SUB: - BUSINESS VALUATION

CLASS: - TYBAF

PANTENTS, COPYRIGHTS AND BRANDS

Intangible Assets Intangible assets include a wide array of assets ranging from patents and
trademarks to goodwill. The accounting standards vary across intangible assets. In case of
specifically identifiable intangibles, the cost associated with the obtaining of intangibles can be
identified (i.e., patents, copyrights, trademarks, etc.)

1. PATENTS

Patents A patent gives the holder the exclusive right to produce, use and sell a product or
process without interference or infringement from others. Cost of patent: If purchased from an
inventor, the cost will include the purchase price plus any legal fees (to successfully protect the
patent). In addition, any legal fees occur after the acquisition of a patent to successfully defend
the right of the patent should also be capitalized. The cost of a patent should be amortized over
the legal life or the useful life, whichever is shorter. If a patent becomes worthless, the net value
of the patent should be written off as expense (or loss). If a patent is internally developed, no cost
can be capitalized. All the research and development (R&D) costs should be expensed. Patents
and Trademarks are valued differently depending on whether they are generated internally or
acquired. When patents and trademarks are generated from internal research, the costs incurred
in developing the assets are expensed in that period, even though the asset might have a life of
several accounting periods. Thus, the intangible asset is not valued in the balance sheet of the
company. In contrast, when an asset is acquired from an external party, it is treated as an asset.
Intangible assets have to be amortized over their expected lives.

Utility Patents

A utility patent is the most common type of patent that people seek. This type of patent covers
processes, compositions of matter, machines, and manufactures that are new and useful. A utility
patent can also be obtained for new and useful improvements to existing processes, compositions
of matter, machines, and manufactures. Processes refer to any acts or methods of doing
something, usually involving industrial or technical processes. Compositions of matter are
basically chemical compositions, which can include a mixture of ingredients or new chemical
compounds. Machines include things that are generally defined as a machine, such as a
computer, while manufactures are defined as goods that are manufactured or made.

Design Patents

In terms of obtaining a design patent, a design is defined as the "surface ornamentation" of an

object, which can include the shape or configuration of an object. In order to obtain this type of
patent protection, the design must be inseparable from the object. While the object and its design
must be inseparable, a design patent with only protect the object's appearance. In order to protect
the functional or structural features of an object, a person must also file for a utility patent.

Plant Patents

A plant patent can be obtained to protect new and distinctive plants. A few requirements to
obtain this type of patent are that the plant is not a tuber propagated plant (i.e. an Irish potato),
the plant is not found in an uncultivated state, and the plant can be asexually reproduced.
Asexual reproduction means that instead of being reproduced with seed, the plant is reproduced
by grafting or cutting the plant. Plant patents require asexual reproduction because it's proof that
the patent applicant can reproduce the plant.

How to Obtain Patent Protection

Regardless of the type of patent you are seeking, patent protection can only be obtained by filing
an application with the United States Patent and Trademark Office (USPTO). There are both
provisional and non-provisional patent applications available to patent-seekers. A provisional
patent application can be filed to give the applicant more time to figure out the specifics of the
invention or discovery while protecting the invention or discovery from being patented by
someone else. A person who files a provisional patent application has one year from the date of
filing to file a corresponding non-provisional application.
The non-provisional patent application begins the official examination process for the USPTO to
determine if an invention or discovery is eligible to receive patent protection. Although the
information that must be included in the patent application will depend on the type of patent that
is being sought, non-provisional patent applications will typically include a description and claim
of the invention or discovery, drawings, an oath or declaration, and fees. As per the Patent
Cooperation Treaty (PCT), a person can also file an international patent application.

2. COPYRIGHTS

Copyrights Copyright is a government granted right to authors, sculptors, painters, and other
artists for their creations. A copyright is granted for the life of the creator plus 70 years. It gives
the creator and heirs an exclusive right to reproduce and sell the artistic work or published work.
Cost of Copyright: If purchased, the cost includes the purchase price plus any legal fees. If
developed by the owner (the creator), no cost can be assigned (capitalized). Amortization is by
Straight-line method or a unit-of-production method.
TYPES OF COPYRIHTS

Public Performing Right

The exclusive right of the copyright owner, granted by the U.S. Copyright Law, to authorize the
performance or transmission of the work in public.

Public Performance License

BMI issues licenses on behalf of the copyright owner or his agent granting the right to perform
the work in, or transmit the work to, the public.

Reproduction Right

The exclusive right of the copyright owner, granted by the Copyright Act, to authorize the
reproduction of a musical work as in a record, cassette or CD.

Mechanical License

Harry Fox Agency, Inc. issues licenses on behalf of the copyright owner or his agent, usually to a
record company, granting the record company the right to reproduce and distribute a specific
composition at an agreed upon fee per unit manufactured and sold.

Synchronization License

Music Publishers issue licenses as copyright owner or his agent, usually to a producer, granting
the right to synchronize the musical composition in timed relation with audio-visual images on
film or videotape.

3. TRADEMARKS

Trademarks & Trade Names Trademarks and trade names refer to a word, a phrase, or a symbol
that distinguishes a product or an enterprise from another (i.e., company names such as IBM,
Microsoft, Intel, and XEROX). Cost is similar to that of copyrights. The owner should register at
the Patent Office for 10 years life. The registration can be renewed every 10 years for unlimited
times. Amortization is over the shorter of the useful or legal life, not to exceed 40 years.

4. BRANDS

Brands are strategic assets. The key to survival of companies is their brands in the modern
world of complex and competitive business environment. According to American Marketing
association, brand means a name, term, sign, symbol or design or group of sellers and to
differentiate them from those of competitors. Corporate branding can be taken to mean
strategic exercise by managerial decision making of creating, developing, maintaining and
monitoring the identity, image and ownership of a product etc. Brand comprises an important
item in that they greatly determine the corporate market value of a firm. Brand achieves a
significant value in commercial operation through the tangible and intangible elements.
Brand is that intangible assets which is acquired from outside source while acquiring
business or may also be nurtured internally by a company, which are known as home grown
brands. By assigning a brand name to the product, the manufacturer distinguishes it from
rival products and helps the customer to identify it while going in for it. Necessity of
branding of products has increased enormously due to influence of various factors like
growth of competition, increasing importance of advertising etc. A powerful brand creates
lasting impact on the consumers and it is almost impossible to change his preference even if
cheaper and alternative products are available in the market. Brands have major influence on
takeover decisions as the premium paid on takeover is almost always in respect of the strong
brand portfolio of the acquired company and of its long term effect on the profit of the
acquiring company in the post –acquisition period.

Factors that have influence on brand valuation. Mode of valuation of brands depends on type
of brands; (i) acquired or (ii) self acquired. In general method of valuation of brands on one
or more following variables;

1. Cost of acquisition of brand

2. Expenses incurred on nurturing a home grown brand
3. Earning power of the brand
4. Product life cycle
5. Separating brand from other less important value drivers
6. Intrinsic strength of the people and process handling brand
7. Impact of other new brands in the market
8. Intrinsic strength of the people and process handling the brand
9. Accuracy in projecting the super or extra earnings offered by a brand and the rate of
discounting cash flows
10. Cost of withdrawing or rejecting the brand.