The Tax Cuts and Jobs Act (the “Tax Act”) introduced changes to the U.S. tax code in December 2017. Taking effect in 2018, tax reform is expected to have a substantial impact on both US and global business, including the valuation of intellectual properties and intangible assets.
From a valuation perspective, the value of any asset is based on the present value of after-tax cash flows to be generated from ownership of the asset. This is true for IP assets as well. Any cash flow that can be apportioned specifically to an IP asset will increase if a lower tax rate is applied. Therefore, all other things being equal, the value of IP assets that contribute to the generation of cash flows at a business will increase based on the now lower tax rate. This is simple valuation math: lower tax rate equals higher after-tax cash flows.
“With lower tax rates on corporate earnings, the benefits of transfer pricing transactions are likely to be reduced. Therefore, rather than viewing IP as a means to avoid taxes, corporate IP owners should now focus more attention on strategies to leverage their IP into additional earnings.”
IP can contribute to cash flows by enhancing the financial performance of the business using the IP, or through generation of royalties in a licensing transaction. To value IP assets based on their contribution to financial performance, the valuation analyst needs to undertake an apportionment exercise. The apportionment analysis assigns a portion of cash flows to each of the assets and resources that are used in the process of developing and selling the product or service. If a patent can be apportioned to 10% of a product’s cash flows, the patent’s valuation is based on 10% of the product’s forecast cash flow. Apportionment is the exercise employed to determine the 10% apportionment rate. The valuation of any royalties generated by licensing transactions will also be subject to a lower tax rate. All else being equal, lower tax rates should increase the value of cash flows generated by IP assets.
To date, many businesses with operations in multiple tax jurisdictions have used IP assets to lower their corporations overall tax expense. This works by domiciling the IP in a subsidiary located in a lower tax rate jurisdiction. Operations in higher tax rate jurisdictions pay a royalty to use the IP in order to lower their tax exposure in the high tax jurisdiction. Such transfer pricing is a topic beyond the scope of this post, but the Tax Act should change how IP owners employ their IP assets. With lower tax rates on corporate earnings, the benefits of transfer pricing transactions are likely to be reduced. Therefore, rather than viewing IP as a means to avoid taxes, corporate IP owners should now focus more attention on strategies to leverage their IP into additional earnings. As IP Strategy advisors, Nevium has helped companies ranging from non-profit organizations and rock bands to consumer products and technology companies identify and execute strategies to leverage their brand assets, copyrights and patents into additional earnings. Our work has included analysis of potential licensing opportunities, evaluating acquisition offers, and quantifying the impact of new pricing strategies. We suggest more IP owners consider new strategies to leverage their IP.
Nevium’s Brian Buss will moderate a Panel Discussion on Brand Contribution at the LESI 2018 Annual Conference San Diego.
The LESI 2018 Annual Conference San Diego will be held at the Manchester Grand Hyatt in San Diego from April 29 through May 2, 2018.
Nevium principal and valuation expert Brian Buss will be moderating a panel featuring leaders from San Diego companies discussing brand contribution, how to build, protect and leverage brand assets. The Brand Contribution will start at 4pm on Tuesday May 1, 2018. The complete schedule for the conference can be found at the LESI 2018 Annual Conference San Diego.
Lawrence Maxham is the President of The Maxham Firm and an AV Rated intellectual property attorney. The Maxham Firm is a San Diego-based intellectual property law firm providing IP development, prosecution and protection.
John Sarkisian: is a serial entrepreneur who has built and sold several companies, including the regional fast casual restaurant company Pat & Oscars, which was sold to a public company, and SKLZ, a sports training enterprise that was sold to private equity. John is now a partner in Motion Ventures, as well as Industry Chairman of San Diego Sports Innovators and Vice Chairman of YMCA of San Diego County.
Mark Chong is a Senior Manager, Integrated Brand Marketing at Hologic, Inc. (NDQ:HOLX).
Tom Hume has over 20 years of experience managing marketing campaigns, branding, direct-response marketing and channel programs for Consumer and Business brands including Cali Bamboo, Toshiba, Qwest, Sage Software, Gateway Computers, Sprint, and Verizon.
Jennifer Struebing is COO & Partner of Balboa Manufacturing a designer and manufacturer of products for the motorcycle, powersports, outdoor, military and safety markets.
Now that the holidays have ended and everyone is getting back to work, we at Nevium Intellectual Property Solutions want to share some of our successes during 2017 and wish everyone continued success in 2018.
IP Damages Expert Testimony
As testifying IP Damages experts, Brian and Doug provided expert opinions regarding:
- Patent infringement damages: software industry
- Copyright and trademark infringement: re-direction of Internet traffic
- Patent infringement damages: electronic retail and consumer products
- Breach of contract: use of a social media celebrity by a beverages company
- Trademark: Calculation of Internet traffic and economic benefit
- Defamation and disparagement: impact of online reviews
- Copyright: incremental profit from use of artwork in the apparel industry
- Trademark and copyright infringement damages: construction equipment industry
- Nevium’s trial-tested experts, Doug and Brian, have provided testimony in State and Federal court, arbitration and mediation proceedings, US Tax Court, and many expert depositions
Nevium’s trial-tested experts, Doug and Brian, have provided testimony in State and Federal court, arbitration and mediation proceedings, US Tax Court, and many expert depositions.
Brand Strategy and IP Valuation
Half of our projects are non-litigation, focused on creating value for IP owners:
- Quantified the contribution to financial performance provided by the brand used by a multi-channel, mission-driven beauty and health products company investigating the impact of a name change and re-branding
- Advised the wealth management group at a national bank regarding the value of copyright assets held by its clients
- Supported a leading industry training organization in testing and implementation of pricing strategies and brand extension
- Valued the intellectual property and business interests of a rock band
- Advised a restructuring fitness equipment distributor on brand contribution and trademark valuation
- Valued the domain name of a local charitable organization
Let us know if you are interested in hearing how we can help you build a better brand strategy.
