and Chrebet, and is being sold as test offers one winner (along with Matchbox Putting
an unframed 16”x20” poster to three friends) a grand prize trip to
benefit the Police Athletic League California, where they will be in-
Safety First
(PAL). The poster, which features vited to a slumber party at a Los Mattel Inc.’s Matchbox brand will
the PAL logo, is being promoted Angeles hotel and will have a VIP be joining the National SAFE KIDS
through mail order, the Internet, tour of the Warner Bros. Studio, Campaign for the “Matchbox 9-1-1:
retail, and special events. The pro- salon makeovers and sightseeing Be Ready For an Emergency!” pro-
ceeds are to help support PAL edu- around the city. There will also be gram. Together, Matchbox and
cational, recreational, cultural, a day trip to Magic Mountain, the SAFE KIDS will be providing edu-
and vocational youth programs. Six Flags Theme Park. In addition, cational materials aimed at teach-
Posters with athletes from other a gift pack will be left for the win- ing kids how to properly react dur-
Distribute by Hooghoogh.com
teams and sports will be intro- ner that features products from ing an emergency situation and
duced in the near future. the participating licensees, includ- how to use the national 9-1-1 emer-
ing Dan River, Hallmark, Min- gency response system. The pro-
Girls’ Life Hits netonka Brands, and Wundies, gram will be launched on National
Hollywood among others. Each person at- 9-1-1 Day, September 11, 2001.
Warner Bros. Consumer Prod- tending will also receive a free sub- This day will be dedicated to the
ucts and Girls’ Life magazine, the scription to Girls’ Life. Promotion safety of children, and will be used
only national publication pro- for the contest is to begin in the as a yearly reminder to teach kids
duced specifically for girls ages 9 June/July issue of Girls’ Life with a how to use 9-1-1. The program will
to 14, have teamed up in launching teaser ad. The August/September also recognize and honor real life
a contest for the opportunity to issue will feature a slumber party- heroes who risk their lives everyday
win an exclusive slumber party themed lifestyle spread, high- in emergency rescue situations. In-
weekend in Los Angeles, CA. This lighted by an entry form for the formation about the program will
new promotion is based on the sweepstakes, along with product be distributed through promotions
Looney Tunes character Tweety purchase incentive information with retailers, on the Matchbox and
and is being dubbed “Tweety’s Hol- and licensed Looney Tunes prod- SAFE KIDS Web sites and through
lywood Slumber Party.” The con- ucts from participating licensees. public service announcements.
rates that should be used. Most
Financial Factors consultants traditionally develop
royalty rates based on three tradi-
Michael J. Mard tional sources: (1) from the client,
if the client has its own negotiated
licensing agreements; (2) from sur-
veys performed by various profes-
sionals, generally in cooperation
Intellectual ment litigation. The final column
in this series summarizes the intel- with trade associations; and (3)
from judicial opinions (court
Property lectual property valuation process
with emphasis on the major chal- cases) that vary greatly depending
Valuation lenges in valuing intellectual prop-
erty or negotiating licensing agree-
on individual fact patterns. A few
practitioners (this author included)
Challenges ments and the importance of
supportive documentation for all
augment these traditional tools
with their own proprietary data-
This column is the last in a series intellectual property valuations, base of licensing agreements. [The
on the valuation of intellectual particularly ones that continue to Financial Valuation Group Intellec-
property. The series has addressed litigation. tual Property Transaction Database
the distinction between intellec-
located at www.fvginternational.
tual property and intangible assets
for valuation purposes; the three com (secure server capabilities).]
