR in that it requires the patent holder both to prove consumer demand and a negative, “that other features did not drive consumer demand.” It is always difficult to prove a negative, PI says. It claims that most patent holders will not be able to satisfy the new standard; even the patent holders in the cases where the Supreme Court applied EMVR would not be able to satisfy the new requirement. PI contends the Federal Circuit “sub silentio” overruled a long line of cases with the ultimate effect that patent holders will be undercompensated and “acknowledged, willful infringers” will be able to retain the value “that they could capture only through their infringing use.”

The Supreme Court last year took up a patent damages case, WesternGeco LLC v. ION Geophysical Corp. (damages for foreign lost profits). Therefore, it will be interesting to see whether the court will grant PI’s petition. Stay tuned.

A digest of the Federal Circuit’s ruling in Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 2018 U.S. App. LEXIS 26842 (July 3, 2018), and the court’s opinion are available at BVLaw.

Extra: Power Integrations’ Supreme Court petition is available at


Hospital financial challenges make projections tricky

A recent survey reveals some of the financial issues that valuation experts should examine when doing projections. For the third year in a row, financial challenges top the list of what’s keeping community hospital CEOs awake at night, according to the American College of Healthcare Executives’ annual survey. Governmental mandates and patient safety/quality both ranked second. Personnel shortages ranked third. Drilling down into the financial issues, the three biggest money worries are increasing costs for staff, supplies, etc. (cited by 70% of respondents), Medicaid reimbursement (68%), and reducing operating costs (59%). Other pressing financial matters include bad debt, increased competition, Medicare reimbursements, transitioning from volume to value, and more. The responses provide a veritable road map of topics to investigate and ask management about when doing projections.

Extra: Join healthcare valuation expert Mark Dietrich (Mark O. Dietrich CPA, PC) for a webinar, Mastering the Nuances of Healthcare Valuation Engagements, on February 20.

AICPA extends comment period for inventory valuation guidance

In November 2018, the AICPA’s Financial Reporting Executive Committee (FinREC) issued an early working draft of Inventory Valuation guidance, which is part of a broader forthcoming release of the AICPA’s “Business Combinations Accounting and Valuation Guide.” Feedback was sought on this working draft to solicit comments from valuation specialists, preparers, auditors, financial statement users, and other interested parties to further inform the development of this guidance. Due to requests for additional time from respondents, informal comments on this working draft will be accepted until May 1. Comments should be emailed to

Reminder: Comments due on new forensics standard

Comments are due February 28 on the proposed Statement on Standards for Forensic Services No. 1 (SSFS 1) developed by the AICPA’s Forensic and Valuation Services Executive Committee (FVSEC). The standards are designed to provide more tailored authoritative guidance to CPAs who perform forensic accounting services. The proposal would take effect for any new engagements accepted on or after May 1, 2019 (early adoption permitted). For more information, a set of frequently asked questions and answers about SSFS 1 is posted online. To send comments, email


Paper says Delaware blundered in Dell and DFC Global

A paper analyzes what it calls “critical mistakes” in two Delaware Supreme Court decisions concerning appraisal rights. In both cases, the Supreme Court insisted that it did nothing more than apply “established principles of corporate finance,” but, in analyzing the financial ideas and concepts at play, the Supreme Court made four serious errors, say the authors. They contend that the Supreme Court ignored the differences between how public markets price risk and how private parties (particularly financial sponsors) price risk. Among the other mistakes is that the Supreme Court “treated company valuation as a mechanical, arithmetical calculation, downplaying the essential role of human judgment.” The paper, “The Flawed Corporate Finance of Dell and DFC Global,” is by Charles Korsmo (Case Western Reserve University School of Law) and Minor Myers (Brooklyn Law School). Digests and full opinions of both cases are available at BVLaw.

Willamette published a 'Best of Insights' issue

In commemoration of the 50th anniversary of Willamette Management Associates, the firm has put out a special edition of its Insights publication. This issue, edited by Robert Reilly, contains articles that focus on valuation analyses, economic damages analyses, and transfer pricing analyses. Previous versions of the articles were published in earlier editions, and they have been extensively revised.

