THE PRACTICE OF INTELLECTUAL PROPERTY VALUATION
TAN CHONG HIEN
UNIVERSITI TUN HUSSEIN ONN MALAYSIA
UNIVERSITI TUN HUSSEIN ONN MALAYSIA STATUS CONFIRMATION FOR UNDERGRADUATE PROJECT REPORT THE PRACTICE OF INTELLECTUAL PROPERTY VALUATION ACADEMIC SESSION: 2017/2018 I, TAN CHONG HIEN, agree to allow this Undergraduate Project Report to be kept at the Library under the following terms: 1. 2. 3. 4.
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THE PRACTICE OF INTELLECTUAL PROPERTY VALUATION
TAN CHONG HIEN
A thesis submitted in partial fulfillment of the requirement for the award of the Degree of Bachelor in Real Estate Management (with Honours)
Faculty of Technology Management and Business Universiti Tun Hussein Onn Malaysia (UTHM)
JANUARY 2018
ii
“I hereby declare that the work in this project report is my own except for quotations and summaries which have been duly acknowledged”.
Student
: ........................................ TAN CHONG HIEN
Date
: 1st January 2018
Supervisor
: ........................................ ASSOCIATE PROFESSOR DR. ROZILAH BINTI KASIM
iii
DEDICATION
This piece of challenging work that requires huge effort would not be completed without the guidance of all the parties involved. This thesis is especially dedicated to:
My beloved parents, MR. TAN AH HONG and MDM CHONG SHU YU Thank you for the unconditional love, support, encouragement that allowed me to be able to reach the height that I reached. .
My respected supervisor,
DR. ROZILAH BINTI KASIM Thank you for the constructive guidance, constant supports and inspiration.
and my dearest friends,
Thank you for the supports and inspiration in this research.
iv
ACKNOWLEDGEMENT
First and foremost, I would like to express my greatest and sincere gratitude to my dearest supervisor, Associate Professor Dr. Rozilah Binti Kasim for her support and encouragement. Without her patience, guidance and advices, this research would not be completed smoothly and successfully. It is a great honour to work under her supervision and I really appreciate the patience and personal guidance poured onto me that helped me a lot in making this project a success. Furthermore, I would like to show my appreciation to my assessment panel members, Associate Professor Dr. Azlina Binti Md. Yassin and Dr. Edie Ezwan Bin Mohd Safian who have helped me to improving my research by providing constructive ideas, thoughts and advice for the improvement of the study and accomplishment of this thesis. Apart from that, I would also like to heartily thank all the parties, especially the respondents. Their direct and indirect involvement in completing this research by providing input through both their assistance and advice has been nothing short of amazing. Last but not least, I would like to express my deepest thanks and gratitude to my lovely family, Ah Hong, my father; Shu Yu, my mother, Chong Fui, my brother and Siau Ling, my sister. They are the ones who have always been the nearest and have been so close to me that I found them with me whenever I needed. It is their unconditional love which motivated me at every stage of my research towards achieving various milestones of my journey.
v
ABSTRACT
Intellectual property valuation refers to the valuation of property rights for creations of the mind such as patent, trademark and copyright. The selection of valuation approach for intellectual property is often difficult as there is a lack of availability of information for this sector. Besides that, valuers also face some tough challenges in their valuation work for intellectual property. These challenges come from both intellectual property and the valuation practice. Firstly, there is absence of strong and established framework on IP valuation practice as observed in several related acts and standards. Secondly, there is the issue of inconsistency in the recognition and measurement of intellectual property. Lastly, valuation practice is always subject to the appraisers’ subjectivity. Thus, the purpose of this research is to investigate the practice of IP valuation and challenges faced by IP valuers in intellectual property valuation. The research scope was carried out throughout Kuala Lumpur, targeting respondents who are involved in IP valuation practice. In this research, qualitative approach was used as the research approach and data collection gathered through semi structured interview and related documents review. Results of this research identified the elements in the practice of IP valuation and determined the challenges faced by IP valuers in intellectual property valuation practice. Findings from this research are beneficial to practitioners in IP valuation as well as policy makers in IP industry. Findings from this research may improve the landscape of the IP valuation practice in Malaysia.
vi
ABSTRAK
Penilaian harta intelek merujuk kepada penilaian ke atas hak harta intelek seperti paten, tanda dagangan dan hak cipta. Pemilihan pendekatan penilaian untuk harta intelek selalunya sukar kerana maklumat yang sedia ada untuk sektor ini adalah terhad. Tambahan pula, penilai juga menhadapi cabaran yang menduga semasa melakukan penilaian untuk harta intelek. Cabaran ini berasal dari harta intelek dan amalan penilaian sendiri. Masalah yang utama adalah kekurangan rangka kerja yang kukuh dan mantap dalam konteks tempatan melalui pemerhatian dari beberapa akta dan piawaian. Masalah kedua adalah isu tidak konsisten dalam pengenalpastian harta intelek. Masalah ketga adalah amalan penilaian selalu tertakluk kepada subjektivity penilai. Maka, tujuan penyelidikan ini dijalankan adalah untuk menyiasat amalan penilaian harta intelek dan menentukan cabaran yang dihadapi oleh penilai harta intelek dalam penilaian harta intelek. Skop penyelidikan yang dipilih adalah Kuala Lumpur dan melibatkan responden yang terbabit dalam penilaian harta intelek. Dalam penyelidikan ini, kaedah kualitatif dipilih sebagai pendekatan penyelidikan dan data dikumpul melalui temu duga separa struktur dan semakan dokumen. Hasil penyelidikan mengenal pasti unsur dalam amalan penilaian harta intelek dan menentukan cabaran yang dihadapi oleh penilai harta intelek dalam proses penilaian harta intelek. Penemuan penyelidikan ini berguna kepada penilai harta intelek dan juga pembuat polisi dalam bidang harta intelek. Penemuan penyelidikan mungkin dapat menambah baik landskap dalam amalan penilaian harta intelek di Malaysia.
vii
CONTENTS
TITLE
i
DECLARATION
ii
DEDICATION
iii
ACKNOWLEDGEMENT
iv
ABSTRACT
v
ABSTRAK
vi
CONTENTS
vii
LIST OF TABLES
xiv
LIST OF FIGURES
xvi
LIST OF SYMBOLS AND ABBREVIATIONS
xvii
LIST OF APPENDIX
xviii
CHAPTER 1 INTRODUCTION
1
1.1
Research Background
1
1.2
Problem Statement
4
1.3
Research Questions
6
1.4
Research Objectives
6
1.5
Scope of Research
6
1.6
Significance of Research
7
viii 1.7
1.8
Research Methodology
8
1.7.1 First Stage
8
1.7.2 Second Stage
8
1.7.3 Third Stage
9
1.7.4 Fourth Stage
9
1.7.5 Fifth Stage
9
Summary
11
CHAPTER 2 LITERATURE REVIEW
12
2.1
Introduction
12
2.2
Property
12
2.3
Intangible Assets
13
2.4
Intellectual Property
15
2.4.1 Definition of Intellectual Property
15
2.4.2 Types of Intellectual Property
16
2.4.2.1 Patents
16
2.4.2.2 Trademarks
17
2.4.2.3 Copyright
17
2.4.2.4 Industrial Design
18
2.4.2.5 Geographical Indication
18
2.4.2.6 Integrated Circuit Layout Design
18
2.4.2.7 Trade Secret
19
2.4.2.8 Plant Variety Rights
19
ix 2.4.3 History and Development Process of Intellectual Property
20
2.4.4 Increasing Importance of Intellectual Property
21
2.4.5 Performance of Intellectual Property in Malaysia
21
2.5
Valuation
22
2.6
Intellectual Property Valuation
23
2.6.1 Definition
23
2.6.2 Parameters in Intellectual Property Valuation Practice 2.6.3 Valuation Approach for Intellectual Property
23 23
2.6.3.1 Market Approach
23
2.6.3.2 Cost Approach
24
2.6.3.3 Income Approach
24
2.6.4 Valuation Method Preferences
24
2.6.5 Purpose of Valuation
26
2.6.6 Justification in Selection of Approach in Valuation of Intellectual Property
27
2.6.6.1 Selection of Valuation Approach in Patents 28 2.6.6.2 Selection of Valuation Approach in Trademarks
29
2.6.6.3 Selection of Valuation Approach in Copyrights
30
x 2.6.7 Important Factor to Consider in Intellectual Property Valuation
31
2.6.7.1 Important Factor to Consider in Cost Approach
31
2.6.7.2 Important Factor to Consider in Market Approach
33
2.6.7.3 Important Factor to Consider in Income Approach
38
2.6.8 Challenges in Intellectual Property Valuation Practice 2.7
Summary
CHAPTER 3 METHODOLOGY
43 44 45
3.1
Introduction
45
3.2
Research Process
46
3.2.1 Determination of Title and Issue Identification
47
3.2.2 Literature Review
47
3.2.3 Data Collection
48
3.2.4 Data Analysis and Formulating Outcome
48
3.2.5 Conclusion and Recommendation
49
Research Approach
49
3.3.1 Qualitative Research
49
Research Strategy
50
3.4.1 Interview
51
3.3
3.4
xi
3.5
3.6
3.4.2 Document Review
52
Data Collection Technique
52
3.5.1 Primary Data
53
3.5.2 Secondary Data
53
Data Analysis Technique
54
3.6.1 Thematic Network Analysis
54
3.6.1.1 The Structure of Thematic Network Analysis Employed in The Study 3.7
Summary
54 56
CHAPTER 4 DATA ANALYSIS AND RESULTS
57
4.1
Introduction
57
4.2
Research Framework
58
4.3
Background of Respondent
59
4.4
Method or Instrument Used
59
4.4.1 Interview Survey
60
4.4.1.1 Interview Conducted with Experienced I Valuer
60
4.4.1.2 Interview Conducted with Certified IP
4.5
Valuer
61
4.4.2 List of Documents Reviewed
61
MyIPO
62
4.5.1 Objectives
63
4.5.2 Role of MyIPO
63
xii
4.6
4.5.3 Services Provided
64
Data Analysis and Findings
66
4.6.1 Data Analysis on Research Objective 1: To Investigate The Practice Of Intellectual Property Valuation
66
4.6.1.1 Theme 1: Classification of IP
66
4.6.1.2 Theme 2: Selection of Valuation Approach 68 4.6.1.3 Theme 3: Purpose of Valuation
70
4.6.1.4 Theme 4: Factors Taken Into Consideration 73 4.6.1.5 Theme 5: Process in IP Valuation
75
4.6.2 Data Analysis on Research Objective 2: To Determine The Challenges Faced By IP Valuers In The Practice of Intellectual Property Valuation
77
4.6.2.1 Theme 1: Natural Barrier
77
4.6.2.2 Theme 2: Issues in IP Valuation
79
4.6.2.3 Theme 3: Information and Data Acquisition 82 4.6.2.4 Theme 4: Dealing with Uncertainty 4.7
Summary
CHAPTER 5 CONCLUSION AND RECOMMENDATION
84 85 87
5.1
Introduction
87
5.2
Results and Discussion
88
5.2.1 Research Objective 1
88
5.2.2 Research Objective 2
91
xiii 5.3
Contribution of the Study
93
5.3.1 Contribution to new knowledge
93
5.3.2 Contribution to practical knowledge
94
5.4
Research Limitation
94
5.5
Recommendation from Respondents
95
5.6
Recommendation for Future Research
96
5.7
Overall Conclusion
97
REFERENCES
99
APPENDICES
106
VITA
110
xiv
LIST OF TABLES
2.1
Categories of intangible assets and its descriptions
2.2
Total number of patents applied and granted in Malaysia from 2006 to 2015
2.3
14
21
Total number of trademarks applied and granted in Malaysia from 2006 to 2015
21
2.4
Valuation method preferences
25
2.5
Valuation approach and method used by different parties
25
2.6
Purpose of valuation based on previous researchers
27
3.1
List of documents reviewed
52
4.1
Background of the respondent
59
4.2
List of documents reviewed
61
4.3
Classification of IP
66
4.4
Approaches used in IP valuation
68
4.5
Purpose of IP valuation
70
4.6
Factors taken into consideration when valuing IP
73
4.7
Higher education background of respondent
77
4.8
Source of skills and knowledge of respondent
77
4.9
Respondent’s experience in other form of valuation
78
xv 4.10
Issues in IP valuation
79
xvi
LIST OF FIGURES
1.1
Flow chart of research
10
3.1
Flow chart of research process
46
3.2
Flow chart of research design
51
3.3
Structure of a thematic network
56
4.1
Research framework
58
4.2
Structure of thematic network analysis used in the network
58
4.3
Qualitative data collection structure to investigate practice and challenges of IP valuation in Malaysia
4.4
59
Interview framework to investigate practice and challenges of IP valuation in Malaysia
60
4.5
Objectives of MyIPO
63
4.6
Source of database
82
4.7
Methods of dealing with uncertainty
84
5.1
Themes in Research Objective 1
88
5.2
Themes in Research Objective 2
91
xvii
LIST OF SYMBOLS AND ABBREVIATIONS
IFRS
-
International Financial Reporting Standards
IP
-
Intellectual Property
IVS
-
International Valuation Standards
MOA
-
Ministry of Agriculture and Agro-Based Industry
MyIPO
-
Intellectual Property Corporation of Malaysia
PVR
-
Plant Variety Rights
RICS
-
Royal Institution of Chartered Surveyors
WIPO
-
World Intellectual Property Organization
xviii
LIST OF APPENDICES
APPENDIX
A
TITLE
Interview Questions
PAGE
4
1
CHAPTER 1
INTRODUCTION
1.1
Research Background
In the modern age of the globalized world, intellectual property (IP) plays a very essential role in our daily life. Anyone who expresses interest in music, movies, sports, games, and even technology devices such as phones and laptops are all impacted by intellectual property whether or not they are conscious about it. Even though the term intellectual property remains an abstract concept to a huge part of the population in the world, there is no doubt that it impacts the life of every people in the world economically and culturally. Intellectual property helps to drive innovation by serving as an incentive for innovations that can help change our lives (Donohue, 2014). When inventors, artists or scientists gain assertion of having their work protected and rewarded by intellectual property rights, they will be more inclined and willing to produce. The reward of intellectual property rights will fuel musicians to produce a new album or encourage pharmaceutical companies to invest in new drugs and research. Furthermore, intellectual property is critical in protecting the safety and importance of a customer and also boosting the confidence of the customer. Intellectual property protection and enforcement prevents counterfeit of products such as music albums and drugs from the customer. In a business, the business’ total assets can be classified into two categories: physical assets and intangible assets, where intellectual property belongs to the latter. Commonly, physical assets refer to tangible assets such as infrastructures, buildings and equipments. On the other hand, G. Smith & Parr (2005) defines intangible assets
