Issue #15-3 | August 30, 2012

Apple wins big

Here is a look at the 20-page Apple v. Samsung verdict sheet jurors had to complete as they found Samsung guilty of infringing Apple utility and design patents with their Android-based smartphones. For some jurors, it simply came down to holding the Samsung and Apple phones up in the dark and comparing. If it looks like a duck …

Points of interest:

  1. Experts disagree on the ultimate effect on the smartphone industry. Some feel competition will be irreparably hurt. Others feel we will now see increased variety, stimulating competition. Most think Samsung is already testing design-arounds, and many (for the utility patents in suit) are included in its latest products.
  2. Valuation specialists should note that the damages award of $1.05 billion was not the result of expert witness presentations, because post-trial jury interviews indicate experts’ calculations were disregarded.
  3. On page 9 of the verdict sheet, the jury indicated where the infringement was willful. This means Judge Lucy Koh can impose punitive damages, which could up the ante considerably.
  4. Design patents were under the microscope here, and although the iPad was deemed not to have been infringed, smartphone design patents were upheld.
  5. The biggest economic impact will come from decisions this week on injunctive relief. Apple will identify the products it wants protection from as early as today. As the WSJ
    reports, “The products aren’t the company’s latest models, but Apple has another suit against Samsung in the same U.S. district court over more recent technology, as well as actions against Samsung in other jurisdictions.”

ktMINE royalty rate finder plays a significant role in brand valuation

An article in Intellectual Property Magazine highlights the methodologies for valuing brands internationally, drawing heavily on the expertise of Julian Dailly, former director of valuation at Interbrand, and Roy D’Souza, managing director of Ocean Tomo’s valuation practice.

The International Organization for Standardization (ISO) put together a standard, BSI ISO 10668, which categorizes the three most common approaches for brand valuation under “financial analysis.” The income approach calls for a value estimate based on the present value of earnings attributable to the brand. Royalty rates gleaned from ktMINE provide valuable estimates as to what income can be generated by a like brand. The standard spells this out with respect to royalty payments saved by owning the brand:

The value calculated through the royalty relief method … constitutes the present value of the royalty payments saved through the ownership of the brand. The royalty rate applied in the valuation shall be determined after an in-depth analysis of available data from licensing arrangements for comparable brands, an appropriate split of brand earnings between licensor and licensee, and shall be as close as possible to brands with the same characteristics and size as the brand being the subject for valuation.

The market approach focuses mainly on comparables. BSI ISO 10668 states the market approach measures value based on what other purchasers in the market have paid for assets that can be considered reasonably similar to those being valued, with emphasis on the word “similar.” It is generally recognized that IP is unique, and therefore, exact matches would be difficult if not impossible to locate. D’Souza goes one step further, stating that the difficulty in finding comparables forces valuators to use the market approach mostly in a supporting role, as a sanity check. “Some industries have publicly available transactions and many license agreements to use as comparables, while others may have very few or none at all.”

In an attempt to test D’Souza’s point, we examined ktMINE’s industry breakdowns and list below the industry followed by the number of license agreements in ktMINE pertaining to that industry. Note that a license agreement is included only when nonredacted with respect to at least one variable royalty rate. Analysts may be surprised to learn the depth of industry coverage in the ktMINE database.

  • Advertising, 368;
  • Agribusiness, 270;
  • Alcoholic beverages and tobacco, 121;
  • Alternative and renewable energy, 388;
  • Biotechnology, 2,550;
  • Broadcast and cable, 565;
  • Business services, 4,167;
  • Chemicals, 676;
  • Computer hardware and software, 2,724;
  • Construction, 328;
  • Consumer durables, 1,906;
  • Consumer nondurables, 1,965;
  • Consumer services, 3,252;
  • Education, 363;
  • Electric utilities, 182;
  • Entertainment, 1,167;
  • Environment and waste management; 464;
  • Financial services, 1,012;
  • Foods and nonalcoholic beverages; 1,131;
  • Gaming, 205;
  • Healthcare facilities, 486;
  • Healthcare insurance, 108;
  • Healthcare pharmaceutical, 2,314;
  • Healthcare products and supplies, 2,001;
  • Industrial equipment and machinery, 934;
  • Internet, 1,469;
  • Metals, 164;
  • Mining, 207;
  • Oil and gas, 433;
  • Paper and forest products, 107;
  • Public safety, 402; and
  • Publishing, 491.