Challenges in Valuing Such direct market data is the most
possible approaches to valuing any
property (cost/asset approach, Intellectual Property compelling evidence available.
market approach, and income ap- One of the major difficulties in Although market data has
proach); the various valuation pre- valuing intellectual property or ne- shown no exact royalty rate struc-
miums and discounts applications; gotiating licensing agreements is ture, research has revealed eight
and intellectual property infringe- determining the market royalty basic payment structures:
26 The Licensing Journal MAY 2001
1. No direct payment (royalty- four sections: (1) Work Program; economy of the future and thus,
free), usually in exchange for (2) Cost Approach; (3) Market Ap- by definition it will continue to be
credibility, public service, or proach and (4) Income Approach. a central area of controversy.
some other form of non-mone- The work program establishes the Companies are becoming increas-
tary payment basis for the valuation. The exhibit ingly dependent on their intellec-
2. One-time flat dollar fee demonstrates that each of the tual properties. As a result, there is
3. Annual/monthly payments (i.e., three approaches considered in an an explosion of licensing agree-
annual/monthly flat dollar a- intellectual property valuation re- ments. Strategic decisions will
mount, annual/monthly dollar quires analysis of comparative roy- continue to be increasingly depen-
amount based on dollars or units alty factors. dent on understanding the eco-
of sales, or annual/monthly dollar The valuer needs market compar- nomics affecting the value of intel-
Distribute by Hooghoogh.com
amount based on a percentage of ative data of detailed terms of arm’s lectual properties—the royalty
dollars or units of sales) length transactions and insight into factors.
4. Dollar amount plus a percent- accurate returns (such as royalty
age over X dollars or Y units of rates and up front fees), time hori-
Michael J. Mard, CPA/ABV, ASA,
sales zons, and market risk. Significant
is President of The Financial
5. Flat percentage of dollars or factors in the valuation rely on the
Valuation Group in Tampa, FL
units of sales ability to compare the subject valu-
ation company with similar pat- and was founding President of
6. Flat percentage with annual
terns and rates in the industry. With The Financial Consulting Group,
minimum and/or maximum
dollar amounts the advances in information tech- LC, a national group of indepen-
7. Flat percentage with a maxi- nology, this data is becoming more dent financial advisory service
mum dollar fee over the life of readily available, thereby allowing firms. He can be reached via
the agreement the intellectual property profes- email at mmard@fvginternational.
8. Variable percentage depending sional with the requisite skill, edu- com.
on the amount of dollar or unit cation and experience the capability The Financial Valuation
sales of forming better-founded and de- Group’s Intellectual Property
fendable conclusions and opinions. Transaction Database can be
These different patterns then Supporting documentation of com- found at www.fvginternational.
need to be compared to the subject parable royalty transactions is es- com with a secure server for on-
valuation company, such as indus- sential in an intellectual property line credit card transactions.
try patterns, rates for the industry valuation, especially for litigation. Comparative Intellectual Property
and the company’s ability to pay Transactions can be obtained by
the royalty. Conclusion visiting the Web site, calling
Exhibit I details the valuation In essence, intellectual property 800.490.8258, or by email to
process. The exhibit is divided into is the primary engine driving the fdanger@fvginternational.com.
Exhibit I—Factors to Be Considered Valuation of Intangible Assets/
Intellectual Property for Corporations and Professional Practices
Work Program contemplates the contrib- c. Value in exchange, in an
1. Determine the standard of val- utory value to an income orderly disposition. (This
producing enterprise of the premise contemplates that
ue:
intangible asset as part of a the intangible asset will be
a. Fair market value
mass assemblage of tan- sold in its current condition,
b. Fair value with normal exposure to its
c. Investment value gible and intangible assets.
b. Value in place, as part of an appropriate secondary mar-
d. Intrinsic value or funda- ket, but without the contrib-
mental value assemblage of assets. (This
utory value of any assoc-
e. Other premise contemplates that iated tangible or intangible
________________________ the intangible asset is fully assets).
2. State the purpose of the valu- functional, is part of an d. Value in exchange, in a
ation. assemblage of assets that is forced liquidation. (This
3. Determine the premise of value: ready for use but is not cur- premise contemplates that
a. Value in use, as part of a rently engaged in the pro- the intangible asset is sold
going concern. (This premise duction of income.) piecemeal, in an auction en-
MAY 2001 The Licensing Journal 27
Distribute by Hooghoogh.com