2
as “the remaining elements of a business besides monetary and tangible assets”. They also classified intangible assets into four categories: rights, relationships, undefined intangibles and intellectual property. Until the last decades, physical assets used to make up the majority of the value of a business or company. They are hugely related in the determination of the advantages a company have in the sector. However, a reverse in the relative value of assets to a business is observed in the past few decades. The evolution of humanity has shifted humans from a paradigm to another paradigm. There are few significant paradigms shift throughout the history of humanity, starting from agricultural paradigm to the Industrial Revolution and finally the Intellectual Property Age (G. Smith & Parr, 2000). Intellectual property has been slowly walking into our lives and forming a bigger part of our lives with every passing day. Even though intellectual property has a long history and origin, it wasn’t until after the Industrial Revolution that it starts to develop at a rapid pace. During the Industrial Revolution era, most of the companies’ capital and asset are placed in buildings, machines and equipment. The value in these tangible assets signifies the size of the company in those days. Today, however, most of the biggest companies in the world are valued based on the intangible assets and intellectual property that they possess. According to the World Intellectual Property Organization (WIPO), intellectual properties obtain their values from legal protection (“The Value of Intellectual Property Assets,” n.d.). The existence of legal protection in intellectual property turns an intangible asset into something more tangible and tradable, such as valuable exclusive assets in the form exclusive property rights, for a limited amount of time. If intangible assets such as ideas, designs and brands of a business are not legally protected by intellectual property rights then they may be used by other parties freely and legally. However, if intangible assets are legally protected by intellectual property rights then they will obtain a value for the business as they become property rights that cannot be used or commercialized without authorization. It should be noted that it is not intellectual property valuation that makes an intellectual property valuable. Instead, intellectual property valuation only reflects the value of intellectual property that derives its value from the market (Ma, 2000). Changes in the global economic environment have influenced the development of business models where IP is a central element establishing value and
3
potential growth. In addition to these systemic changes, U.S. and international accounting practices place pressure on firms to recognize and value all identifiable intangible assets of a firm as part of a transaction (in a merger or acquisition, for example). Intellectual property is growing in significance in the modern world. Furthermore, the trend also shows that its numbers is also growing at a rapid pace in Malaysia. As a result of these trends, proper valuation of IP, followed by measures to protect that value, have become a key element of the success and viability of a modern firm. Hence, the successful exploitation and management of IP portfolios is a key factor related to company business strategies and requires effective management. Research,
development,
legal,
industrial
protection
application
and
commercialisation decisions involve high but measurable levels of risk. An efficient IP valuation facilitates cost effective decision-making and helps those responsible for the management if IP understand and deal with the risks involved (“Valuation Of Intellectual Property,” n.d.). Furthermore, precise IP value is needed for many aspects of financial reporting and accounting, including the reporting of fair value estimates in annual reports. Kuala Lumpur is the national capital of Malaysia as well as its largest city. Besides that, it is also one of the fastest growing metropolitan regions in South-East Asia. Kuala Lumpur is the sole alpha world city in Malaysia with an area of 243 km2 that accommodates its population of 1.78 million as of 2015 (“Federal Territory of Kuala Lumpur,” 2017). Due to the development and advancement of the city, it is a suitable place to conduct a credible research. All in all the limited amount of investigation into intellectual property valuation is the driving force for the accomplishment of this research. The research investigates the practice of IP valuation and challenges faced during the valuation of intellectual property. The identified criteria would be able to add consistency into intellectual property valuation practice. The challenges in intellectual property valuation found by the researcher are also expected to help ease the complication in intellectual property valuation practice. The research aims to help create a solid framework for future studies of intellectual property valuation in order for Malaysia to develop smoothly as intellectual property is crucial in nation’s growth.
4
1.2
Problem Statement
Valuation is a tough job to perform as there is no definitive approach and method for valuation. Valuation itself has always contained the element of subjectivity in it. Moreover, valuation is especially challenging as intellectual property are not always clearly defined or defined uniformly by all parties. This makes intellectual property valuation very tough to perform because many of the challenges faced in practice are unpredictable. The issue of professional valuation standards and practice has been given attention not only in Malaysia but also internationally in recent years (Yahya, Razali, & Abdul, 2012). In Malaysia, acts and standards regarding IP valuation are not clearly defined as existing act regulating IP valuation practices can only be found in MyIPO Act 2002 (Act 617). In addition to that, Royal Institution of Chartered Surveyors (RICS) Valuation Standard addressed intellectual property valuation in general terms but it does not provide a clear framework on how the IP valuation is carried out. Lastly, IP valuation is also not been highlighted in the Malaysian Valuation Standard (2011). The most significant problem faced by IP valuer when practicing IP valuation is the absence of strong and established framework on IP valuation practice, especially one that is applicable to the Malaysian context. In addition to that, Kim (2015) states that it is highly likely that the practice of valuation may be affected by valuer’s subjective opinion because valuation criteria are not stipulated specifically in the rule. Thus, valuation may be made uniformly because various valuation methods are not fully utilized. Furthermore, Vaz (2015) supports that by stating the discretionally and the appraisers’ subjectivity that characterize traditional real estate valuation are still allowed to take part in the formation of the asset price. This is especially true when it comes to the valuation of intangible assets, especially intellectual property. The practice of intellectual property valuation is difficult as intellectual property and intangible assets as a whole are not addressed clearly and consistently. Moerman & Van Der Laan (2006) claim that there is a contentious issue of the inconsistencies in the recognition of intellectual property rights under different frameworks. Siegel & Borgia (2007) support the claim by stating that even Generally
5
Accepted Accounting Principles (GAAP) allows for inconsistencies in the measurement and reporting of intangibles. In addition to that, a lack of universally accepted valuation methods is proving to be problematic in intellectual property valuation and transaction (Bader et al., 2011). It is found in a survey that the market actors consider the problem of evaluating intellectual property as the greatest barrier in IP transactions. The lack of generally accepted valuation methods has an adverse effect buyers’ and investors’ confidence as the value of IP is filled with uncertainty. Bishop (2003) also states that the valuation of intellectual property assets are a tough task as their value may not always be readily apparent. Furthermore, an intellectual property valuer also has to face the challenge of applying theory into practice (G. Smith & Parr, 2005). Some of the IP valuation practices require skill that is beyond theoretical learning, such as forecasting and, investigation skills. IP valuation requires a certain degree of forecasting as appraisal is, after all, a judgment about the nature of a transaction that never took place and perhaps never will take place. Investigation skill is also required to probe into many details such as the profit numbers of the company the types of intellectual property rights. All these skills require soft skills such as fostering cooperative relationship with the client and asking tough questions to get the right answers. It should be noted that Chaplinsky (2002) claims that higher level of consistency can be achieved by using the several methods that are recommended when valuing a specific intellectual property asset. This provides differing viewpoints on the underlying asset value and is a useful check for consistency in assumptions and human errors that may occur in relying on only one method. On the other hand, Andersen (1992) discovered several important points regarding intellectual property valuation in a major study. He points out that there was already considerable consensus over the methodologies in intellectual property valuation. He further states that the valuation of intellectual property may be subjective, albeit not as subjective compared to valuation of pension funds, unquoted companies and businesses in emerging markets. Hence, further research must be conducted to study the most suitable and acceptable methodologies for intellectual property valuation, and to reduce the impact of subjectivity in intellectual property valuation by understanding the practice of IP valuation. It is important for intellectual property valuation to be done as
6
meticulously as possible to allow intellectual property to develop smoothly in Malaysia.
1.3
Research Questions
Based on the identified issues, the research has raised two questions:
(i)
How do intellectual property valuers carry out the practice of intellectual property valuation?
(ii)
What are the challenges faced by intellectual property valuers in the practice of intellectual property valuation?
1.4
Research Objectives
This research was carried out based on two main objectives, which are:
(i)
To investigate the practice of intellectual property valuation
(ii)
To determine the challenges faced by intellectual property valuers in the practice of intellectual property valuation
1.5
Scope of Research
To make the research more effective and manageable, the scope of the study was focused on three main aspects. The area selected to undertake this research is Kuala Lumpur. Kuala Lumpur is the national capital of Malaysia as well as its largest city, serving as the financial, economic and cultural centre of Malaysia. It is among the fastest developing metropolitan regions in the whole of South-East Asia. Besides that, Kuala Lumpur also serves as the location for many parties, including the Intellectual Property Corporation of Malaysia (MyIPO), the intellectual property valuation firm and valuer.
7
Thus, research undertaken in this area would provide credible finding and result to the research. Next, the subject of the research will be focused on intellectual property. Intellectual property is growing in significance over time and the rate of growth for intellectual property in Malaysia is also rapid. Thus, it is important to probe into the valuation of intellectual property and the challenges faced during valuation to allow a smooth development of intellectual property in Malaysia. The respondents for the survey are 6 intellectual property valuers, where 2 of the respondents are IP valuers practicing in the industry and the other 4 respondents are IP valuers certified with MyIPO. They will be involved in a semi-structured interview session. The respondents are expected to provide information on the findings of the practice of intellectual property and challenges faced during intellectual property value determination. The limitation of this study is the limited sampling population of this research. According to Malaysia’s Minister of Trade, Cooperatives and Consumerism Datuk Seri Hamzah Zainuddin, there is a lack of IP valuer in the country with a total of only 23 certified IP valuers (Tee, 2016). Thus, the researcher has a limited sampling population to work with.
