BVU News and Trends May 2018
A monthly roundup of key developments of interest to business valuation experts.
Intellectual property trends: Average royalty rates, most active industries, and more
Explore intellectual property trends, including average royalty rates, most common royalty payment agreement bases, and most active industries. View real-world statistics based on thousands of actual license agreements.
Royalty rates for university-bred technology
Many universities rely on the money they earn by licensing intellectual property they develop as part of their research activities.
Court shows itself flexible on apportioning for royalty calculation
It’s written in stone that experts developing a reasonable royalty for a multicomponent product must be careful to apportion damages to the product’s protected features. However, there is flexibility in how experts perform the apportionment, the Federal Circuit recently confirmed.
Federal Circuit Clarifies Different Ways to Effect Apportionment
Federal Circuit vacates damages, finding expert opinion was inadmissible because Georgia-Pacific discussion lacked analysis that tied G-P factors to facts of the case; court affirms apportionment requirement need not be satisfied through royalty base.
Exmark Mfg. Co. v. Briggs & Stratton Power Prods. Grp. LLC
Federal Circuit vacates damages, finding expert opinion was inadmissible because Georgia-Pacific discussion lacked analysis that tied G-P factors to facts of the case; court affirms apportionment requirement need not be satisfied through royalty base.
Court Doubles Down on Apportionment for Multifunctional Smallest Salable Unit
Federal Circuit strikes down portion of damages, finding expert’s royalty base was unsupported because she merely apportioned to the “smallest identifiable technical component,” which itself was a multicomponent software engine that performed both noninfringing and infringing functions.
Finjan, Inc. v. Blue Coat Systems, Inc. (II)
Federal Circuit strikes down portion of damages, finding expert’s royalty base was unsupported because she merely apportioned to the “smallest identifiable technical component,” which itself was a multicomponent software engine that performed both noninfringing and infringing functions.
Back-solving Unobservable Trademark Royalty Rates—The Case of ITT vs Xylem Group
Intangible assets like trademarks and patents are typically not traded on active markets, and the measurement of their fair values is based on valuation models that use significant unobservable (Level 3) inputs (i.e., guideline royalty rates under the relief-from-royalty method). Although widely accepted, all authors and lecturers emphasize the difficulties when determining guideline royalty rates under this method. Often, royalty rate analyses fail to survive audit, appeal, or other scrutiny. In developing robust Level 3 ...
How the expert in the Amazon trademark case determined a royalty rate
In the recent Amazon Tax Court case, the IRS challenged the valuation of trademarks the company transferred to its overseas subsidiary. But Amazon prevailed, and here's an explanation of the comparable uncontrolled transaction (CUT) method its expert used to sift through thousands of transactions.
Federal Circuit Discusses Rationale Behind Different Measures of Damages
Federal Circuit says expert’s royalty analysis was not improper “pseudo” lost profits analysis that tried to circumvent higher standard of proof, where expert considered plaintiff’s profits as one of many factors in her hypothetical-negotiation model.
Federal Circuit reacts coolly to ‘pseudo’ lost profits argument; royalty analysis may consider profits
The Federal Circuit recently found a reasonable royalty calculation that took into account the plaintiff’s profit margin was not a lost profits analysis in disguise. The plaintiff’s expert did not try to circumvent the “but for” causation requirement that applied to a lost profits claim.
Danmark v. CMI USA, Inc.
Federal Circuit says expert’s royalty analysis was not improper “pseudo” lost profits analysis that tried to circumvent higher standard of proof, where expert considered plaintiff’s profits as one of many factors in her hypothetical-negotiation model.
Federal Circuit Discusses Rationale Behind Different Measures of Damages
Federal Circuit says expert’s royalty analysis was not improper “pseudo” lost profits analysis that tried to circumvent higher standard of proof, where expert considered plaintiff’s profits as one of many factors in her hypothetical-negotiation model.
Trademark values of global underwear brands
Average royalty rates for underwear trademarks are about 3% on revenues, considerably lower than typical royalty rates signed in license agreements.
In Transfer Pricing Case, Tax Court Fails to Perform Adequate CUT Analysis
In transfer pricing case centering on taxpayer’s intercompany licensing agreements, Tax Court finds CUT method is the best way to calculate arm’s-length royalty rates; court accepts taxpayer-proposed uncontrolled comparable but makes adjustments to account for differences in transactions.
Medtronic, Inc. v. Commissioner (I)
In transfer pricing case centering on taxpayer’s intercompany licensing agreements, Tax Court finds CUT method is the best way to calculate arm’s-length royalty rates; court accepts taxpayer-proposed uncontrolled comparable but makes adjustments to account for differences in transactions.
Complex Facts Test Patent Experts’ Apportionment Skills
Court admits apportionment based on lines of infringing code and on value defendant places on product features in accused products but excludes apportionment using forward citation analysis for failure to show value of asserted patents in marketplace.
Uncritical Use of Royalty Rate Data Spoils Damages Opinion
Court excludes most of damages testimony under Daubert because expert based reasonable royalty calculation on data from IP databases and publications without subjecting information to rigorous analysis and establishing its relevance to case at hand.
Finjan, Inc. v. Blue Coat Systems, Inc. (I)
Court admits apportionment based on lines of infringing code and on value defendant places on product features in accused products but excludes apportionment using forward citation analysis for failure to show value of asserted patents in marketplace.
Chico’s Fas, Inc. v. Clair
Court excludes most of damages testimony under Daubert because expert based reasonable royalty calculation on data from IP databases and publications without subjecting information to rigorous analysis and establishing its relevance to case at hand.
Aqua Shield v. Inter Pool Cover Team
Federal Circuit finds district court erred when it considered infringer’s actual profits a royalty cap instead of doing a hypothetical inquiry into what parties would have anticipated and ordered court to consider evidence of gross profits on remand.
EMVR Must Not Swallow Apportionment, Federal Circuit Says
Federal Circuit strikes award against Apple, finding it resulted from district court’s misstating the law on the entire market value rule and apportionment and court’s failure to serve as gatekeeper under Daubert and exclude unreliable damages testimony.
VirnetX, Inc. v. Cisco Systems, Inc. (II)
Federal Circuit strikes award against Apple, finding it resulted from district court’s misstating the law on the entire market value rule and apportionment and court’s failure to serve as gatekeeper under Daubert and exclude unreliable damages testimony.