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Issue #12-3 | May 31, 2012

Insurance is an important tool in managing IP value

Today, intangibles may be a company’s most important assets. BVR’s study of purchase price allocations puts intangible assets at 72% of acquired companies’ total assets. These assets do not exist risk-free.

Essentially, there are two issues:

  1. A competitor might take your ideas, your competitive advantage; and
  2. A competitor might accuse you of taking its ideas, its competitive advantage. reports over 11,500 IP suits were filed in 2006, a 42% increase from 2002. Excluding judgments and damages, the cost to defend or prosecute an IP case can run into the mid-seven figures. (Related costs may include attorneys and paralegal services, travel and living expenses, costs for court reporters, copies, couriers, exhibits, analytical testing, expert witnesses, translators, surveys, jury advisors, etc.)
Consider these additional developments:

  • “Nonpracticing entities”—or “trolls”—are now major risk factors;
  • Opportunity costs and use of executive time may double the actual expense of an IP dispute;
  • The Uniform Commercial Code, 2-312(3), includes an implied warranty against infringement by any seller of goods to its buyers. If you are selling a product, you are taking on the responsibility to indemnify should accusations of infringement arise.

IP managers are now looking to insurance to help protect valuable intangible assets. On June 13, BVR welcomes attorney Chuck Baxter and expert Karrie Lewis presenting Why It’s Time to Consider IP Insurance, an exclusive webinar exploring available IP insurance products and how IP insurance plays a role in any IP value protection strategy.

What makes IP valuable to organizations?

Think IP Strategy offered a classification of features that make IP valuable. Assets that have value have features that:

  1. Are required for the company to be in business;
  2. Protect key differentiators that influence buying decisions;
  3. Are required to defend against competitors; and
  4. Can be licensed to create alternative revenue streams.

The article, “Driving Value,” goes on to state that realizing the value of IP (and creating additional value) is dependent upon leadership in an organization, tying the value to upper management buy-in, probably as a result of the efforts of an IP champion or chief intellectual property officer.
With IP value taking center stage, valuators and investors should take note of whether or not an organization recognizes the potential value of its IP enough to have invested in a CIPO.

IP managers and technology transfer officers need to manage their patent filings

In the May issue of IP Management & Valuation, Steven Hansen of Hansen IP Law listed strategies IP managers can use to keep patent applications on track:

  1. Check with the USPTO and with the relevant office in other countries on the status of your patent applications.
  2. Perform periodic reviews of your pending applications and make adjustments where necessary. Before the examination of your application begins, amend the claims to take into account any product changes. Communicate any claim changes and the nature of any prior art during the examination phase. In the U.S., the inventor has the ability to file continuation applications after a patent has been allowed, but before it is issued.
  3. Perform periodic reviews of your competitors’ technologies and the marketplace.

IP valuators may want to add questions about these steps to their due diligence checklists. Access your free copy of Hansen's article at BVR's free resources page.

Valuators of IP are asked to ‘be agnostic’—and thorough—when it comes to assessing IP in divorce

What happens to IP assets if they are not specifically identified and allocated during a divorce? Consider the recent case in which the husband owned two patents. During their 2001 divorce in California, both parties stated they had no community property. The husband subsequently assigned the patents to a third party, who sued Nextel/Sprint in federal court for infringement. Nextel claimed the plaintiff didn’t have standing to sue, however, because it failed to join the ex-wife, who—under California law—presumptively co-owned the patent.

It took nearly 10 years and several trips to state and family court and then back to federal court and an appeal, but the Federal Circuit ultimately agreed that the wife was the presumptive co-owner of the patents. However, the parties overcame that presumption in their divorce decree, effectively precluding the wife from taking any interest in the patents then “or anytime thereafter,” the court held in Enovsys v. Nextel Communications, Inc. (2010).

The bottom line for IP experts and attorneys: “Whether you represent the creator of the patent or the spouse, you’d better make sure you can cover every possible variable and be prepared to educate the judge on every possible alternative use for the patent,” advised Ronald Anteau (Kolodny & Anteau), who spoke at the recent AAML/AICPA conference in Las Vegas.

“I’m agnostic when it comes to anything but the asset,” agreed co-presenter Neil Beaton (Alvarez & Marsal). “From a purely economic standpoint, it doesn’t matter if I represent the creator [of the IP] or the spouse. My job is to come up with a range of value that resides in the asset [and/or] the company.”

U.S. Court of Appeals for the Federal Circuit recognizes royalty damages as a remedy in a copyright case

Reuters reports the U.S. Court of Appeals for the Federal Circuit will allow sculptor Frank Gaylord to recover royalty payments from the U.S. Postal Service, which used a photographer’s image of the artist’s Korean War Memorial sculpture on stamps and related merchandise with the photographer’s permission but not with the sculptor’s permission. This overturned a lower court’s decision that said, in effect, the artist should take $5,000, be happy, and go home.

The Postal Service argued its use was fair use, with several friendly briefs, including one from the Andy Warhol Museum. However, the three-judge panel said, “The trial court must consider all evidence relevant to a hypothetical negotiation rather than limiting its analysis to the Postal Service’s past licenses for different works.”

Gaylord had licensed his images for a 10% royalty in the past. A quick search of the ktMINE license and royalty rate database shows 10% of gross sales consistent with other similar licenses.

Heidi Harvey, of Fish & Richardson, representing Gaylord, said the decision marks the first time the Federal Circuit both recognized royalty damages as a remedy available for copyright infringement and acknowledged a citizen’s rights to claim those damages from the government.

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