Issue #15-1 | August 2, 2012

FASB publishes new guidance on impairment of indefinite-lived intangibles

The FASB released Accounting Standards Update No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, applying to all public, private, and not-for-profit organizations, and carrying an effective date of fiscal years beginning after Sept. 12, 2012.

Previously, organizations were required to test indefinite-lived intangibles for impairment at least annually by comparing the fair value of an asset with its carrying amount. This amendment still allows for the same approach, but adds an alternative: entities can now assess whether it is more likely than not that the asset is impaired before performing the test (the more-likely-than-not standard is defined as having a likelihood of more than 50%). Valuators familiar with the goodwill impairment testing guidance in Update 2011-08 will recognize this new approach.

Factors to be considered in the assessment are not limited to these examples:

  1. Cost factors, such as increased costs of raw materials that would have a negative effect on cash flow;
  2. Financial performance, such as a decline in actual or planned revenues;
  3. Legal factors;
  4. Industry and market conditions;
  5. Macroeconomic conditions, such as an adverse credit environment; and
  6. Entity-specific events, such as management turnover, contemplation of bankruptcy.

USPTO publishes proposed rules and examination guidelines for first-to-file provision of the AIA

The USPTO has published its highly anticipated proposed rules and proposed examination guidelines for the first-inventor-to-file provision of the Leahy-Smith America Invents Act (AIA). The public comment period runs until Oct. 5, 2012.

Royalty v. equity agreements in tech transfer

Concluding that equity arrangements are useful tools when patents available for technology transfer are weak, an article in the Intellectual Property & Technology Forum & Journal at Boston College Law School offers a model to TTOs:

Equity arrangements are economically preferable to royally agreements when:

reVc > rlVp

Where re is the equity stake as a percentage, Vc is the value of the company, rl is the royalty rate, and Vp is the commercial value of the product.

Knowing the path to a good analysis is helpful, but inherent in the formula is the critical need in technology transfer for valuation skill sets and information. What is the value of an early-stage company? What is the appropriate royalty rate? What are the risks to commercialization of the product?  

Federal Computer Fraud and Abuse Act offers little help as a protector of trade secrets

A Minnesota federal district court has found that trade secrets protection sought from the federal Computer Fraud and Abuse Act (CFAA) doesn’t exist when an employee misuses information obtained from company computers.

Walsh Bishops Associates, an architecture firm, claimed three of its former employees used proprietary information taken from it and sought remedy under the CFAA.

The judge ruled that only information obtained by “intentionally accessing the computer without authorization or by exceeding authorized access” violated the law. Since the three had authorization at the time to access the information in question, they did not violate the CFAA. Presumably, the company can seek remedies under state trade secrets laws, but, once again, valuators should note, there’s not much help at the federal level. Strong noncompetes and an in-place, policed trade secrets policy are the best protectors of trade secrets value.

Caution urged with relief-from-royalty valuations

Mike Pellegrino in BVR’s Guide to Intellectual Property Valuation states why ktMINE’s royalty rate finder search tools, which allow analysts to isolate exclusive arrangements, are important, especially when using the relief-from-royalty valuation method: “There are fundamental abuses of the relief-from-royalty method (e.g., using a nonexclusive royalty rate to represent the entirety of rights that some pieces of IP might confer) that weaken the use of the method for a core valuation engagement.”


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