1.6
Significance of Research
The research is able to bring positive impacts to professional valuer because it is very important to establish a solid framework in IP valuation. This research would provide guidance for valuers engaged in IP valuation. This can ease the performance of IP valuation as IP valuation is tough to perform without proper guidance due to its subjective nature. The identified criteria would be able to add consistency into intellectual property valuation practice especially in the local context. The challenges in intellectual property valuation found by the researcher are also expected to help ease the complication in intellectual property valuation practice. In addition to that, the research would also be able to help intellectual property investor as a more generally accepted guideline in IP valuation would improve the consistency of IP valuation. This would increase the confidence in the
8
investor and buyer of intellectual property. This is very important as intellectual property plays an essential role in the economic growth of a business and nation. Lastly, the research is expected to act as a feeder to other parties that are involved in intellectual property valuation such as accountant and, lawyer and legal firm. The research provides information for those parties to allow them to use this research as a framework for their research to improve intellectual property valuation.
1.7
Research Methodology
Methodology is a system of broad principles or rules from which specific methods or procedures may be derived to solve different problems within the scope of this study. It covers the initial stage of the research process until the final stage of the study. So, there are five stages of research process in this study.
1.7.1
First Stage
The introduction is the first stage of the study at which it explain and discuss the aspects include the background of the research, research problem, research question, research objective, scope of study, significance of the research, as well as the structure of the research body and the expected outcome of the study is described in the chapter.
1.7.2
Second Stage
The literature review is the second stage which is a chapter that expresses the issues and facts that related to this study. Instead of saying it as an annotated bibliography, a literature review is much more than that. It is a critically written an analytical summary of the current knowledge of a topic. Therefore, the discussion on this topic should compare and relate to differences scholarly resources such as theories, findings, reference books, journals, research papers, newspapers internet, articles and so forth.
9
1.7.3
Third Stage
The methodology is one of chapters in the study at the third stage. It explains all the process and methods that used in the research in gathering and collecting data. The method which used in data collection may include interview, surveys and other research techniques. Besides, the information collected included both present and historical information.
1.7.4
Fourth Stage
This stage is data analysis and results which explains the data analysis technique and result in the previous data collected for the study. The data is analyzed in the form of written text, figures, table and other means. Conclusions of the study should be linked to the research objectives. This is to ensure that the objectives of this study are achieved and the research questions were answered.
1.7.5
Fifth Stage
Stage five is the final stage of this study which is conclusion and recommendation of research. At this stage, outcomes from data analysis are summarized and concluded. Recommendations and suggestions for the further studies are also included in this chapter. The Methodology flow chart is shown in Figure 1.1 below:
10
Figure 1.1: Flow chart of research
11
1.8
Summary
This chapter summarizes important points throughout the whole study. The research can be determined by two identified objective in the research, which is the understanding of intellectual property valuation practice and the challenges in the practice of intellectual property valuation. Besides that, the purpose of the research objective is to answer the research questions of this study. Scope of the study is to ensure that the research does not deviate from the research title, issues and objectives. Hence, it is probable to accomplish all the objectives, answering all the research questions and lastly can bring benefits to the stakeholders. Next chapter presents the related literature on IP valuation that supports the aim of the research.
12
CHAPTER TWO
LITERATURE REVIEW
2.1
Introduction
The purpose of this chapter is to gather the specific topic from various information sources that are related to the research. According to Green, Johnson, & Adams (2006), literature review is a type of research article published in a professional peerreviewed journal. The research focuses on the investigation of intellectual property valuation practice and determination of the challenges in the practice of intellectual property valuation. The particular information is reviewed from books, journal articles, internet, newspaper, magazines, theses and dissertations, conference proceedings, reports and documentaries.
2.2
Property
Property is defined as an article, item, or thing owned with the rights of possession, use, and enjoyment, and which the owner can bestow, collateralize, encumber, mortgage, sell, or transfer, and can exclude everyone else from it (“Property,” n.d.). Two basic kinds of property are real property and personal property. Real properties are properties that involve a degree of geographical fixity while personal properties are properties that do not involved geographical fixity. Personal property can be subdivided into tangible property, such as any physical animate or inanimate object, and intangible property, such as intellectual property.
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Schaffer & Wietecki (2009) claims that property are the rights a person may own or be entitled to own, including personal and real property. The law associated with real property involves three elements that involve the control of property through ownership. These elements are: exclusivity, which is the the ability to exclude another person from ownership, possession, or use; universality, the ownership of everything by the state. The state is the origin of all ownership rights; and, transferability, which is the ability, recognized by the legal system, to transfer someone’s rights in property to someone else The law recognizes two classifications of property: real and personal. Real property refers to Land and all property permanently attached to it, such as buildings. Real property is not movable. Personal property refers to movable or intangible thing not attached to real property. Personal property is categorized into two types: tangible and intangible. Tangible property is personal property that can be held or touched, such as furniture or jewelry. Intangible property is personal property that has no physical presence but is represented by a certificate or some other instrument, such as stocks or trademarks (Ibid., 2009). Ohio State Bar Association (2012) supports the claim by saying that property refers to objects that can be owned. The two main classifications of property are real property and personal property. Real property law deals with land, fixtures on land, and rights and other intangible interests relating to land that are capable of ownership. Real property may include land, a single-family house, a condominium or a vacation home. Personal property is anything that is not related or attached to real estate; it may be tangible or intangible. Personal property might include cars, clothes, furniture, refrigerators, tools and cash as well as various rights or interests such as stocks or bonds.
2.3
Intangible Assets
Intangible assets are defined as all the elements of a business enterprise that exist in addition to monetary and tangible assets (G. Smith & Parr, 2000). Intangible assets can be differentiated into 4 categories as follows: rights, relationships, undefined intangibles, and intellectual property.
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In addition, intangible assets are defined as intangible non – monetary assets that cannot be seen, touched or physically measured, which are created through time and/or efforts and are identifiable as separate assets. Intangible assets include patents, copyright, trademarks, trade names, franchise licenses, government license, goodwill and other item that lack physical substance but provide long term benefit to the company (Monika, Nitu, & Latika, 2013). Table 2.1 below summarises the categories of intangible assets.
Table 2.1: Categories of intangible assets and its description (Monika et al., 2013) Intangible Assets Marketing-related intangible asset
Customer-related intangible asset
Artistic-related intangible asset
Contract-based intangible asset
Technology-based intangible asset
Patents Copyrights
Trademarks and Trade names
Franchise licenses
Description Trademarks, Trade Names, Service marks, Collective marks, Certification marks, Trade dress (unique color, shape, or package design), Newspaper mastheads, Internet domain names and Noncompetition agreements. Customer lists, Order or production backlog, Customer contracts and related customer relationships and Non-contractual customer relationships. Plays, Operas, Ballets ,Books, Magazines, Newspapers, other literary works ,Musical works such as compositions, Song lyrics, Advertising jingles, Pictures, photographs, Video and audiovisual material, including motion pictures, Music videos, and television programs. Licensing, Royalty, Standstill agreements, Advertising, construction, Management, Service or supply contracts, Lease agreements, Construction permits, Franchise agreements, Operating and broadcast rights, Use rights such as drilling, water, air, mineral, timber cutting, Servicing contracts such as mortgage servicing contracts and Employment contracts. Patented technology, Computer software and mask works, unpatented technology, Databases, including title plants and Trade secrets, such as secret formulas, processes, recipes. Patents provide exclusive rights to produce or sale new inventions. Copyrights provide their owner with the exclusive rights to reproduce and sell artistic works, such as books, songs or movies. Trademarks and trade names include corporate logos, advertising, jingles and product name that have been registered with the government and serve to identify specific companies and products. The purchaser of a franchise licenses receives the right to sale certain products or services and to use certain trademarks or trade names. This right is valuable because they provide the purchaser
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Government licenses
Goodwill
with immediate customer reorganization. The purchaser of a government licenses receives the right to engage in regulated business activities. Goodwill equals the amount paid to acquire a company in excess of its net assets at fair market value. It should be noted that while goodwill is technically an intangible assets, it is usually listed as a separate item on a company’s balance sheet.
The International Valuation Standards Council defined intangible asset as a non-monetary asset that manifests itself by its economic properties. It does not have physical substance but grants rights and/or economic benefits to its owner. Intangible assets have their own characteristics such as market position, ownership, image and, function, which separate them from one another. Intangible assets are classified differently into the following categories, which are: marketing-related, customerrelated, artistic-related, contact-related and, technology-based (Ibid., 2011). Intangible assets are more likely to bring in more value than tangible assets, as they usually add to a company’s future worth (T. Smith, 2015).
2.4
Intellectual Property
2.4.1
Definition of Intellectual Property
According to Penman (2007), the first step of any valuation is the definition of the object to be valued. Hence, the first step in valuing intellectual property is to define it or, better, to draw its boundaries. Goans (2014) states that intellectual property is a field of law that deals with property rights in intangible things. It offers a means for promoting progress by protecting rights in new creations of the mind, and it rewards honest dealing and promotes consumer satisfaction by regulating certain aspects of business behavior. Additionally, intellectual property is referred to as patents, trademarks, copyrights, and trade secrets or know-how (G. Smith & Parr, 2000). This classification marks out the uniqueness of the characteristics of intellectual property, because the owner of an intellectual property is legally protected from unauthorized exploitation of the intellectual property by others in many different ways.
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Intellectual property refers to creations of the mind: inventions; literary and artistic works; and symbols, names and images used in commerce (“What is Intellectual Property,” 2003). Intellectual property is divided into two categories: industrial property and, copyright. Industrial Property includes patents for inventions, trademarks, industrial designs and, geographical indications while copyright covers literary works, films, music, artistic works and, architectural design. There are several other literature sources that shape intellectual properties with their own classification but the context remains largely the same. Bainbridge (2006) claims that intellectual property is make up of intellectual property rights, which itself is a product of intellectual property law. These intellectual property rights gives form to intellectual property in the shape of: copyright, rights in performance, the law of confidence, patents, registered designs, unregistered design rights, trademarks, passing off and malicious falsehood (trade libel). Gallagher (2007) supports the claim by stating that intellectual property is a term that denotes several distinct bodies of law, which include patents, copyrights, trademarks, trade secrets and so-called rights of publicity. Based on the definitions above, it can be concluded that all of the literature sources consist of something particular in common, which is: trademarks, patents and copyrights. This demonstrates that trademarks, patents and copyrights are an integral part of intellectual property.
2.4.2
Types of Intellectual Property
2.4.2.1 Patents
A patent is the legal process whereby technology is turned into controllable property with defined rights associated with its ownership (G. Smith & Parr, 2000). The right conferred by the patent grant is the right to exclude others from making, using, or selling the invention. Burge (1999) describes a patent as a “negative right.” He explains as follows: “While the right of ownership in most personal property is a positive right, the right of ownership in a patent is a negative right. It is the negative right to exclude others from making, using or selling the patented invention… Indeed,
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in making, using or selling his own invention, the inventor may find that he infringes the patent rights of others.” Smith & Parr (2000) classified patent into 4 different types of patents, which includes utility patent, plant patent, design patent and animal patent. Furthermore, MyIPO defines patents as an exclusive right granted for an invention, which is a product or a process that provides a new way of doing something, or offers a new technical solution to a problem (“Patent Basic,” n.d.).
2.4.2.2 Trademarks
Trademark is defined as a distinctive sign that identifies certain goods or services produced or provided by an individual or a company (“What is Intellectual Property,” 2003). Its origin dates back to ancient times when craftsmen reproduced their signatures, or “marks”, on their artistic works or products of a functional or practical nature. Over the years, these marks have evolved into today’s system of trademark registration and protection. The system helps consumers to identify and purchase a product or service based on whether its specific characteristics and quality – as indicated by its unique trademark – meet their needs (Ibid., 2003). Trademark is defined as includes any word, name, symbol or device or any combination thereof adopted and used by a manufacturer or merchant to identify his goods and distinguish them from those manufactured by others (G. Smith & Parr, 2000). In addition, MyIPO defined trademark as a sign which distinguishes the goods and services of one trader from those of another (“Trademark Basic,” n.d.). A mark includes a device, brand, heading, label, ticket, name, signature, word, letter, numeral or any combination of these.
2.4.2.3 Copyrights
Smith & Parr (2000) states that copyright is something that protects the expression of an idea, not the idea itself, just as a patent does not protect an idea but rather its embodiment in a product or process. Copyright protection commences from the time when that expression is fixed in some tangible form, even prior to its publication, not the time at which some application is accepted by the federal government. In fact,
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full copyright protection is present whether the work is registered with the Copyright Office of the Library of Congress or not. A copyright owner may reprint, sell or otherwise distribute the copyrighted work, prepare works that are derived from it and assign, sell, or license it. In addition, MyIPO states that copyright is the exclusive right to control creative works created by the author, copyright owner and performer for a specific period governed under the Copyright Act 1987 (“Copyright Basic,” n.d.).