New Book Chapter for BVR’s Comprehensive Guide to Economic Damages
In addition to an update for our Chapter Using Internet Analytic Tools for Valuation and Damages Calculations in Internet IP Infringement and Defamation Cases, Brian and Doug were invited to contribute a new chapter presenting a process for profit apportionment when calculating damages in IP litigation. Both chapters will be published in the 2018 edition of The Comprehensive Guide to Economic Damages, to be published by Business Valuation Resources.
Nevium PPC Index October 2017 shows for the 30 days ended October 20th the Nevium PPC Index experienced a 13% increase, increasing from 76.56 to 85.72. Through October 2017, the Index has declined 39% since its 12 month high of 140.6 in April 2017.
For the month of October 2017 the Index value increased for five of the seven keyword groups in our study. The Musician group experienced the greatest increase with an increase from 92.6 to 129.8. The only groups that decreased were Athletes which decreased from 87.4 to 69.7 and Retailers which decreased from 55.89 to 45.5.
Floyd Mayweather’s PPC rate continued to be one the biggest movers in our index during 2017. In March 2017 the Mayweather PPC rate was $0.13. Leading up to his fight with Connor McGregor in September, Mayweather’s PPC rate increased over 1200% from the low in March 2017. This month, Mayweather’s PPC rate declined 62% from $1.72 in September to $0.65 in October.
For the month of October 2017, the index constituents that experienced the largest increases were Mark Wahlberg and Gisele Bundchen. Wahlberg’s PPC rate increased 3044% from $0.09 to $2.83 and Gisele’s increased 2585% from $0.07 to $1.88.
More information on the Nevium PPC Index can be found here https://nevium.com/ppc-price-index/
INTA 2018 Annual Meeting Seattle
Visit us at Booth 406
Nevium Table Topic: Proving Infringement in Online Trademark Disputes
May 20, 2018, 12:00pm to 2:00pm
The International Trademark Association (INTA) is the global association of trademark owners and professionals dedicated to supporting trademarks and related intellectual property in order to protect consumers and to promote fair and effective commerce. INTA 2018 Annual Meeting Seattle will be from May 19–23, 2018 at the Washington State Convention Center.
Join Doug Bania and Brian Buss as they host the Table Topic Proving Infringement in Online Trademark Disputes.
- In Internet related cases, the first step for an attorney is to prove that infringement has occurred. This discussion will review and explain the website and social media analytic tools available to prove infringement Google Analytics, Pay Per Click Analytics and Facebook
- Insights provide a wealth of detailed information related to a visitor’s click-by-click movement throughout a website or social media account. Knowing how to navigate these systems and how to request detailed analytic reports in discovery can assist in obtaining the information needed to prove infringement
- As IP litigators and counsel can benefit from a deeper understanding of the Internet analytic tools available, the discussion will provide the details to intelligently request the proper information in discovery as well as provide the technical terms needed to interact with your experts
Doug Bania is a founding principal of Nevium Intellectual Property Solutions. A Certified Licensing Professional (CLP) and a Google Analytics Certified Individual (GAIQ) with over a decade of expertise in intellectual property valuation, profit apportionment and IP expert witness damages testimony. Mr. Bania has been named in over 50 cases, many of them dealing with the misuse of trademarks, publicity rights, copyrights and marketing IP on the Internet. Mr. Bania has used Internet and social media analytic tools in cases representing companies such as Airbnb, Sears and Macy’s and artists such as Pharrell Williams, Chris Brown and Fergie.
Brian Buss is a founding principal of Nevium Intellectual Property Solutions. A Chartered Financial Analyst (CFA) with 20 years of experience in valuations, financial analysis and corporate finance around the world. Mr. Buss provides strategic advice for owners of intellectual property portfolios, transaction support and due diligence for acquisitions, licensing, divestiture and partnership transactions, guidance in determining economic damages and profit apportionment in civil litigation, and valuations of trademarks, patents, copyrights, brand assets, trade secrets, technology assets, celebrity endorsements and marketing activities, and other intangible assets.
Doug and Brian have hosted previous INTA Table Topics in 2015 and 2016 which can be seen here.
Brian Buss Presenting at the IIPLA 2017 Silicon Valley 2nd Annual Meeting
The IIPLA 2017 Silicon Valley Annual Meeting of the International Intellectual Property Law Association (IIPLA) will be held October 9 and 10, 2017 in San Jose, California. This event will include representatives from some of the world’s largest companies and leading intellectual property advisors, including: Microsoft, Uber, Blackberry, Google, Hewlett Packard, and Intel.
Nevium is honored to serve as a sponsor of this year’s IIPLA Annual Meeting and Nevium Principal Brian Buss will be providing insight on damages calculations in claims as part of a panel discussion on Patent Litigation in the USA occurring on day 2 of the Annual Meeting. Brian will be speaking on IP Statutes: Guidance in Calculating Damages, IP Damage Remedies, Valuation and Damages Methodologies, Lost Profits, Unjust Enrichment, Apportionment, Reasonable Royalties and IP Valuation.
October 10, 2017, 9:00 am – 10:15 am
Download a copy of the presentation here
Barry R. Lewin, Gottlieb, Rackman & Reisman P.C
James Ragon, Director of Intellectual Property
US patent litigation
Deanna L. Kwong, Hewlett Packard Enterprise
IP Litigation Counsel
Brian Buss, Nevium IP Solutions