Valuation of Rights of Publicity and Other Intellectual Property Assets

• Author: Weston Anson
• Pages: 171-189

171

Valuation of Rights of

Publicity and Other

Intellectual Property Assets

Contributed by David Noble

When valuing rights of publicity or other intellectual property assets, it is essential to

consider the unique characteristics of the subject asset, and the context of the valuation

assignment. Typically, valuations are needed for one of the following reasons: when

negotiating a transaction (endorsements, licensing, etc.); when calculating infringement

damages; for financial reporting; or for tax purposes at the time of transfer or death.

The methods used to value intellectual property and intangible assets have many

elements in common with those used to value tangible assets such as real estate, equip-

ment, or other real property. However, unlike the valuation of tangible property, a lack

of available information often complicates the valuation of intellectual property.

In this chapter we review valuation methodologies and trends in valuation standards.

I. Certainty of Valuation

When valuing any asset there is inherently a level of uncertainty regarding the con-

clusion of value. This is true even of assets with a seemingly immutable value, such

as cash, as inflation and exchange rate fluctuation affect real value. Due to the unique

nature of intellectual property assets, the level of uncertainty increases. Unlike real

estate or equipment, active markets for the purchase and sale of comparable intellectual

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172 Right of Publicity: Analysis, Valuation, and Current Legal Status

properties often do not exist, and information available may be skewed toward large

deals as smaller transactions are rarely publicized.

Complicating the analysis is the fact that an intellectual property asset like right of

publicity can have multiple values at the same time. This seeming paradox is due to the

context of the valuation. Unlike a piece of real estate, an intellectual property asset can

have vastly different levels of value depending on who owns it and how they intend to

use it. As an example, consider a fully commercialized patent held by a pharmaceutical

company. There are at least three values for the patent at any given time. The first is

the in-place value of the patent as it is currently being utilized. The second is the value

of the patent to a competitor who intends to bring a similar drug to market. Clearly, the

value of the patent to the competitor is different than the value to the original owner as

the competitor would be the second or third entrant to the marketplace and unlikely to

gain equivalent market share. A third value is the value that a current infringer would

pay in order to avoid litigation. That value, again, will be different than the value to the

in-place holder.

Figure 11.1 illustrates this uncertainty. The vertical axis is measured in relative cer-

tainty of valuation running from 100 percent to 0 percent. The horizontal axis identifies

six different kinds of assets, four being tangible and two being intangible. The slope of

the line is a relative slope and simply serves to indicate that there is a range of certainty

with any type of valuation.

Figure 11.1. Certainty in Valuation

Cash Accounts

Receivable

Inventory Real Estate IP Other

Intangibles

Asset Type

Valuation Certainty

100%

80%

60%

40%

20%

0%

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