Google adds tool to locate 'prior art' to its
patent finder

Google’s new Prior Art Finder compares key phrases from patent listings and searches for them in Google Patents (and other Google databases), as well as on the Internet at large.

As a rule, patents are to be granted only if an invention is truly new and not obvious. Patent examiners have a difficult time locating data necessary to make an informed decision.

As InformationWeek reports, “Prior Art Finder could help by reducing the granting of patents that don’t represent genuine innovation and by helping companies accused of patent infringement identify prior art that may invalidate an infringement claim.”

Investors should know intangibles’ value

Ben McClure, director of Bay of Thermi Limited and a frequent writer on investment topics, feels that the difficulty in measuring intangibles and the volatility inherent in the simplistic mark-to-market approach forces investors to ignore what might be sizeable value.

Here Ben recommends at least starting with the calculated intangible value (CIV) method:

  • Calculate the average pretax earnings for a three-year period;
  • On the balance sheet, get the average year-end tangible assets for the same three years;
  • Calculate the company’s return-on-assets by dividing earnings by assets;
  • For the same three years, find the industry’s ROA;
  • Multiply the industry average ROA by the company’s tangible assets (determined in Item 2); subtract the result from the pretax earnings determined in Item 1, yielding how much more the target company earns from its assets than the average in the industry;
  • Tax affect the result, if appropriate; and
  • Calculate the net present value of the premium, yielding an estimate of the value of the intangibles.

Tobacco fails in loss of trademark value appeal in Australia

Intellectual Asset Management reports that big tobacco has lost its first round in trying to prevent (or get compensated for) neutral or plain packaging using a loss of trademark value argument. Last week, the Australian High Court distinguished between the right to prevent others from using your trademark and the right to use it yourself.

Tobacco products sold in Australia after December 1 must be in plain brown packaging with brand names revealed only in small type. Health warnings will remain.

Valuators of nonprofits get a new tool

Jeff Glassie, Eileen Johnson, and Dana Lynch, of Whiteford Taylor Preston in Washington, D.C., have co-written a mini-treatise on intellectual property law for nonprofit institutions. 

Intellectual Property for Nonprofit Organizations and Associations covers nonprofits’ most valuable intangible assetscopyrights, trademarks, lists of members, attendees, exhibitors, etc.—and aids in helping to develop strategies to protect a brand internationally. The book is available on the American Society of Association Executives (ASAE) website, and here’s a sample read from the chapter on copyrights.

Valuators with nonprofit clients can get a real sense of what intangibles are most valuable and how best to measure the protections organizations have in place from this book.

CAFC issues decision in Myriad

The bio-patent world can now exhale. The U.S. Court of Appeals for the Federal Circuit issued its opinion in Association for Molecular Pathology (AMP) and ACLU v. USPTO and Myriad Genetics (Fed. Cir. 2012). The U.S. Supreme Court had remanded Myriad back to the CAFC to review in light of the USSC’s decision in Mayo Collaborative Services v. Prometheus, Inc., 566 U.S. ___, 132 S. Ct. 1289 (2012). The court held for the most part in favor of Myriad, stating that claims related to isolated DNA molecules and methods of screening potential cancer therapeutics are patent-eligible.

On the merits, we reverse the district court’s decision that Myriad’s composition claims to “isolated” DNA molecules cover patent-ineligible products of nature under § 101 because each of the claimed molecules represents a non-naturally occurring composition of matter. We also reverse the district court’s decision that Myriad’s method claim to screening potential cancer therapeutics via changes in cell growth rates of transformed cells is directed to a patent-ineligible scientific principle. We affirm the court’s decision, however, that Myriad’s method claims directed to “comparing” or “analyzing” DNA sequences are patent ineligible; such claims include no transformative steps and cover only patent-ineligible abstract, mental steps.

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