2.4.2.4 Industrial Design
MyIPO defines industrial design as features of shape, configuration, pattern or ornament applied to an article by any industrial process which in the finished article appeal to the eye and are judged by the eyes (“Industrial Design Basic,” n.d.). Industrial design is protected under Industrial Designs Act 1996 in Malaysia, which is enforced by MyIPO.
2.4.2.5 Geographical Indication
MyIPO defines geographical indication as a sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin (“Geographical Indications Basic,” n.d.). Geographical indication is protected under Geographical Indications Act 2000 in Malaysia, which is enforced by MyIPO.
2.4.2.6 Integrated Circuit Layout Design
MyIPO defines integrated circuit layout design as the three-dimensional disposition of the elements of an integrated circuit and some or all of the interconnections of the integrated circuit or such three-dimensional disposition prepared for an integrated circuit intended for manufacture (“Layout-Design Of An Integrated Circuit Basic,” n.d.). Integrated circuit layout design is protected under Layout-Design of an Integrated Circuit Act 2000, which is enforced by MyIPO.
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2.4.2.7 Trade Secret
WIPO defines trade secret as any confidential business information which provides an enterprise a competitive edge (“What is a Trade Secret?,” n.d.). Trade secrets encompass manufacturing or industrial secrets and commercial secrets. Contrary to patents, trade secrets are protected without registration, that is, trade secrets are protected without any procedural formalities. Consequently, a trade secret can be protected for an unlimited period of time (“How are Trade Secrets Protected?,” n.d.).
2.4.2.8 Plant Variety Rights
Plant Variety Rights (PVR) are an internationally recognized form of intellectual property used to protect unique plant varieties. The application of PVR is similar in principle to the intellectual property protection offered via copyright on books and music and to patents on a wide range of innovative products including biological material (“Plant Variety Rights,” n.d.). The PVR system delivers protection and stimulates further innovation in plant breeding. By ensuring varieties awarded PVR are freely available to others for use in future breeding programmes. This access is known as the ‘breeder’s exemption’. The PVR system allows plant breeders to collect royalties on the production and sale of seed of their protected varieties. PVR is registered differently in countries all over the world. In Malaysia, the Department of Agriculture (DOA) has been registering fruit clones since the early 1930's and was officially as to be the National Registrar of Varieties in 1994 by the Ministry of Agriculture. The responsibility in implementing the PNPV Act 2004 has been entrusted to the DOA Malaysia (“Plant Variety Protection Malaysia,” n.d.). In New Zealand, PVR is registered under their intellectual property office (New Zealand Intellectual Property Office) just like any other intellectual property such as patent, trademarks and copyright. It is the same case with Singapore as PVR is registered under Intellectual Property Office of Singapore under Plant Varieties Protection (“Plant Varieties Protection,” n.d.).
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In countries with more advanced IP system such as The United States of America (U.S.A), the PVR that can be protected are broken down differently depending on its type of plant. The difference between PVR registration of U.S.A. and other countries is that both their Department of Agiculture and intellectual property office registers PVR depending on its type (“Plant Variety Protection,” n.d.). The three types of PVR protection in the U.S.A. are: plant variety protection for seed and tubers, plant patents for asexually propagated plants except for edible tubers, and utility patents for genes, traits, methods, plant parts, or varieties. Plant variety protection is registered under PVPO of U.S.A.’s DOA while plant patents and utility patents are registered under Patent and Trademark Office (PTO), which is also the U.S.A.’s intellectual property office.
2.4.3
Development Process of Intellectual Property
The role of intellectual property as a means for promoting development has been recognized since ancient times. Near the end of the third century B.C., the Greek historian Phylarchos wrote that the rulers of the Greek City Sybaris issued patents for new books (Lipscomb, Walker, & Deller, 1988). The patent was a refinement on the more common incentive of awarding a prize. The ancient Greeks held contest to recognize and reward a wide range of achievements. The Olympic games represented one such contest, but the Greeks also held contests to reward the writing of tragedies and comedies, painting, poetry, sculpting and pottery-making; the production of superior agricultural products; and skills in the field of medicine and surgery. Trademark law has even more ancient origins. Businesses have used signs to identify their services, and artisans have used marks to identify their goods, for thousand of years. Drawing in Egyptian tombs show workers branding cattle, and quarry marks have been found on Egyptian structures dating from 4000 B.C. In ancient Greece, potters signed their works, initially with the marks of their clans and later with their own names.
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2.4.4
Increasing Importance of Intellectual Property
Blair (2001) discovered an important shift between physical assets and intangible assets over a 20 years period. In 1978, she found that an average business’ value consists of 80 percent of physical assets and 20 percent of intangible assets. In 1988, there is a noticeable shift between the two with the total value of a business being made up of 45 percent of physical assets and 55 percent of intangible assets. By 1998, however, the ratio is now practically reversed compared to 1978 as a business’ value now consists of a stunning 70 percent of intangible assets and a mere 30 percent of physical assets. According to the website of World Intellectual Property Organization (WIPO), this is mainly due to the development in information technologies and growth of the tertiary sector (service sector) of the economy.
2.4.5
Performance of Intellectual Property in Malaysia
The performance of intellectual property in Malaysia is shown to be growing over time.
Table 2.2: Total number of patents applied and granted in Malaysia from 2006 to 2015 (“Statistics,” 2017) Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Application Malaysia 531 670 864 1,234 1,275 1136 1160 1269 1439 1375
Foreign 4269 1702 4539 4503 5189 5423 5867 6081 6321 6532
Total 4800 2372 5403 5737 6464 6559 7027 7350 7760 7907
Granted Malaysia 187 338 198 270 204 335 308 305 381 360
Foreign 6562 6645 2044 3198 1973 2057 2193 2386 2381 2548
Total 6749 6983 2242 3468 2177 6392 2501 2691 2762 2908
Table 2.3: Total number of trademarks applied and granted in Malaysia from 2006 to 2015 (“Statistics,” 2017) Year
Application Malaysia
Foreign
Total
Granted Malaysia
Foreign
Total
22 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2.5
11209 12289 12562 12810 13099 13001 14044 14705 15400 15940
12840 13605 13472 11260 13271 15832 17832 17520 19171 19983
24049 25894 26034 24070 26370 28833 31876 32225 34571 35923
5651 8108 9049 5438 5642 10201 9765 9777 10467 10529
10108 17382 18798 9534 8652 13618 16311 17202 16961 18271
15759 25490 27847 14972 14294 23819 26076 26979 27428 28800
Valuation
According to Malaysian Valuation Standards, valuation is defined as the written opinion as to capital or rental value on any given basis in respect of an interest in property, with our without any assumption or qualifications. Valuation is also defined as the process of determining market value. An estimation of the price of exchange in the market-place (Adair et al., 1996). Maliene et al. (2010) stated that for any valuation method in order to have validity, it must produce an accurate estimate of the market price. The method should therefore reflect the market culture and conditions at the time of the valuation. In addition, French (2004) states that valuation is a process for the determining the property value by assessing influence of all these economic, social, legal, physical and political factors on the price. As an end product, the valuation process establishes the market value of property by estimating exchange price, which will be used for the property transaction in the market place at the particular moment of time. Different countries and governing bodies apply different valuation methods and approaches. The International Valuation Standards Council states that there are three principal valuation approaches which includes different, detailed methods of application. The principal valuation approaches are market approach, income approach and cost approach. Each approach in turn gave birth to several other methods. The Board of Valuers supports the International Valuation Standards Council by adopting all three approaches, albeit with the term comparison approach taking the place of market approach in the Standard. In addition, valuation practice in Malaysia practices several methods that branches out from the three principal valuation approaches. Valuation using the comparison approach may be applied through comparison method while valuation using the cost approach can be done by
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using cost method. Valuation work carried out using the income approach have more methods to choose from including investment method, residual method, discounted cash flow (DCF) method and profits method. Pagourtzi et al. (2003) classified comparison method, cost method, investment method, residual method and profits method as traditional valuation method.
2.6
Intellectual Property Valuation
2.6.1
Definition
According to Smith & Parr (2005), anyone who intends to deal with valuation issues must draw on a body of knowledge that has been refined over time in connection with the appraisal of real estate property. These are the same body of knowledge that is also used extensively to appraise other tangible assets such as works of art, machine, and gemstones. Thus, these same bodies of knowledge are equally appropriate for intellectual property and intangible assets.
2.6.2
Parameters in intellectual property valuation practice
Turner (2000) stated a set of parameter to be defined when practicing intellectual property valuation, which includes: what is the intellectual property valued, for whom is the valuation being done, what is the purpose of the valuation, the date of the valuation and, what valuation method is appropriate for the circumstances.
2.6.3
Valuation Approach for Intellectual Property
2.6.3.1 Market Approach
G. Smith & Parr (2005) claim market approach is the most direct and the most easily understood appraisal technique. It measures the present value of future benefits by obtaining consensus of what others in the marketplace have judged it to be. Under
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the market approach, the value of an intangible asset is determined by reference to market activity.
2.6.3.2 Cost Approach
G. Smith & Parr (2005) state that the cost approach seeks to measure the future benefits of ownership by quantifying the cost of replacement, which is amount of money that would be required to replace the future service capability of the subject property. This statement is supported by the International Valuation Standards Councils, who states that the value of an intangible asset is determined based on the replacement cost of a similar asset or an asset providing similar service potential or utility.
2.6.3.3 Income Approach
G. Smith & Parr (2005) theorizes that the income approach focuses on a consideration of the income-producing capability of the property. The theory is that the value of property can be measured by the present value of the net economic benefit (cash receipts less cash outlays) to be received over its life. Furthermore, the International Valuation Standards Council states that the value of an intangible asset is determined by reference to the present value of income, cash flows or cost savings attributable to the intangible asset over its economic life.
2.6.4
Valuation Method Preferences
Smith & Parr (2005) formed a table as in Table 2.4 based on the suitability and preferences for various intangible assets, including intellectual property assets using the income, cost and market approaches.
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Table 2.4: Valuation Method Preferences (G. Smith & Parr, 2005) Type of Intangible Assets Patents and Technology Trademarks and Brands Copyrights Assembled Workforce Management Information Software Product Software Distribution Networks Core Deposits Customer Relationships Franchise Rights Corporate Practices and Procedures Elements of a Going Concern Goodwill
Primary
Secondary
Weak
Income Income Income Cost Cost
Market Market Market Income Market
Cost Cost Cost Market Income
Income Cost Income Cost Income Cost
Market Income Market Income Market Income
Cost Market Cost Market Cost Market
Cost
Income
Market
Market
Income
-
In the table, primary methods are those that are expected to provide the most credible results for a particular asset. Secondary methods are those that might work well but probably have deficiencies. Often they may be useful for testing and supporting indications of value derived from using the primary method. Weak approaches are those that would be expected to yield the least credible indications of value for particular assets unless special circumstances exist. Different researcher practices different valuation approach and method when it comes to intellectual property valuation. Table 2.5 shows the researcher and the method used when valuing intellectual property.
