IP Value and Structuring Implications of Emerging Digital Business Models - Jim Asher, Head of Valuation, Coller IP

© Coller IP 2014

IP Value and Structuring Implications of Emerging Digital Business Models

3rd June 2014

Jim Asher

Head of Valuation

Coller IP

© Coller IP 2014

Outline

• Valuation of IP for different digital business models

• The challenges of providing a solid basis for IP valuation

• Using market evidence for the value of IP transactions

• Centralisation trend: implications of centralised sales,

service, customer support, finance and other business

functions

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Intangible Assets

Intellectual Capital

Intellectual Capital

Intellectual Assets

Intellectual Assets

Un - recorded inventions

Key skills Know - how

Processes Market data Information

Intellectual Property

Patents Trade Marks Designs Copyright Databases Trade secrets

Business relationships

Branding

Reputation

Contracts

Legal underpinning

People-based assets

Routes to market

© Coller IP Management 2007

© Coller IP 2014

Digital IP Challenges

• Digital economy: software, (ephemeral) content,

databases, novel business concepts, and virality

• Validity of patents is different in USA and Europe

– Software: OK in USA, difficult in Europe

– Business methods: OK in USA, not valid in Europe

• Copyright is a challenge to enforce

– Access controls and technical fixes

• Digital world sits in cyberspace

• Time is often critical

• New challenges – e.g. securing identity, 3D printing

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What is the value of IP?

• IP provides exclusive rights

– Maintain a premium price

– Support a market share

• Value is in the additional profits IP can protect

• Without a market, IP may be a liability

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Valuation essentials

• An economic context

– A clear business model

– Reliable financial and market information

– Contribution of IP to the economics

• Credible assumptions

• Benchmarks to market comparators

• An appropriate methodology

• Understanding the purpose

€£$?

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Who wants to know?

• Businesses

• Lawyers & Accountants

• Investors

• Lenders

• Insolvency Practitioners

• Tax authorities and advisors

– Taxable events

– Transfer pricing

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Valuation methods

• Cost-based

– What would it cost to replace the future

capability of an asset?

• Market-based

– Are there similar transactions in the market to

provide comparators?

• Future income

– What additional profits/cash will the IP

generate in the future?

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Key factors in a valuation

• Financial model

• Identification of risks and discounts

– Technical risk: will it work?

– Market risk: demand, who/how many will buy?

– Legal risk: legal challenges, loss of IP rights

• Time value of money

– DCF calculations

– WACC benchmarking and risk adjustment

• Uncertainties in key parameters > value range

• Robust inputs and justifiable assumptions, not just maths

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Example

• A business with a free-access specialist factual website

– High visitor score

– Significant revenues from advertising

– Projecting to expand with other language versions

• IP is in the website and the ‘brand’

• What is its value?

– How durable is the revenue?

– What are the risks?

• Where is the revenue earned?

Case study

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Structural trends

• Centralisation trend: centralised sales, service,

customer support, finance and other business functions

– Amazon s.a.r.l. takes the sale, Amazon UK fulfils the order

– Where does the IP make an impact?

• IP in a holding company (in a low-tax location) with

interco licensing

– Starbucks, Google, Microsoft

• Taxation drives requirements to value IP

– transfer

– transfer pricing

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Transfer pricing and IP

OECD Guidelines

• Where is the value generated?

• Where is the profit made?

• Identify ‘routine’ profits in trading

• Identify profit attributable to the IP

• Accounting for IP-related costs

• Identify a fair profit split between

related parties

• Market comparators for

uncontrolled transactions

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Digital economy: challenges

• In the digital economy, where does the taxable

transaction occur?

• How are costs allocated in a distributed business?

• Are financial projections reliable?

• Is the opportunity gone before IP is secure?

• Where does IP protection apply?

• Can IP laws keep pace with rapid change?

• New risks in new business models

© Coller IP 2014

Jim Asher

[email protected]

www.collerip.com

…making the intangible valuable