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In case anyone has missed investment trends in the U.S. over the past five to six years, Kevin Hassett, director of Economic Policy Studies at the American Enterprise Institute (AEI), and Robert Shapiro, chairman of Sonecon, LLC, have published a study that reveals, in considerable detail, the growth in the value of intangible assets.
In 2005, they estimated the “total value of U.S. intellectual capital at $5.0 trillion to $5.5 trillion.”
The study reports that in 2011:
- The value of the intellectual capital in the U.S. economy has increased to between $8.1 trillion and $9.2 trillion; and
- The value of the intangible assets—which includes intellectual capital plus economic competencies (“firm-specific and task-specific knowledge and practices of managers and workers”)—in the U.S. economy reached an estimated $14.5 trillion in 2011.
Most mark-to-market studies of the U.S. stock market back into a figure of 80% of companies’ total assets that are now intangible. The Hassett-Shapiro study yields an intangible-assets-to-market-value ratio of 79.2%. BVR’s study of nearly 400 purchase price allocations filed with the SEC revealed that 72% of the total assets identified, reported, and accounted for are intangible.
Today, analysts need to have a firm grasp of valuation principles as they apply to intangible assets; BVR’s Guide to Intellectual Property Valuation by Mike Pellegrino has become a must-have tool.
As reported here mid-year, a court denying a finding of patent invalidity does not prevent an opposing ruling from USPTO. Now an appeals court has affirmed that ruling and, in doing so, explained how different burdens of proof can result in different conclusions.
Jim Singer pointed out in IP Spotlight that the USPTO considers whether there is a preponderance of evidence to overturn a patent claim, and importantly, “no presumption of patent validity exists in a reexamination proceeding.”
In contrast, the courts presume a patent to be valid and require proof of invalidity to meet a “clear and convincing” evidence standard. In some instances, especially when a business model is at stake, it may pay to bring parallel actions.
Intellectual Asset Management reported on the American Intellectual Property Law Association meeting in Washington, D.C., paying particular attention to what Paul Michel, former chief judge of the Court of Appeals for the Federal Circuit, had to say about what he feared the effects of the America Invents Act would be on patent value.
According to Michel, the problem areas are: less predictability, increased lag time for the system to resolve issues, and increased expenses. “The value of patents will go down as enforcing them in a timely and cost-effective way will be more difficult.”
By paying royalties under Section 801(b) of the Copyright Act, cable and satellite radio stations pay lower royalty rates than Internet radio services (e.g., Pandora) do. IP Value Wire has discussed the predicament Pandora finds itself in: huge popularity, rapidly growing revenues and negative margins, with royalties (due the artists) the number one factor that makes their model unsustainable.
The Internet Radio Fairness Act, co-sponsored by Rep. Jason Chaffetz (R-Utah) and Sen. Ron Wyden (D-Ore.), was introduced to make the Pandoras of the world pay the same royalty as the SiriusXMs of the world. Pandora, the Consumer Electronics Association, and the Computer and Communication Industry Association support the bill.
There is now competing proposed legislation, presumably supported by the musicFIRST Coalition and the AFL-CIO, introduced by Rep. Jerrold Nadler (D-N.Y.), that would reverse the process and make the cable and satellite radio companies pay the royalty rates now faced by Internet radio.
Valuators in this space need to watch this legislation closely. Without favorable congressional action, Pandora and similar Internet radio companies will need a radical alteration in their business models to succeed. However, successful passage of the Internet Radio Fairness Act will also serve to bring down a significant barrier to entry, and Apple is waiting in the wings to launch its own version of Internet radio.
Google AdWords enables organizations to promote their offerings on the web on a cost-per-click (CPC) basis. The advertiser specifies the keywords to be targeted and how much he or she is willing to pay for each click through. When searchers type in the targeted keyword, advertisers’ ads appear dependent upon how much they are paying. Controversy arises when an advertiser picks a competitor’s trademark as a targeted keyword.
To be sure, Google has a policy that addresses this situation, for the most part placing the burden on the trademark owner to monitor its own trademark and taking the stand that use of another’s trademark in an AdWords ad is a matter between the advertiser and the trademark owner.
Several actions against Google have claimed AdWords facilitates trademark infringement, but none have prevailed. Eric Goldman in Forbes feels none of the cases against Google will amount to anything, mainly because the plaintiffs give up before incurring the expense of following the case through to conclusion and Google is willing to go to the mat on these cases: “Google makes billions of dollars a year selling AdWords ads triggered by third party trademarks.”
Recently, Google’s attrition wins translated into a rare courtroom win because Daniel Jurin, who owns the trademark “Styrotrim,” did not contest Google’s motion for summary judgment.
This ultimately may be the road traveled by CYBERsitter as well (CYBERsitter LLC v. Google, Inc., CV12-5293 (C.D. Cal. complaint filed June 18, 2012)). Certainly Goldman thinks it will be, but Matthew Huisman, writing in the National Law Journal, isn’t so dismissive.
CYBERsitter’s competitor (in the Internet filtering software industry), ContentWatch, employed AdWords advertising that used “CYBERsitter” as a keyword. “Defendant Google has willfully participated in, facilitated and encouraged these acts for its own financial gain,” alleged the complaint.
Just last week U.S. District Court Judge Ronald Lew denied Google’s motion to dismiss, and CYBERsitter is acting as if it is eager to proceed to trial.
IP Value Wire has blogged about this subject several times; one of the most important elements to valuation analysts is the calculation of lost profits damages. We will continue to monitor these developments.
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