Table 2.5: Valuation approach and method used by different parties for intellectual property valuation Bodies / Authorities / Researchers International Valuation Standards Council (2017)
Valuation approach
Valuation method
Market approach
Income approach
Cost approach
Guideline Transactions method Excess Earning method Relief-from-Royalty method Premium Profit method Greenfield method Distributor method Replacement Cost method Reproduction Cost
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Lagrost, C. Martin, D. Dubois, C. Quazzoti, S. (2010)
Market approach
Income approach
Cost approach
Option based approach
Turner, J. (2000)
Cost approach
Ma, L. (2000) Smith, G. Parr, R. (2000)
2.6.5
method Comparative Income Differential method Discounted Cash Flow method Excess Profit method Relief-from-Royalty method Replacement Cost method Reproduction Cost method Prospective Cost method Cost savings method Avoidance cost method Decision tree analysis method Real options method Monte Carlo method Historical cost method Replacement cost method Market value of company LESS the net tangible assets approach Comparable market valuations Economic benefitsmethod
Market approach Income approach Cost approach Market approach Income approach Cost approach
Purpose of Valuation
The definition of the purpose of the IP valuation constitutes one of the main issues that have to be clearly defined before starting any IP valuation, regardless of approach (Lagrost et al., 2010). The purposes of valuation based on several literatures are summarized in Table 2.6:
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Table 2.6: The purpose of valuation based on previous researchers
Researchers / Authors Lagros C. Martin D. Dubois C. Quazzotti S. (2010)
Smith, G. Parr, R. (2005)
Turner, J. (2000)
Gajland, D. (1998)
2.6.6
Purposes of valuation Company valuation IP sales and license Raising capital Taxation planning Accounting Dispute resolution / Litigation support External reporting IP exploitation and management Internal management and strategy Transaction Support Sale Bankruptcy Licensing Strategic Alliances Estate and Gift Taxes Marital Dissolution Infringement Damages Intercompany Transactions Collateral-based Financing Attorney Malpractice Accounting Requirements Regulatory Requirements Ad Valorem Taxes Corporate valuation for shareholders Corporate mergers and acquisition Management buy-out or buy-in Privatization of public entity Fund raising IPO Financial reporting Assignment or acquisition of an IP asset itself Licensing in or out an IP asset Investment in the IP asset Purchase and sale Licensing Corporate finance Litigation Transfer pricing Financial reporting
Justification in Selection of Approach in Valuation of Intellectual Property
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2.6.6.1 Selection of Valuation Approach in Patents
Patented intellectual property often is valued by capitalizing an isolated stream of economic contributions specifically attributed to the subject patent. Research and development (R&D) expenses typically should be eliminated from the expenses charged to the economic contribution of patented technology. Projected economic benefits from existing patents should not be burdened by current research expenses, because current R&D funding usually is associated with the creation of future patented technology and products. Current R&D efforts are not associated with patents already in existence but are instead associated with patents of the future. Most likely, the sales and earnings associated with commercializing existing patents do not require significant R&D efforts. The R&D associated with existing patents that are being fully commercialized is completed. An allocation of current research expenses to an existing technology understates the earnings power of the existing technology. An exception occurs when extended commercial exploitation is contemplated that will require additional research to adapt the patented technology for other uses. In such a case the economic benefits associated with the patents should reflect the additional research costs required to complete the adaptation. A market approach for patents and technology has many aspects to commend it. Unfortunately, the data needed to implement a market approach are rarely available for patents and technology. The primary ingredients needed include: •
Transactions of similar property
•
Exchange between unaffiliated entities
•
Disclosure of pricing information
•
Reasonable knowledge of all relevant facts known to the transacting parties
•
Transacting parties uncompelled and willing to complete the transaction
A cost approach for patents and technology provides an indication of value by aggregating all of the costs necessary to recreate the property under study. In the case of patents and technology, these would include salary and benefits for research personnel along with expenses associated with building a prototype, establishing quality control testing procedures, gaining regulatory approvals, and prosecution of
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patents. The resulting value might be thoroughly determined but, as previously discussed, would fail to consider important factors such as profits from commercialization, investment risk, and earnings growth potential.
2.6.6.2 Selection of Valuation Approach in Trademarks
Trademarks often are valued by capitalizing an isolated stream of economic contributions specifically attributed to the subject trademarks. Continued advertising is important for maintenance of trademarks. When isolating the economic benefits of a trademark, provisions should be made to account for continuing advertising expenses. Studying premium selling prices can enable one to isolate economic benefits derived from possessing trademarks. The price difference between branded and generic products can lead to a stream of economic benefits to attribute to the trademark. Where premium selling prices do not exist, trademarks still can have enormous value. The existence of a trademark can attract a large and loyal customer base, which almost guarantees large annual volumes of sales. Many economies of scale can be enjoyed from such volume, and an allocation of economic benefits based on the methods demonstrated in Chapter 10 can lead indirectly to the contribution of the trademarks. A market approach for trademarks has many aspects to commend it. Unfortunately, as in the case of patents and technology, the data needed to implement a market approach are rarely available. A cost approach for trademarks provides an indication of value by aggregating all of the costs necessary to recreate the property under study. In the case of trademarks, these would include salary and benefits for marketing and advertising personnel, along with expenses associated with selecting trademarks, creating advertising campaigns, designing packaging, buying media time, and legal registration of the trademark. The resulting value might be thoroughly determined but, as previously discussed, would fail to take into account important factors such as profits from commercialization, investment risk, and earnings growth potential.
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2.6.6.3 Selection of Valuation Approach in Copyrights
An income approach can be appropriate for valuation of copyrights. When the copyrights are owned and exploited by a corporation, the economic contribution derived from the copyrights can be isolated. When an individual owns copyrighted materials and licenses the materials to another party for commercialization, the value of the copyrights to the owner must be viewed differently. The values of the copyrights to an individual owner are represented solely by the present value of future royalty income. Forecasts of expected sales and the resulting royalties of the licensee serve as the basis for the economic benefits to be discounted. A common error is to use these forecast royalties without adjusting for the expenses associated with collecting and accounting for the royalties. Do not forget to subtract an allowance for expenses associated with administration, agent, accounting and legal fees, and expenses. Agent fees alone can range between 10 and 15% of the royalty income. Special care also is required when selecting the appropriate discount rate. The discount rate must reflect the risk associated with receiving royalty payments. As a result, the investment risks associated with the company that is required to pay the royalties are more appropriate than an individual risk rate. The licenser of a copyrighted work is owed royalties but usually does not enjoy the standing of a secured lender. At the same time, the licenser does not bear the same risk as that of an equity investor. As long as royalty payments can be made from the licensee earnings, even a meager amount of earnings, the requirements of the licenser are satisfied, regardless of the potentially poor performance that equity investors of the licensee endure. An appropriate discount rate for an individual copyright owner might fall somewhere in between investment rate of return requirements of an unsecured lender and an equity shareholder of the licensing corporation. But even the equity rate of return for the entire company can be too low. The equity risk is composed of a portfolio of copyright exploitation projects. Individual projects that depend on specific copyrights might carry more risk than that experienced by an equity investor that is diversified by the portfolio of projects being undertaken by a company.
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A market approach for copyrights has many aspects to commend it. Unfortunately, as in the case of patents, technology, and trademarks, the data needed to implement a market approach are rarely available. A cost approach for copyrights provides an indication of value by aggregating all of the costs necessary to recreate the property under study. In the case of copyrights, these would include costs to write, paint, sing, or perform the subject material; as with patents, technology, and trademarks, the resulting value might be thoroughly determined but would fail to consider important factors such as profits from commercialization, investment risk, and earnings growth potential.
2.6.7
Important Factor to Consider in Intellectual Property Valuation
2.6.7.1 Important Factor to Consider in Cost Approach
(i)
Historical cost trending
Some corporations keep detailed records of the costs that were incurred in the development of a specific intangible asset. Restatement of these historical costs in current dollars provides an indication of the total cost that would need to be invested in order to reproduce the property. The cost to reproduce is expressed as the historic costs trended to current dollars. This is completed by application of a price index. There are many sources of price indices, including those available from the U.S. government that track the price changes of major commodities, labor costs, and manufactured products. Specialized price indices are also published by industry associations and private research and consulting firms.
(ii)
Unit cost
Another means by which to derive the cost to reproduce or replace an asset is a direct estimate of the efforts and costs necessary for creating a similar asset. Some of the information that would be important to identify in valuing a technological asset using this form of the cost approach includes:
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•
Scientists and engineers who worked on the product development effort
•
Salaries and benefits of those involved with the project
•
Overhead costs for utilities and research space
•
Overhead costs for clerical support and technicians
•
Raw materials used in the development process
•
Prototype construction and testing expenses
•
Outside services for independent evaluation and certifications
•
Pilot plant costs
The aggregate of all of the expenses from the above efforts is an indication of the cost to reproduce the asset.
(iii)
Unit of production
Another cost estimation in common use is to derive the cost of replacement based on current costs per unit of production. The cost to construct certain types of properties is uniform enough that rules of thumb develop among those who deal with them. Thus we might be able to estimate the current cost of a fast food outlet at $X per seat or serving station, a petroleum refinery at $Y per barrel, a three-lane highway at $Z per mile, or building construction at $V per square foot.
(iv)
Appraisal depreciation
These procedures provide an indication of the costs necessary to reproduce or replace the subject property in a form that is “brand new.” Adjustments for elements of obsolescence must then be considered, elements to be considered include cost of replacement, physical obsolescence.
depreciation, functional obsolescence and economic
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2.6.7.2 Important Factor to Consider in Market Approach
(i)
Market events
Events that happened in the market are one of the factors that can be used to indicate the value of an intellectual property. In 1993, an incident which was known today as ‘Marlboro Friday’ happened where Philip Morris announced the decision to reduce the selling price of its premier Marlboro brand cigarettes to narrow the price differential and slow the advancing market of generic cigarettes. The announcement was met by heavy stock trading, which forced the stock price of Philip Morris down by 23% in one day. The closing price on April 2 represented a one-day loss in value of $13 billion, all of which could be considered as a reduction in the value of the Marlboro trademark. Extrapolation of this event could have been used to get an indication of value for the Marlboro brand. If the $13 billion is interpreted as 20% of the value of the brand before the price cut, then the brand had a value of $65 billion before April 2 and $52 billion afterward.
(ii)
Lost patent
Lost patent is a unique factor that can help in the determination of value in intellectual property.
This way of market value indication occurred to VLI
Corporation and its product, Today brand vaginal contraceptive sponge. In this case, due to the expiration of the patent for the sponge and VLI Corporation’s failure to renew the patent caused the value of a takeover offer to drop from 7 USD to 4 USD, which equates to a drop in 3 USD per share for the 11.9 million shares it had. The total difference in the company’s value with and without the patent protection indicates the value of the patent, which is 35.7 million USD.
(iii)
Market transactions
Market transactions are unique factors that can influence the valuation of intellectual property when using market approach. Intellectual properties are rarely exchanged as stand-alone property. Most of the time, exchange of intellectual property includes the
34
portion of the enterprise with which the intellectual property is associated. Even when specific intellectual properties are exchanged separately, the price is rarely disclosed. However, intellectual properties do happen to be traded independently occasionally. Thus, these cases may be referred when valuation of intellectual property are done using market approach.
(iv)
Securitization
Securitization is another factor that can be referred when valuing an intellectual property. There have been a number of transactions where loan is secured using intellectual property. In 1993, Calvin Klein Inc. borrowed $58 million secured by its royalty stream from the licensing of its fragrances. Four years later, David Bowie securitized a loan of $55 million with future royalties from the sale of his recordings.
(v)
Comparability
Transactions involving specific items of intellectual property are still rare events. When transactions actually occur, often the terms of the exchange are not disclosed to the public. The most difficult aspect of the market approach as it applies to intellectual property is comparability. Even if pricing information for a specific exchange regarding a specific patent or trademark were available, the price at which the property was exchanged most likely will have no bearing on the value of other patents and trademarks unless positive comparability exists. Many factors come into play in the valuation of intellectual property. Some of the most important factors that should be considered when seeking intellectual property comparability include:
(a)
Industry
The value of a business enterprise, including all of the tangible and intangible assets, is greatly influenced by the industry in which the property is used. Industry cycles and economics can limit the value of businesses and the intellectual property that they possess. Market transactions that are to serve as a basis for an indication of value are most useful if the exchanged property is employed within the same industry, and subject to the same prospects, demographic factors, government regulation, and
35
investment risks. If a trademark used in the cosmetics industry were sold, the price at which the transaction occurred might be a good indication of the value of other cosmetic trademarks. This assumes, however, that the influence of the other factors listed is the same. A trademark that was exchanged in the steel industry would not be considered useful for valuing a cosmetics trademark.
(b)
Market share
Market share often can be associated with profitability. Control of a large share of a big market provides a company with enhanced profits from many economies of scale. Patented products and trademarks can contribute to maintenance of a significant market share, and this factor must be reflected in the value of intellectual property. Intellectual property transactions may not be comparable if the market share comparisons are not positive.
