Intellectual Property (4^th Ed.) Valuation, Exploitation, and Infringement Damages, 2017 Cumulative Supplement

Intellectual Property, Valuation, Exploitation, and Infringement Damages provides in-depth, up-to-date guidance about the valuation of intangible assets. Covering patents, trademarks, copyrights, trade secrets, and more, this book describes the standards, best practices, and case law relating to valuation, licensing, and infringement damages. Intellectual property strategies are examined from a business economic standpoint, and analytical models are provided to streamline the calculation of valuations, licensing royalty rates, and fair equity splits in joint venture arrangements. Designed to ease the task of attaching monetary value to intangible assets, this invaluable reference includes extensive practical guidance including sample royalty rate information, diffusion sales forecasting models, detailed treatment of investment rate of return, and the valuation of early-stage technology.

Intellectual property is rapidly becoming a major profit center for an increasing number of companies, who may invest billions of dollars in development of an irreplaceable asset. This book provides an authoritative reference for exploiting this property to its fullest extent, and quantifying its actual economic value.

Now that intangible assets are becoming the cornerstones of corporations, applying a logical, analytical approach to valuation has become more important than ever. Intellectual Property, Valuation, Exploitation, and Infringement Damages provides expert guidance for each stage of the asset's life cycle, with recommended procedures and strategies grounded in case law and real-world practice.

Preface xix

PART I VALUATION 1

Chapter 1A Intellectual Property Landscape (New) 3

1A.1 80% of Corporate Value Is Intellectual Property and Intangible Assets 4

1A.2 Over Seven Million Patents 6

1A.3 Corporations Own the Most Patents 7

1A.4 All Industries Are Patenting Inventions 8

1A.5 Trademarks 10

1A.6 Trademarks Are Supported with Huge Ad Spending 11

1A.7 Copyrights 12

1A.8 Trade Secrets 12

1A.9 Business of Licensing 15

Chapter 1B U .S. Congress Flirts with Disaster (New) 25

1B.1 Patent Litigation Venue 27

1B.2 Patent Infringement Damages 27

1B.3 Injunctions for Only Competitors 29

1B.4 Harming Our Only Economic Advantage 31

Chapter 12A Risk-Adjusted Cash Flows (New) 32

12A.1 Required Rates of Return 33

12A.2 Capital Asset Pricing Model 36

12A.3 Build-Up Method 41

12A.4 Venture Capital Rates of Return 42

12A.5 Probability of Success 45

12A.6 Conclusion 49

Chapter 12B D ealing with Risk and Uncertainty in Intellectual Property Valuation and Exploitation (New) 51

12B.1 Risk versus Uncertainty 53

12B.2 Decision Analysis and Decision Trees 55

12B.3 Decision Tree Components and Conventions 56

12B.4 Monte Carlo Techniques 63

12B.5 Markov Chains 66

12B.6 Obtaining Information from Indirect Observation: Shadow Pricing 70

12B.7 Bayesian Analysis 72

12B.8 Option Pricing Models 75

12B.9 Limitations on Rationality in Decision Making: The Effects of Perception and Biases on Decision Making 78

12B.10 Conclusion 79

Chapter 14A Rights of Privacy, Publicity, and Celebrity Persona (New) 81

14A.1 Introduction 81

14A.2 Legal Underpinnings 84

14A.3 Trademark Rights 87

14A.4 Copyright 88

14A.5 Legal Uncertainties and Solutions 90

14A.6 A Photography Issue 91

14A.7 Conclusion 93

Chapter 14B Intellectual Property and Intangible Asset Volatility (New) 95

Chapter 23A D etermining Royalty Rates (New) 101

23A.1 Royalty Rate Basics 102

23A.2 5% of Sales is the Most Common Royalty Rate 106

23A.3 Forces Driving Royalty Rates 108

23A.4 Industry Royalty Rates 115

23A.5 The “25%” Rule 117

23A.6 Industry Norms 119

23A.7 Return on R&D Costs 120

23A.8 The 5% of Sales Method 121

23A.9 The Analytical Approach 121

23A.10 Comparable License Transactions 125

23A.11 Naked Patents 129

23A.12 Patented Versus Unpatented Technology 131

23A.13 Minimum Royalties 132

23A.14 Upfront License Fees 133

23A.15 Exclusivity 134

23A.16 Royalty Base 136

23A.17 Discounted Cash Flow Analysis And Royalty Rates 138

23A.18 Conclusion 147

PART II L ICENSING 149

Chapter 27A R oyalty Rates and License Fees for Technology (New) 151

27A.1 Royalty Rates 152

27A.2 Per Unit Royalties 155

27A.3 Royalties Based on Profitability 156

27A.4 License Fees 157

27A.5 Medical Device Industry Royalty Rates 159

27A.6 Medical Device Industry License Fee Distribution 160

27A.7 Conclusion 162

Chapter 27B L icense Fees and Royalty Rate Frequency for Technology (New) 163

27B.1 Real Deal Royalty Rates 164

27B.2 Per Unit Royalties 166

27B.3 License Fees 167

27B.4 Conclusion 168

Chapter 27C Royalty Rates and License Fees for Pharmaceuticals and Biotechnology (New) 169

