Any type of valuation report prepared for any type of intellectual property (IP) assets intended for any type of audience should adhere to the following six rules, Robert Reilly (Willamette Management Associates) told attendees at the BVR/Morningstar Summit on Best Practices in Intellectual Property Valuation, held in Chicago last week. The “Six C’s” of the IP valuation engagement, as Reilly calls them, include:
- Compliance. The report should do more than recite compliance with generally accepted professional standards; the analyst should identify which particular standards apply to the particular engagement and why, and then explain how the report complies. It should also identify and explain any litigation standards that apply.
- Competency. The report should also clearly state the analyst’s qualifications to perform the IP analysis. It should also clearly and precisely define the IP and the assignment.
- Completeness. The report should specifically make this assertion—and then, of course, it should set forth all of the analyst’s data, opinions, exhibits (supporting documentation), and conclusions. “Is the report sufficient to allow the reader to replicate the analysis and conclusion?” Reilly asked. “Does it ultimately answer the valuation assignment?”
- Correctness. In addition to confirming the valuation analysis and ultimate conclusions, the analyst should also check (and re-check) the report for typos and mathematical mistakes. “An error is an error,” Reilly said, and it can immediately impair credibility.
- Clarity. Is the IP analysis coherent and convincing? “Does the report flow from valuation assignment to data gathering to analysis to conclusion?” Reilly asked. Make sure you haven’t included any undefined terms or unsupported variables.
- Consistency. Is the report consistent with the analyst’s previous IP positions? “This is most important for litigation experts,” Reilly said, because opposing attorneys are sure to challenge your opinions based on prior reports and publications. But consistency is also important when reporting to management. If your prior opinions differed, be sure to explain what justifies the change in this case.
With IP, Reilly also thinks it's particularly important to be sure to explain why you chose not to use certain methods. As a valuation professional, you know that certain approaches or methods may not be effective for intangible assets--but the ultimate users of your report may not know the distinction. "Be sure to include a sentence such as 'I used these three methods, and did not use these other four methods because they weren't applicable' so that other users at least know that these were considered and rejected," he advises.