(c)
Profits
Profitability is fundamental to the existence of monetary value. Intellectual property that contributes to strong and continuing profits is very valuable. Market transactions involving trademarks in the same industry might not be a reasonable comparable unless profitability measures are the same. An excellent example is sports products. The primary players in the sport shoe market produce products of almost equal quality. Each competitor has products with designs and features that are intended to enhance athletic performance and prevent injury. Yet some branded products have achieved substantial profits above the average achieved by major competitors. Part of this should be attributed to the recognizability of the trademark by consumers and the positive attributes that they associate with the name. If a sport shoe trademark were to be exchanged, an indication of value for another trademark in the same industry might not be provided. The profits associated with the trademark also would need to be at similar levels for a reasonable comparison. While industry transactions are a fundamental factor for judging comparability, comparable profitability is also very important.
(d)
New technologies
36
Emerging technologies can have a significant impact on the value of intellectual property. The potential competition of emerging technology can affect the economic remaining life of intellectual property. When looking at intellectual property transactions as market indications of value, care must be taken to ensure that the effect of emerging technology on those transactions is comparable with its effect on the property being valued. The existence of research that is expected to make the subject property obsolete must be reflected in the value decision. Even within the same industry, intellectual properties may not be influenced to the same degree by emerging technology. The computer software industry evolves at light speed. Many software programs have an economic life of only a few years. In 1985, Fifth Generation Systems introduced the first hard disk backup program. This allowed a hard disk to be backed up to floppy disks in under 10 minutes. This was a fantastic product for programmers. Previously, hours were spent each time a protective backup was made. The product was a big seller, but in less than 2 years, 16 competing products entered the market. Many of the competitors included advanced features. The value of the original software of Fifth Generation must reflect the effects on future profits from these other programs, as well as the inroads that are expected from new products that complete backup by continuous processing using an expansion board. In looking for market transactions of comparable property, consideration must be given to the effect that derives from new products and technology. If the market transactions center on intellectual property that is free of the impact of technology gains, their use in valuing otherwise similar property is inappropriate.
(e)
Barriers to entry
Barriers to entry can enhance the value of intellectual property. Barriers include distribution networks, substantial capital investments, and well-entrenched competitors. FDA approval in the drug industry is an example of a barrier to entry. The value of currently accepted proprietary drug products is supported, in a sense, by the hurdles that competitors must jump in order to enter the market. The time delay allows the current products to enjoy less competition, higher pricing options, and— most important—an opportunity to dominate the market. Market dominance can be
37
achieved in many ways through advertising, establishment of customer loyalty, or the development of highly efficient production facilities. Consequently, intellectual property within a market that also presents high entry barriers is possibly more valuable than similar property that operates in a more open industry.
(f)
Growth prospects
Growth prospects are directly related to value. This relationship exists because a growing income stream is more valuable than a flat or declining income stream. The intellectual property that the income stream flows from is valued according to the growth prospects of the income. Generally, higher growth can be associated with higher value, assuming that investment risks are the same. Comparable market transactions are not useful as value indicators if the properties being compared have decidedly different prospects for future income growth.
(g)
Legal protection
Intellectual property values are derived from the legal protection that excludes others from making use of the property. When there is a question about the strength of this protection, the value of intellectual property is weakened. This is especially true for patents. A basic patented technology covering the activities for an entire industry is far more valuable than a patent covering a small aspect of an industry. If a patented technology can be “designed around,” the underlying value of the patent is weak. Dramatic assurance of strong legal protection is associated with patents that have withstood the examination of infringement proceedings. Once validity is reaffirmed and acknowledged, usually in the form of a substantial damages award for the plaintiff, the patented technology is highly valuable. Evidence of the reaffirmed value usually can be detected in the number of industry participants lining up to take licenses at royalties that leave little room for negotiation.
(h)
Remaining economic life
Remaining life also must be considered in the valuation of intellectual property and intangible assets. Just like the old house that will require complete refurbishment in a
38
short time, intangible assets having dissimilar years of remaining utility are not good comparisons. Two patents with many similar characteristics of industry application, growth potential, profits, and market share still may not be reasonable comparisons if one has only a few years until expiration. When there are market transactions of specific intellectual property that has similar characteristics to the property under study, direct application of the market approach is possible. When intellectual property has been exchanged as part of a package of assets (usually as part of a business enterprise), then an allocation of the purchase price among the assets is required, in order to identify the amount that is specifically attributable to the intellectual property.
(vi)
Business enterprise analysis
The market approach can indicate the value of intellectual property and intangible assets by determining the value of the entire business enterprise within which the property resides. Once this value is established, allocation of the value among all of the other asset categories leaves a residual amount that often can be ascribed to intellectual property, such as strong trademarks, copyrights, distribution networks, or proprietary technology. The valuation of intellectual property within the framework of a business enterprise is an important and recurring theme in our analysis. Value for intellectual property is dependent on successful commercialization that is embedded in the value of the business enterprise in which it resides.
2.6.7.3 Important Factor to Consider in Income Approach
In order to use income approach to estimate the market value in the valuation of an intellectual property, the most important aspect is to quantify the economic benefit that the intellectual property is able to make. In income approach, market value equals to the present value of the future economic benefits of ownership. These are some of the factors to be considered when quantifying the economic benefit of an intellectual property:
(i)
Premium pricing
39
When above-average profits are generated on a consistent basis, intellectual properties may be responsible. Sometimes intellectual property contributes by commanding a premium selling price on a consistent basis regardless of competitor actions. Well-recognized trademarks are good examples. Two golf shirts of identical material and construction quality can differ in selling price by over $20. Customers are willing to pay, on a consistent basis, more money for the POLO logo. The same may be said to be true for other consumer goods such as SONY electronic equipment, ROLEX watches, MAYTAG kitchen appliances, and some of the Japanese automobile offerings. As long as the entire amount of premium is not spent on image-creating advertisements, net profits are enhanced. Premium selling prices are not always driven by prestige trademarks. Patented and unpatented technology-based products also can command premium prices—patented pharmaceuticals, for example. Generally, the production equipment investment that is needed to manufacture patented drugs is similar to the equipment needed to make generic medicines.
(ii)
Cost saving
A cost saving can be just as profitable as an increase in sales revenue, and many technology innovations produce such an economic benefit. Cost-saving intellectual property lends itself to a direct identification of the benefit. Production cost savings are a fairly common result of the exploitation of intellectual property, which can produce enhanced earnings, for example from:
Reduction in the amount of raw materials used
Substitution of lower-cost materials without sacrifice of quality or product performance
Increases in the amount of production output per unit of labor input
Improved quality that reduces product recall
Improved production quality that reduces waste or finished product rejects
Reduced use of electricity and other utilities
40
Production methods that control the amount of wear and tear on machinery and thereby reduce the amount of maintenance costs and production down time for repairs
Elimination of manufacturing steps and the machinery investment previously used in the eliminated process
Reduction or elimination of effluent requiring environmental treatment
Some types of cost savings can be easily recognized and quantified. When above-average profits are earned on a consistent basis, some form of intellectual property is often responsible.
(iii)
Earnings in the context of the enterprise
When costs are kept below the amount that customers pay for the product or service, a profit is earned. The mere existence of profit, however, is not enough to justify and support assignment of value to intangible assets or intellectual property. Earnings derived from operations must be of an amount, on a consistent basis, to yield a fair rate of return over the term of the investment in the intellectual property as well as the complementary assets. In allocating earnings to intellectual property, a fair return must first be allocated to nonintellectual property assets. The allocation must address two important factors:
(a)
The relative amount of each asset category involved in the business
(b)
The appropriate rate of return to associate with each asset category
Business enterprises consist of monetary assets, tangible assets, intangible assets, and intellectual property. Economic benefits are generated from the integrated employment of these complementary assets. Each asset contributes. Based on the relative importance of each asset category and the associated risk, the aggregate net income of the enterprise can be allocated to its components. Each of these asset categories contributes to the overall achievement of earnings. Before it is possible to allocate the enterprise earnings, we must first determine an appropriate rate of return to associate with each of the component parts.
41
Starting with the rate of return requirement for the overall enterprise, an assignment of rates of return for each asset category can be estimated.
(iv)
Economic life
Economic life is the period during which the use of an asset is profitable. Economic life ends when:
(a)
it is no longer profitable to use an asset (the future benefits are used up)
(b)
it is more profitable to use another asset.
This is quite different from the service life of an asset, which is the period from its installation (i.e., the date it was placed in service) to the date of its retirement (i.e., the date it was removed from service), irrespective of its earning capability along the way.
There are several means used to measure economic life. Some of them are:
(a)
Legislated lives
For years, schedules of suggested or required lives for depreciation have been a part of the federal income tax code. These were once realistic estimates of typical economic life and became part of tax legislation in order to reduce controversy between the government and taxpayers. Legislators soon realized, however, that changing these lives (and depreciation methods as well) was a relatively uncontroversial way to alter the effective tax rates of corporations and to attempt to manage the economy. As a result, life tables used for tax depreciation have been under constant change and now bear no relation to the actual economic life of property.
(b)
Legal /contractual life
The economic life of tangible assets is commonly not affected by legal or contract terms. These assets belong to the business and remain in place for as long as
42
management decides. However, many intangible assets, as well as intellectual property, do have a recognized legal or contractual life. These includes patents, copyrights, trademarks (to the extent of renewal terms and acts necessary to retain their rights), leases, supply or distribution contracts, subscriptions, Mortgages or other loan agreements, license agreements, franchise agreements.
(c)
Indefinite economic life
Most intangible assets and intellectual property have an economic life undefined by law or contractual terms. Therefore, these assets first must be analyzed in order to determine whether legal or contract terms will be controlling with respect to their remaining economic life. In many cases, economic life is shorter than legal life. The effectiveness of a patent may be ended before its 17- or 20-year legal life. An unexpired patent may be made obsolete by advancing technology or because the product in which it was used has lost its place in the market. Alternatively, the economic life of a magazine subscription or consumer loan contract may be longer than its (legal) contract life if there is a history of renewals.
(v)
Capital recovery
When a manager of a business or an accountant makes the decision that an expenditure is an asset, then a recovery of that expenditure (depreciation expense) must begin and continue as long as that expenditure is an asset (as long as there are future economic benefits). When an asset is retired prematurely (vis-à-vis the recovery period), a loss occurs that is equal to the unrecovered (undepreciated or unamortized) cost. When the service life turns out to be longer than the capital recovery period, then the business enjoys earnings greater than it otherwise would during the extended period, because depreciation or amortization stops. In either case, there is a mismatch of the revenues generated by the asset and the cost of ownership. For a business with many assets, the impact usually is not significant when the pluses and minuses are offset, but, nevertheless, an important accounting objective has not been met. A realistic economic life, giving consideration to all the factors that cause property retirement, should be the basis for establishing capital recovery periods.
43
2.6.8
Challenges in Intellectual Property Valuation Practice
(i)
Refining the allocation of economic contribution
Allocation of total business enterprise return among the asset groups composing a business ensures that many important factors are addressed as part of the valuation. The allocation process presented earlier in this book ensures that the valuation of a specific intellectual property or intangible asset credits complementary assets for their contribution to enterprise profits. The allocation process also accounts for variations of investment risk among the assets composing an enterprise. The process previously discussed allocates economic contributions to monetary and tangible assets, intangible assets, and intellectual property. When the analysis is conducted for a product line, the economic contribution attributed to the intellectual property of the product line can be associated with the defining characteristic of the product line. In some cases, the defining intellectual property is a patented feature or patented manufacturing process. In other cases, a trademark is the defining feature. Sometimes a product line is defined by both a trademark and a patent. In these cases, the economic contribution attributed to the intellectual property asset category must be subdivided.
(ii)
Correlating value indications
Only rarely are indications of market value for an intangible asset nearly the same when they are arrived at by application of cost, market, and income approaches. It is equally rare to have the market values of underlying assets fit nicely into the business enterprise value. Therefore, we are nearly always faced with reconciling indications of market value in order to reach a conclusion, and this is why the results of valuation calculations prior to this effort are called “indications” of value.
(iii)
Forecasts
Almost any valuation we can envision involves forecasting to some degree, and many have forecasts as their central underpinning. An appraisal is, after all, a
44
judgment about the nature of a transaction that never took place and perhaps never will take place. Since investment decisions are forward-looking, the requirement for predictions is not surprising.
(iv)
Investigation
The investigation phase of a valuation is critical to its success, and these are some of the challenges in valuation during the investigation phase: •
Fostering a cooperative relationship with the client
•
Asking tough questions as intellectual property value expectations can be based on fond hopes, and the appraiser has to separate these from realistic expectations.