27C.1 The Parties—Licensing between Corporations Dominates 170

27C.2 Royalty Rates 170

27C.3 License Fees 172

27C.4 Key Technologies 173

27C.5 Developmental Stages of Technology 174

27C.6 Conclusion 176

Chapter 27D Licensee Fees and Royalty Rates for Technology Update (New) 177

27D.1 Per Unit Royalties 179

27D.2 License Fees 180

Chapter 33A The Magnitude and Meaning of Royalty Misreporting (New) 182

33A.1 Introduction 182

33A.2 “Why?” versus “How?” 183

33A.3 Math Errors: 5% Error Rate 186

33A.4 Royalty Rate Errors: 4% Error Rate 187

33A.5 Transfer Prices: 4% Error Rate 189

33A.6 Unreported Benchmarks and Milestones: 5% Error Rate 190

33A.7 Unreported Sales: 16% Error Rate 191

33A.8 Disallowed Deductions: 9% Error Rate 191

33A.9 Unreported Sublicenses: 17% Error Rate 192

33A.10 Questionable License Interpretation: 40% Error Rate 192

33A.11 Conclusion 193

Chapter 33B Intellectual Property Audit and Management (New) 194

33B.1 Introduction 195

33B.2 Intellectual Property Is Important 195

33B.3 But Intellectual Property Is Frequently Mismanaged 196

33B.4 Why the Intellectual Property Dichotomy? 196

33B.5 The First Step: An Intellectual Property Audit 197

33B.6 From IP Audit to IP Management 199

33B.7 Insufficient Approaches 200

33B.8 A New Intellectual Property Management Paradigm 201

33B.9 Available Tools 201

33B.10 Benefits of Intellectual Property Management 202

33B.11 When to Do an Intellectual Property Audit 203

33B.12 How to Do an Intellectual Property Audit 205

33B.13 Software Solutions to Make the Job Easier 208

33B.14 Conclusion 211

Chapter 35A Quantifying Reasonable Royalties: The Entire Market Value Rule (New) 215

Chapter 35B N ew Guidance About Apportionment (New) 226

35B.1 Apportionment of the Royalty Base 226

35B.2 The Infringed Invention 227

35B.3 Determination of Damages 229

35B.4 Georgia-Pacific and the Hypothetical Negotiation 232

Chapter 35C Lost Profits for New Businesses (New) 236

35C.1 Why Are Profits Missing 237

35C.2 Guidance from Business Plans 238

35C.3 Management Team 238

35C.4 Operating Capital 239

35C.5 Comparables 239

35C.6 Defendant’s Profits 240

35C.7 Before-and-After Analysis Will Not Work 240

35C.8 Lost Business Value 240

35C.9 Conclusion 241

Chapter 45 New Measure of Infringement Damages—Future Damages (New) 242

45.1 Royalty Rate for Future Damages 244

45.2 What About Future Lost Profits? 255

Chapter 45A Continually Evolving Patent Damages (New) 256

45A.1 Post-Verdict Royalty Rates 257

45A.2 Optimize Your Patented Technology or Lose It 262

45A.3 Litigation-Based Licenses 265

Chapter 45B T he 25% Rule Is Dead (New) 270

Appendix G More Sample Royalty Rate Information (New) 273

Appendix H T rademark Royalty Rates (New) 301

Appendix H-A M ore Trademark and Copyright Royalty Rates (New) 319

Appendix I Pharmaceutical and Biotechnology Royalty Rates (New) 357

Appendix J Telecommunications Royalty Rates (New) 381

Appendix K Electrical and Energy Royalty Rates (New) 417

Index 451

Russell L. Parr, CFA, ASA is President of Intellectual Property Research Associates (www.ipresearch.com). He is an expert in determining the value of intellectual property. Mr. Parr's books about intellectual property value and management are published in Japanese, Korean, Italian and English. He is dedicated to the development of comprehensive methods for accurately defining the value of intellectual property.