BVR Logo March 3, 2021 | Issue #222-1

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



Federal Circuit explains concept of
'built-in' apportionment

The Federal Circuit, in ruling on a patent infringement case involving two major pharmaceutical companies, recently clarified the apportionment requirement. The court found the plaintiff based its reasonable royalty calculation on a comparable license that closely covered the value of the patent in the instant case and made further apportionment unnecessary.

The plaintiff, Vectura Ltd., owned a patent that covered “composite active particles” for use in dry-powder inhalers. The defendant, GlaxoSmithKline LLC (GSK), made certain inhalers that Ventura said contained composite active particles that violated its patent. A jury awarded Ventura a reasonable royalty of 3% of GSK’s $2.99 billion in sales for the infringing inhalers. The award was nearly $90 million.

GSK unsuccessfully challenged the award in post-trial motions and subsequently with the U.S. Court of Appeals for the Federal Circuit.

Regarding the damages challenges, the Federal Circuit noted that the parties had a “licensing history.” Most relevant for this litigation was a 2010 nonexclusive, worldwide license Vectura had granted GSK related to more than 400 patents, covering certain GSK respiratory therapeutics. At trial, Vectura’s damages expert used the 2010 license in determining a reasonable royalty. Specifically, she used the 2010 license’s top-tier royalty rate and the royalty base, which consisted of total sales of licensed products for the royalty base. Vectura offered evidence that the key part of the 2010 license covered the contested invention and that the 2010 license and the hypothetical negotiation dealt with “roughly very similar technology.” Also, Vectura argued, successfully, that the principles of apportionment were “baked into” the 2010 license. Therefore, it was not necessary to perform further apportionment.

The district court found, where a party relied on a sufficiently comparable license, it could adopt that license’s royalty rate and royalty base without further apportionment or proving that the infringing features drove the entire market value of the accused product.

The Federal Circuit said, in ordinary circumstances, using the entire market value as the royalty base is only permissible if the plaintiff can show the patented feature created the basis for consumer demand or substantially created the value of the component parts. However, the Federal Circuit went on to say that the court’s case law provides that, if the reasonable royalty is based on a sufficiently comparable license (or comparable negotiation), further apportionment is not necessary. The idea is that the comparable license has a “built-in apportionment.”

Such was the situation here, the Federal Circuit said, noting that GSK’s own damages expert acknowledged how close and comparable the 2010 license was to covering the value of the patent giving rise to the suit.

A digest of Vectura v. GlaxoSmithKline LLC, 2020 U.S. App. LEXIS 36393; __ F.3d__; 2020 WL 6788757 (Nov. 19, 2020), as well as the court’s opinion, is available to BVLaw subscribers.

Current USPAP extended for one year

The Appraisal Foundation’s Appraisal Standards Board (ASB) announced that the current edition of the Uniform Standards of Professional Appraisal Practice (USPAP) will be extended by one year. The 2020-2021 USPAP will now be effective until Dec. 31, 2022. This extension does not impact continuing education requirements. For more details on the extension and some FAQs, click here.

Blast from the past on forecasting

During a recent BVR webinar, Josh Shilts (Shilts CPA PLLC) mentioned a helpful article that appeared in the Harvard Business Review (HBR), “How to Choose the Right Forecasting Technique.” After reading the article, Shilts realized that it was written in 1971! But what it covers still holds true, he says. It covers the basic features and limitations of classic forecasting techniques, including qualitative methods, time series analysis, and causal methods. There’s a nice chart that compares the different techniques and includes typical applications, computation times, accuracy ratings, reference material, and more. “This was gold to me when I found it,” he says. The HBR article is freely available if you click here.

New paper on IBOR reform and valuation

For many years, interbank-offered rates (IBORs) have set the benchmark rate for lending on an unsecured basis. By the end of 2021, countries (including the U.S.) plan to phase out IBOR and move to a new benchmark known as alternate reference rates (ARR). The International Valuation Standards Council (IVSC) has issued a Perspectives Paper—IBOR Transition: A Valuation Guide that outlines the key challenges that arise for valuation professionals from the termination of IBOR. The paper also summarizes the areas that can contribute to “valuation uncertainty” and thereby increase “valuation risk” in appraisals of financial instruments arising from the transition away from IBOR.

ASA revitalizes its appraisal review
designation program

The American Society of Appraisers has rewritten some courses in its Appraisal Review and Management (ARM) discipline, which “marks the return” of the designation program, the organization says. Registration is now open for the ARM courses, which consist of four Principles of Valuation (POV) courses. The ASA offers accredited senior appraisers the ARM accreditation, either as a discipline-specific or full ARM accreditation, and a certificate program in appraisal review (PAR) for non-ASA professionals.