•
Possessing solid understanding of the rights being appraised. The range of rights encompassed in the ownership of intellectual property is great and the exploitation possibilities numerous.
•
Investigation of the employment of complementary asset used in the exploitation of intellectual property.
•
2.7
Requirement of outside experts to supplement particular areas of knowledge.
Summary
This chapter had given a detailed explanation regarding the terms and theories that are going to be used in the research. It also provided a better understanding and supporting main objectives of the research. Next chapter discusses further on the methodology adopted to achieve research objectives as stated in Chapter 1.
45
CHAPTER 3
METHODOLOGY
3.1
Introduction
This chapter is focused on discussing on the process, approach, strategy, and the means of data collection and analysis of the research. Methodology that is adopted and applied in this research will be explained thoroughly. Research methodology is a systematic way to solve the research problem. In other words, it is a study on how a research is done scientifically (Kothari, 2004). Research methodology can also be explained as a procedure where researchers set about defining, analyzing and anticipating phenomena of their work (Rajasekar, Philominathan, & Chinnathambi, 2013). Every research objective has its own way of data collection and analysis methods. An appropriate methodology is crucial in obtaining the findings of a research effectively. The methodology mentioned in this chapter will help the researcher to clarify the research problems raised and facilitate the smooth process of the research operation. This will lead the research to be conducted efficiently while yielding maximal information.
46 3.2
Research Process
Figure 3.1: Flow chart of research process
47 3.2.1
Determination of Title and Issue Identification
The determination of title of is very important in a research. A good research title provides the direction for a research. In order to obtain an accurate title for the research, the researcher would have to define the problem faced in the particular aspect of a certain field. In this case, the problems defined are the problems faced in intellectual property valuation. After that, the researcher along with the supervisor works meticulously in determining the proper research question with regards to the problem statement of the research. Next, the research objective is selected with the intention to study and solve the research questions determined earlier. Lastly, the scope of the research is narrowed down in order to conduct the research and obtain an accurate and credible finding of the research. In this research, the problem faced in intellectual property valuation is the inconsistency in intellectual property valuation. Based on the literature review, the inconsistency in intellectual property valuation stems from several sources such as valuer’s subjectivity, inconsistency in the addressing of intellectual property, lack of universally accepted valuation method and, challenges in applying the theory in intellectual property valuation to practice. After that, the research question is determined with regards to the problem statement. The research objective is established to guide the researcher in setting out for the research and acquire findings in response to the problem statement. In Research Objective 1, the practice of intellectual property valuation is investigated because criteria are able to reduce the problem in intellectual property valuation through understanding of the practice. The problem of subjectivity, inconsistency and vagueness are able to be minimized with the strong understanding of the practice.
3.2.2
Literature Review
The function of a literature review is to provide an understanding to each stages of research. Literature review helps in defining certain key words that are going to be used in the research. In this stage, the key words are defined in a detailed way and it has to be justified by referring to journals, articles, and other reliable sources.
48 Besides that, literature review also can make the reader have more understanding on the issue discussed. When searching reliable literature sources, the researcher found out that intellectual property valuation is a very essential field in the development of a business or even a country. There are some very reliable literature sources that are found and accessed in this research. However, there is an insufficiency in terms of quantity for existing literature sources for this field which further solidifies the importance of this research. The literature reviewed provides a strong foundation for this research to work on in response to the problem in intellectual property valuation. Based on that foundation, this research aims to provide a solid framework with regards to intellectual property valuation.
3.2.3
Data Collection
The data collected are tabulated accordingly so that it is relevant and related to the research. This stage is very important in ensuring that the research is justified and have strong evidence. There are two main types of data that can be acquired, which are primary and secondary data. According Hox & Boeije (2005), states that the primary data is first collected through a systematic procedure, then it is analyzed and recorded in written form based on the research questions. Primary data consisted of original data collected by the researchers. Examples of primary data are the findings obtained through the use of questionnaires or interview. Secondary data is the data collected by someone other than the researcher, such as data obtained from journals, news report, other printed material and so forth. A good data is required to construct a convincing result.
3.2.4
Data Analysis and Formulating Outcome
The data obtained is analyzed in this stage to achieve the objectives that are set. This stage determines the finalized result and shows whether the hypothesis is accepted or else wise.
49 3.2.5
Conclusion and Recommendations
The last stage of the research is constructing a conclusion of the research as well as the recommendation for further research. It shows an overall result of the research and it gives recommendations for future researchers on the research that can be done to improve the current situations.
3.3
Research Approach
The research design shows how the research can be carried out using the variables like objectives linking them with the method to be adopted in order to achieve a particular objective showing also the source where the information can be collected and the means design (tool) to collect such information and the expected findings.
3.3.1
Qualitative Research
Qualitative research involves the use of interview survey, observation and document review. Hoshmand (1999) argues that qualitative research should be specifically aligned with action research and critical hermeneutic traditions and that qualitative researchers should form a community around this specific concern. According to (Yin, 2011), qualitative research enables you to conduct in-depth studies about broad array of topics, including your favourites, in plain and everyday terms. Furthermore, he also adds that qualitative research has become an acceptable, if not a mainstream form of research in many different academic and professional fields. Qualitative researchers aim to gather an in-depth understanding of human behavior and the reasons that govern such behavior. Qualitative research has the advantage of flexibility in data analysis such that data can be analyzed manually or using computer (Dawson, 2002).
The merits of qualitative research according to Matveev (2002) are: (i)
Flexible ways to perform data collection, subsequent analysis and interpretation of collecting information, descriptive capability based on primary and unstructured data.
50 (ii)
Ability to interact with the research subjects in their own language and their own terms (Kirk & Miller, 1986)
(iii)
Provide a holistic view of the phenomena under investigation (Patton, 1980; Taylor & Bogdan, 1975)
The demerits of qualitative method according to Yin (2011) are: (i)
Inability to establish the necessary research conditions (as in experiments).
(ii)
Unavailability of sufficient data series or lack of coverage of sufficient variables (as in economic study).
(iii)
Inability to investigate causality between different research phenomena (Matveev, 2002)
iv)
Departing from the original objective of the research in response to the changing nature of the context
The researcher used qualitative research tools for gathering information which includes: participant observation, semi-structured interview and analysis of documents and materials. It is only through the use of these qualitative research tools that Research Objective 1 and Research Objective 2 can be achieved.
3.4
Research Strategy
The strategy of used by this research to collect data is illustrated in Figure 3.2.
51
Figure 3.2: Flow chart of research design
3.4.1
Interview
Tewksbury (2009) defines interview as a structured conversation that researchers have with individual. It can be understood as interviewing is a technique that is primarily used to gain an understanding of the underlying reasons and motivations for people’s attitudes, preferences or behavior. Interviews can be undertaken on a personal one-to-one basis, or some other agreed location. It can be structured, unstructured or semi structured. Semi structured interview are adopted for the purpose of this research. The research involves interviewing of 6 IP valuers in the country. The 6 valuers consist of 2 experienced valuers in the industry and 4 valuers certified with MyIPO. The reason for this categorization is to obtain different perspective from different side of IP valuer in the industry.
52 3.4.2
Document Review
Document review is defined as the systematic procedure for reviewing or evaluating documents—both printed and electronic (computer-based and Internet-transmitted) material (Bowen, 2009). Like other analytical methods in qualitative research, document analysis requires that data be examined and interpreted in order to elicit meaning, gain understanding, and develop empirical knowledge (Corbin & Strauss, 2008).
Critical study of documents under review was made by the researcher to derive inferences on events or to make an assessment on a certain subject or object. Official reports from various organizations are used in this research study. The documents reviewed are listed in Table 3.1 below:
Table 3.1: List of documents reviewed
Documents Reviewed International Financial Reporting Standard (IFRS) Internatonal Valuation Standards (IVS) MyIPO Annual Report MyIPO Valuation Model MyIPO Statistical Booklet
3.5
Author IFRS Foundation International Accounting Standards Board (IASB) International Valuation Standards Council (IVSC) MyIPO MyIPO MyIPO
Data Collection Technique
The data collection is a crucial stage for gathering the data in the research. In this study, there are two types of source data collected based on primary data and secondary data. Both the primary and secondary data will be collected as illustrated in Figure 3.2 Primary data were obtained through the distribution of questionnaires and construction of semi-structured interview in order to get the feedback from the targeted respondents while the secondary data were gathered through reviewing from books, journal articles, internet, newspaper, magazines, theses and dissertations, conference proceedings, reports and documentaries.
53 3.5.1
Primary Data
Primary data are information collected by a researcher specifically for a research assignment (Hox & Boeije, 2005). In other words, primary data is the information that a researcher must gather because no one has compiled and published the information in a forum that is accessible to the public. Primary data are original in nature and directly related to the issue or problem and current data. Furthermore, primary data are the data which the researcher has collected through various methods like interviews, surveys, questionnaires etc. (Hox & Boeije, 2005). Primary data are collected with the purpose to identify and investigate the problem in the research. In this research, the investigator intended to collect and gather the primary data from the respondents via interview with the designed questions to serve the objectives of the research.
3.5.2
Secondary Data
Secondary data are the data collected by a party not related to the research study but collected these data for any of the other purposes and at different time in the past (Hox & Boeije, 2005). If the researcher uses these data, then these become secondary data for the current users. These may be available in written, typed or in electronic forms. A variety of secondary information sources are available to the researcher for gating data on an industry, potential product applications and the market place. Examples of secondary data are journals, books, thesis, and the other (Hox & Boeije, 2005). In the research all the relevant data are retrieved by the researcher through the different sources. The secondary data consists of the publications which relate to the research topic. The related information was examined and reviewed in the literature review part of the research.
54 3.6
Data Analysis Technique
3.6.1
Thematic Network Analysis
Thematic network analysis is a way of organizing a thematic analysis of qualitative data. Thematic analyses seek to unearth the theme salient in a text at different levels, and thematic networks aim to facilitate the structuring and depiction of these themes (Attride-Stirling, 2001). It is not grounded in any particular theoretical and epistemological framework and can therefore be applied across a wide range of qualitative research approaches (Braun & Clarke, 2006). Thematic analysis is a search for themes that emerge as being important to the description of the phenomenon (Daly, Kellehear, & Gliksman, 1997). It is a form of pattern recognition within the data, where emerging themes become the categories for analysis (Fereday & Muir-Cochrane, 2006). In seeking to analyse data, thematic analysis can either identify the themes pertaining to a particular research question (deductive analysis) or it can identify themes that are observed across the entire data range (inductive analysis) (Braun & Clarke, 2006). Inductive thematic analysis occurs when the researcher observes themes from the data without having had a particular preconception of the various themes that would emerge. Deductive thematic analysis on the other hand, is guided by the researcher’s particular thematic interest and seeks to analyse a specific area of the data (Halland, 2007).
3.6.1.1 The structure of Thematic Network Analysis Deployed in the Research
Thematic network analysis is a process of deriving themes from textual data and illustrating these with some representational tool is well established in qualitative research. Thematic analysis involves the identification and analysis of themes and patterns of similarity within qualitative research (Braun & Clarke, 2006). The procedure of thematic network does not aim or pretend to discover the beginning of arguments or the end of rationalizations; it simply provides a technique for breaking up text, and finding within it explicit rationalization and their implicit signification. The three classes of themes (as shown in Figure 3.3) can be described as follows:
55
(i)
Basic theme This is the most basic or lowest-order theme that is derived from the textual data. It is like a backing in that it is a statement of belief anchored around a central notion (the warrant) and contributes toward the signification of a super-ordinate theme. Basic themes are simple premises characteristics of the data, and on their own say very little about the text or group of texts as a whole. In order for a basic theme to make sense beyond its immediate meaning, it needs to be read within the context of other basic themes. Together, they represent an organizing theme.
(ii)
Organizing theme This is a middle-order theme that organizes the basic themes into clusters of similar issues. They are clusters of signification that summarize the principal assumptions of a group of basic themes, so they are more abstract and more revealing of what is going on in the texts. However, their role is also to enhance the meaning and significance of a broader theme that unites several organizing themes.
