In an article in the April/May issue of World Trademark Review, Wes Anson, Jeff Noble and David Anderson of Consor discuss the state of IP valuation in litigation today, the reasons for the wide disparity in experts’ conclusions, and the scrutiny courts are putting on valuation analysts to develop unbiased conclusions.
There is a distinct disparity between royalty rates used in litigation and those negotiated in arm’s-length transactions, wholly attributable to the context of the analysis.
“In arm’s-length transactions, valuations are conducted by each party with its own respective interests in mind. However, the parties share the joint interest of reaching a mutual agreement. In the context of litigation, valuations are conducted by adversarial parties with distinctly different goals – an incentive for greater levels of speculation… a calculation of damages is the valuation of an enforced transaction conducted at a single point in time. …adversaries often conduct all-or-nothing analysis, seeking extremes rather than mid-points.”
In his crusade to “fix” the U.S. patent system, Judge Richard Posner (7th Circuit) wants federal courts to use the two most ready tools at their disposal: the appointment of neutral damages experts and the application of a more precise calculus of damages.
The article concludes with the inevitability of increased scrutiny that courts will impose on valuation experts and their methodologies in IP litigation, ultimately “leading to damages awards that more closely reflect the value of the infringed asset.”