Valuation experts should not practice law

One of the pieces of advice you’ll undoubtedly hear at the National Divorce Conference in Las Vegas May 8-10 is that a valuation expert should not practice law without a license. Your valuation reports should not be citing court cases, statutory authority, or other legal precedent unless you have been given specific legal instructions to do so. At the same time, it is essential that the analyst read all case precedents in the relevant jurisdiction, since family law valuations are less structured and less consistent than in any other area of valuation practice. (Valuators can access relevant valuation case law in BVLaw, available from BVR.) Of course, there are exceptions, such as certain cases that have become closely associated with factors that an analyst routinely considers, such as the Mandelbaum decision that lays out factors that influence a discount for lack of marketability.

The National Divorce Conference, presented by BVR and the American Academy of Matrimonial Lawyers (AAML), will bring together the leading matrimonial attorneys and financial and valuation experts. See you there!

Capital budgeting decision-making in Pakistan

Pakistani-listed firms are using discounted cash flow methods of capital budgeting and preferring net present value over internal rate of return, according to a research paper. Similarly, weighted average cost of capital is estimated using target value weights, and capital asset pricing model is used (with extra risk factors) to determine the cost of equity capital. The paper’s authors also found that, for risk assessment, sensitivity analysis and scenario analysis are the dominant approaches and the use of real options is very low.

RICS valuation conference in London March 26

Valuation professionals in five disciplines will converge in London for the RICS Valuation Conference 2019 on March 26. There will be five tracks of sessions, one for each discipline: business valuation, real estate, machinery and business assets, trade-related property, and arts and antiques. There will also be general sessions covering global market conditions and predictions as well as what it takes to value iconic properties. You’ll also get an update on changes to the Red Book and join a panel discussion to explore the challenges and opportunities in the valuation sector, such as disruptive technology, attracting the next generation, and reflecting on uncertainty and unpredictability in the valuation profession.

BV movers . . .

People: Matthew Goldston, CPA, CM&AA, CVA, has joined PKF Texas as a director in the Entrepreneurial Advisory Services (EAS) department … Nathan Treitel, MBA, CBV, was named to head Segal Valuation & Transaction Advisory LP (SVA), a new service area from Segal LLP (Toronto) … Christopher Cothran, CPA, CVA, CGMA, has joined HBK Valuation Group, an affiliate of HBK CPAs & Consultants, as a director in the firm’s West Palm Beach, Fla., office.

Firms: Savannah, Ga.-based Hancock Askew & Co. and Atlanta-based McElderry and Associates have merged; the combined firm will have two offices in Atlanta, as well offices in Augusta, Ga.; Savannah, Ga.; and Miami and Tampa, Fla. California-based Kerrigan Advisors has expanded to the East Coast with a new office in the Washington, D.C., metro area.; the firm advises automobile dealers on the sell side of M&A and publishes the “Blue Sky Report,” which examines the industry and includes multiples for valuation purposes … Miller & Co. LLP, with offices in New York City and Whitestone, N.Y., has merged with Thomas Jenkins and Co., located in Washington, D.C., and Suitland, Md. Rea & Associates, based in New Philadelphia, Ohio, will add Tucker & Tucker CPAs of Cambridge, Ohio, on May 1; the combined firm will include more than 300 professionals … Watson & McDonell (Seattle) has joined CliftonLarsonAllen LLP; the firm has a focus on nonprofit organizations and affordable housing.

Please send your professional and firm news to us at


Upcoming BVR training events

  • Valuation and the IRS: Update for 2019 (February 14), with Michael Gregory (Michael Gregory Consulting).

    What are the top three business valuation appraisal audit areas now on the IRS’s radar? What action steps should you take if your appraisal gets picked for audit? A former IRS manager reveals the answers.

New and trending LinkedIn discussions

The Absence of a Size Effect Relevant to the Cost of Equity

Is a Merger Causing a Culture Clash in Your Organization?

OPM Backsolve and Convertible Debt Financing

Your discussion could be featured here—BVR’s LinkedIn group is a place for valuation professionals to share, discuss, and learn about compelling BV topics. If you’re not already a member, request to join today.

We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden, Esq. (Executive Legal Editor) at:

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