Explore BrainMass

Discuss how to project the future market value of intellectual rights when a property is created under the sponsorship of an employer.

Solution Preview



2.1 Preservation of Preexisting Rights:
May preserve certain preexisting interests in Intellectual Property as unaffected by the activities to be carried out under the terms of the agreement.

2.2 Law of Inventorship:
a. University owns those inventions created by its investigators;
b. Sponsor owns those inventions created by its employees;
c. Sponsor and University jointly own inventions created by employees of both;
d. Many provisions do not address all these categories of ownership;

2.3 Reasonably Anticipated Inventions:
a. One provision allocates ownership along different lines; all the inventions reasonably anticipated or contemplated to be developed pursuant to the study will belong to the Sponsor; everything else will belong to University.
b. This allocation is only appropriate under very narrow circumstances. Use it carefully and in accordance with the notes accompanying it in the IP Provisions Document.

Valuation methods of the future market value of intellectual rights when a property is created under the sponsorship of an employer:

Acceptable methods of the valuation of intellectual property fall into three broad categories. They are either

§ market based
§ cost based
§ based on estimates of future economic benefits

In an ideal situation, an employer will always prefer to determine a market value by reference to comparable market transactions. This is difficult enough when valuing assets such as bricks and mortar because it is never possible to find a transaction that is exactly comparable. In valuing an item of intellectual property, the search for a comparable market transaction becomes almost futile. This is not only due to lack of compatibility, but also because intellectual property is generally not developed to be sold, and many sales are usually only a small part of a larger transaction and details are kept confidential. There are other impediments that limit the usefulness of this method, namely special purchasers, different negotiating skills, and the distorting effects of the peaks and troughs of economic cycles. In a nutshell, this summarizes my objection to such statements as 'this is rule of thumb in the sector'.

Cost based methodologies, e.g. the cost to create or the cost to replace, assume that there is some relationship between cost and value, and the approach has very little to commend itself other than ease of use. The method ignores changes in the time value of money and ignores maintenance.

The method of valuation flowing from an estimate of future economic benefits can be broken down to four often-overlapping limbs; capitalization of historic profits, gross profit differential methods, excess profits methods, the relief from royalty method and discounted cash flow analysis.

While the capitalization process recognizes some of the factors which should be considered, it has major shortcomings, mostly associated with historic earning capability. The gross profit differential methods are often associated with trade mark and brand valuation. The excess profits method is associated with earnings capability in order to induce investment and, while theoretically relying upon future economic benefits from the use of the asset, the method has difficulty in adjusting to alternative uses of the asset. Relief from royalty considers what the purchaser could afford, or would be willing to pay for the license. The royalty stream is then capitalized reflecting the risk and return relationship of investing in the asset.

Valuation appraisal of the future market value of intellectual rights when a property is created under the sponsorship of an employer:

Discounted cash flow analysis is probably the most comprehensive of appraisal techniques. After a rigorous examination of the earnings capability of the IPR alone, potential profits and cash flows need to be assessed carefully and then restated to present value through use of a discount rate. We need to consider the operating environment of the asset to ...

Solution Summary

In a 2575 word solution, the law is discussed as it applies in various situation and environments. The valuation concepts include five methods, each of which is explained.