NACVA seeks nominees for young BV mavericks

Nominations are open for individuals in the business valuation, financial litigation, or related professions who embody the “drive, motivation, and courage needed to be part of the next generation of industry mavericks.” The National Association of Certified Valuators and Analysts (NACVA) and the Consultants Training Institute are taking nominations for the “40 Under Forty” recognition program and also a “30 Under Thirty” program, which is new this year. Nominees do not need to be affiliated with NACVA/CTI to qualify. The submission deadline for both programs is April 26—just click the links above for more information and the nomination forms.

Agenda set for NYSSCPA and litigation services conference May 17

BVWire always attends the annual New York State Society of CPAs Business Valuation and Litigation Services Conference, and registration is now open for this year’s event, which will be webcast May 17. This full-day conference will feature updates on cyber security, high-tech investigations, and e-discovery; cryptocurrency tracing, location, and seizure; valuation of distressed and bankrupt companies; cannabis company operations and valuations; exit and estate planning; IRS court testimony; SPACs; and practicing with Zoom. Click the link above to check out the full agenda.

Cost of capital parameters in Europe as of
Dec. 31, 2020

ValueTrust has released a seventh edition of its “European Capital Market Study” that serves as a comprehensive compilation of capital market parameters such as cost of capital and implied as well as historical risk premiums for European countries. The study also includes trading multiples and total shareholder returns across a wide range of industries. Here are a few key findings:

  • The risk-free rate declined from 0.21% as of Dec. 31, 2019, to -0.14% as of Dec. 31, 2020, the further decline in 2020 largely being the consequence of measures the European Central Bank took to fight the COVID-19 crisis;
  • After reaching the highest market-value weighted mean, at 9.0%, as of Dec. 31, 2018, the implied European market return decreased to 7.0% as of Dec. 31, 2020. Overall, the implied market return decreased to the lowest level within the study’s observation period; and
  • The technology sector shows the highest multiples on average, followed by the industrials sector; the financial sector continues to have the least expensive valuation level of all sectors.

New IACVS chapter formed in India

The International Association of Certified Valuation Specialists (IACVS) has a newly formed chapter in India with a board consisting of reputed valuers from across the country. The goal of the India chapter is to bring best-in-class global training and knowledge to its members and keep them up-to-date with valuation and fraud developments from across the world. The IACVS is a globally recognized association of business valuation professionals, with professional members in more than 50 countries. The organization issues the International Certified Valuation Specialist (ICVS) and ICVS with advanced studies in financial instruments (ICVS-A) credentials to qualified individuals. For more information on the IACVS, click here.

BV movers . . .

People: Noam Hirschberger, CFA, CVA, has been promoted to principal-in-charge of the valuation practice at PKF O’Connor Davies LLP, a promotion that reflects the firm’s increased focus on valuation services; he will maintain his role as co-leader of the firm’s cannabis practice … Loretta Cross, CIRA, CDBV, and John Baumgartner, CIRA, CDBV, have joined Grant Thornton LLP in Houston as managing directors as the firm expands its restructuring-services offerings for the oil and gas industry; both individuals hold the certification in distressed business valuation (CDBV) designation.

Firms: Duff & Phelps will transition the company name to Kroll, a firm it acquired in 2018; certain businesses will operate as “Duff & Phelps, A Kroll Business,” for a period of time during the transition … Purk & Associates PC, a woman-owned St. Louis-based accounting and management advisory firm, has added Pleus & Co. LLC and Dwyer Costello and Knox PC Calgary-based MNP is acquiring a subset of Deloitte’s Canadian business that will initially bring 40 Deloitte partners, 500 team members, and 20 offices to MNP’s practice in Québec; this is part of a broader national agreement between Deloitte and MNP that will see another 20 Deloitte partners and nearly 400 team members join MNP’s practice in various locations … Twin Cities accounting firms Boyum Barenscheer and Wilkerson Guthmann have merged and will operate under the brand name Boyum Barenscheer; the firm now has five locations: Minneapolis, Arden Hills, Scandia, Wayzata, and White Bear Lake.

Please send your professional and firm news to us at editor@bvresources.com.

CPE events

This is a deep dive into problematic areas of actual small business valuation cases to review theory and tie it into the actual application of methods using best practices and professional judgment.

  • Valuing Enterprise Cash Flows. March 17, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Travis Harms (Mercer Capital) and Z. Christopher Mercer (Mercer Capital).

This is the second part of a three-part series presented by the authors of the new third edition of Business Valuation: An Integrated Theory. This session will examine how valuation analysts calculate enterprise cash flows for use in the income approach, how market participants assign and quantify risk in deriving the discount rates used in the income approach, and address the guideline public company method in the context of the integrated theory.





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

 


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