(iii)
Global theme Global themes are super-ordinate themes that encompass the principal metaphors in the data as a whole. A global theme is like a claim in that it is a concluding or final tenet. As such, global themes group sets of organizing themes that together present an argument, or a position or an assertion about a given issue or reality. They are macro themes that summarize and make sense of clusters of lower-order themes abstracted from and supported by the data. Thus global themes tell us what the texts as a whole are about within the context of a given analysis. They are both a summary of the main themes and a revealing interpretation of the texts. Global theme is the core of a thematic network; therefore an analysis may result in more than one thematic network. The thematic network analysis was used to answer the Research Question 1: How do intellectual property valuers carry out the practice of intellectual property valuation? and
56 Research Question 2: What are the challenges faced by intellectual property valuers in the practice of intellectual property valuation?
Figure 3.3: Structure of a thematic network (Attride-Stirling, 2001)
3.7
Summary
This chapter presents the methodology that was used to carry out this research. The chosen methodology to collect data was qualitative approach. The objectives of this study were achieved more effectively based on the technical literature. Methodology was built in aiming to answer research questions and achieve research objectives. It explained the ways to get the needed data as well as how it is tabulated for further analysis. By using the right techniques, data can be obtained and analyzed to get good result for the research. The next chapter discusses analysis of data obtained through interview and documents review.
57
CHAPTER 4
DATA ANALYSIS AND RESULTS
4.1
Introduction
This chapter discusses on the data presentation and analysis by means of qualitative approach. This chapter summarizes the respondent’s views and attitudes qualitatively. The data obtained from the field work in the case study area is presented and analyzed using the thematic network analysis for qualitative data. Moreover, the findings were analysed according to the portion that is in the form of an interview. The collected data were interpreted by using Qualitative Data Analysis Technique -Thematic Network Analysis to ensure that the data collected meet the objectives of the study (Attride-Stirling, 2001). Thus, all results will be presented suitably in the form of figures and table in order to aid in the visualization of the overall findings clearly in the result presentation. The research framework developed in this study is further used to guide the researcher on the main objective of this chapter, which further discusses and presents the following areas of investigation and their respective themes.
58 4.2
Research Framework
Figure 4.1: Research framework to deduce Research Objective 1 and Research Objective 2
The research framework is developed to answer Research Objective 1 and 2 as shown in Figure 4.1.
Figure 4.2: Structure of thematic network analysis used in the research (adopted from Attride-Stirling, 2001)
Thematic network analysis is used as the data analysis technique. The data are classified into three categories of themes as shown in Figure 4.2.
59 4.3
Background of Respondent
The respondents are all IP valuers with diversified background in order to acquire a comprehensive finding to the research as shown in Table 4.1.
Table 4.1: Background of the respondent (Interview survey, 2017)
4.4
Respondent 1 2 3
Background Economics Law and Science Law
4
Law
5 6
Accounting Real Estate
Organization Adastra IP KASS International Tan Norizan & Associates Wong & Partners (Member firm of Baker & McKenzie International) APCED Asia Sdn Bhd Royal Institution of Surveyors Malaysia
Method or Instrument Used
The method or instruments used in this study are the by-product of qualitative research. Interview, observation, and document review are used in this study to find out certain attributes or characteristic displayed by people through interview, observation and document review as shown in Figure 4.3. The data collection techniques adopted for the analysis of the study describes in general detail how the interview was conducted, how the observation was carried out and also the documents reviewed.
Figure 4.3: Qualitative data collection structure to investigate practice and challenges of IP valuation
60 4.4.1
Interview Survey
Figure 4.4: Interview frameworks to investigate practices and challenges of IP valuation
The interview was conducted at Kuala Lumpur with the aim of reaching both the Research Objective 1 and 2. The interview carried out involves 2 experienced IP valuers from renowned IP firms in the industry and 4 IP valuers certified by MyIPO as shown in Figure 4.4. All interviews conducted were face to face semi-structured interview. The question is divided into 2 parts: Part A consists of questions related to the practice of IP valuation; part B consists of questions related to the challenges faced by IP valuers in IP valuation practice.
4.4.1.1 Interview Conducted with Experienced IP Valuer
(i)
First interview was conducted with Respondent 1 The interview conducted was on 26th October 2017. It was conducted with Respondent 1, the manager of a renowned IP firm called Adastra IP. Respondent 1 have 12 years of working experience in the IP field with 4 of them being spent in IP valuation. The time taken to conduct the interview was 35 minutes.
(ii)
Second interview was conducted with Respondent 2 The interview was conducted 3 hours after the first interview ended. The interview was conducted with Respondent 2, the founder and director of another renowned IP firm called KASS International. Respondent 2 have 30
61 years of working experience in the IP field. The time taken to conduct the interview was 44 minutes.
4.4.1.2 Interview Conducted with Certified IP Valuer
(i)
First interview was conducted with Respondent 3 The interview conducted was started on 9th November 2017. The interview was conducted with Respondent 3, a lawyer who is also a certified IP valuer. The time taken to conduct the interview was 48 minutes.
(ii)
Second interview was conducted with Respondent 4 The interview was conducted on 15th November 2017. The interview was conducted with Respondent 4, a lawyer who is also a certified IP valuer. The time taken to conduct the interview was 28 minutes.
(iii)
Third interview was conducted with Respondent 5 The interview was conducted on 16th November, was conducted on 16th November 2017. The interview was conducted with Respondent 5, an accountant who is also a certified IP valuer. The time taken to conduct the interview was 1 hour.
(iv)
Fourth interview was conducted with Respondent 6 The interview was conducted an hour after the first interview ended. The interview was conducted with Respondent 6, a real estate valuer who is also a certified IP valuer. The time taken to conduct the interview was 1 hour 30 minutes.
4.4.2
List of Documents Reviewed
Table 4.2: List of documents reviewed
Documents Reviewed IFRS
Author IFRS Foundation International Accounting
Review Valuation approaches for intangible assets and intellectual
62 IVS
Standards Board (IASB) International Valuation Standards Council
MyIPO Annual Report MyIPO Valuation Model MyIPO Statistical Booklet
MyIPO MyIPO MyIPO
4.5
property Valuation approaches for intangible assets and intellectual property Direction of MyIPO Generic IP valuation process Performance of IP
MyIPO
MyIPO (Intellectual Property Corporation of Malaysia), an agency under the purview of the Ministry of Domestic Trade, Co-operatives and Consumerism, is responsible for the development and administration of intellectual property rights (IPR) system in Malaysia. Its task is to provide strong legal infrastructure and an effective administrative regime to enhance greater creativity and exploitation of IP. Prior to 1983, intellectual property rights (IPR) in Malaysia was administered by Pejabat Cap Dagangan dan Jaminhak. This Office changed its name to Pejabat Cap Dagangan dan Paten in 1983 and was placed under the jurisdiction of the then Ministry of Trade and Industry. On 27 October 1990, the Ministry was restructured and the Office was placed under the Ministry of Domestic Trade and Consumer Affairs which is now known as Ministry of Domestic Trade, Co-operative and Consumerism and changed its name to Intellectual Property Division. The Division was tasked to administer Patents Act 1983, Trade Marks Act 1976, and Copyright Act 1987. The Industrial Designs Act 1996 came into force in 1999, followed by the Layout-Designs of Integrated Circuits Act 2000. In 2001, the Geographical Indications Act 2000 came into force. To respond to the development of intellectual property at domestic and global levels, the Division was corporatized on 3 March 2003 and known as the Intellectual Property Corporation of Malaysia (PHIM), with the enforcement of the Intellectual Property Corporation of Malaysia Act 2002. The Corporation took an important first step of rebranding when the acronym PHIM became MyIPO on 3 March 2005 at the inaugural National Intellectual Property Day.
63 4.5.1
Objectives
Figure 4.5: Objectives of MyIPO
Figure 4.5 explains on the objectives of MyIPO in strengthening the IP market in the country.
4.5.2
Role of MyIPO
Intellectual Property Corporation of Malaysia (MyIPO) is responsible for the development and management of intellectual property system in Malaysia. Malaysia is one of the state parties to the Paris Convention and WHO. A Malaysian IP registration can be used as a basis for priority claim for countries which are party to these conventions. The Intellectual Property Division in Malaysia has functions to act as agent of the Government and to provide services in administering, collecting and enforcing payment of prescribed fees or any other charges under the Intellectual Property Legislation. It also safeguard the interest of Malaysia in respect of any agreement or international convention to which Malaysia is a party. The division is responsible to establish a strong legal and effective administrators, to promote public awareness programs on the importance of intellectual property as well as to provide advisory services on intellectual property.
64 4.5.2
Services Provided
MyIPO’s core services include registration of patents, trademarks, industrial designs, geographical indications and copyright voluntary notification; advisory services on IP; provide IP information/statistics; IP training; patent agent examination; online search, filing and application status; outreach programmes and helpdesk.
i)
Registration
of
patents,
trademarks,
industrial
designs,
geographical indications and copyright voluntary notification. MyIPO provides registration services for patents, trademarks, industrial designs, geographical indications and copyright voluntary notification. MyIPO also provide both manual and online filing to enable applicants to submit their application forms without any hassle. Copyright protection subsists upon creation. However, owners of copyright works may register their works at MyIPO on voluntarily basis.
ii)
Advisory services on IP MyIPO provides advisory services on IP upon request. This service aims to guide and facilitate applicant on filing matters.
iii)
Provide IP information/statistics MyIPO provides IP information such as IP legislations, development of IP system, current activities and statistics upon request.
iv)
IP training MyIPO through the Intellectual Property Academy (IPA) has been tasked to conduct and organize seminar, workshop, briefing and training on IP related matters throughout the years. The programmes are tailored according to the needs of the target group such as researchers, academicians, government agencies, universities, enforcement agencies,entrepreneurs and MyIPO officials. Some of the programmes were organized in cooperation with World Intellectual Property Organisation (WIPO) or other foreign IP offices. We have our own homegrown speakers but we also invite other local and
65 international experts to share their knowledge and experience with the participants. IPA is equipped with 5 training rooms, one ballroom, computer training lab and IP library. The training facilities in IPA is also available for rent.
v)
Patent agent examination According to our IP legislation, foreign applicants shall appoint a registered local agent to act on their behalf with regards to IP filings. The IP agents are registered if they fulfill the requirements of the respective legislations. However, to be a patent agent, in addition, the candidate needs to pass patent agent examination. MyIPO provides intensivecourse for the interested candidates and conduct the patent agent examination once a year. The examination process, including selection of speakers and examination papers are assessed, approved and monitored by the Patent Board.
Registered
patent agent is qualified to apply for trade mark, industrial design and geographical indication agent.
vi)
Online search, filing and application status In 2011, MyIPO introduced IP Online System that provides a secured webbased filing system for patent, trade mark, industrial design and geographical indication. This system also offers online search and facilitates applicants to check their current application status.
vii)
Outreach programmes MyIPO has conducted and organized a number of outreach programmes to raise awareness on the importance of IP protection. Among the programmes include: •
Celebration of National Intellectual Property Day is held annually.
•
Launched of IP Mobile Clinic to disseminate IP information and to instil creativity among students and public.
•
Introduced Media Action Plan which includes television and radio interviews on IP, publication of IP articles in major newspaper and outdoor advertisement on IP.
66 •
Publication of MyIP Bulletin twice a year as a platform for writers from IP industry to discuss and put forward commentaries on various IP issues.
•
Introduced MyIPO’s Facebook, Twitter and You Tube to reach out to youth and social media users.
•
Implementation of Knock door-approach which enables MyIPO officials to meet personally with our potential client and disseminate information on IP.
•
Organized IP Summer Camp focusing on school children. 200 school children participated in this programme which was held in May 2013 at Seri Puteri School, Cyberjaya.
•
Participation in business/technology related exhibitions.
4.6
Data Analysis and Findings
4.6.1
Data Analysis on Research Objective 1: To Investigate The Practice Of Intellectual Property Valuation
4.6.1.1 Theme 1: Classification of IP
Table 4.3: Classification of IP (Interview survey, 2017)
Type of IP Copyright Patent Trademark Industrial Design Trade Secret Geographical Indication Plant Variety Right Integrated Circuit Layout Design
WIPO
MyIPO
MOA
R1
R2
R3
R4
R5
R6
Recognition of intellectual property (IP) is a very crucial part in the valuation of intellectual property. Intellectual property can be classified into many different categories as shown in Table 4.3. While most of them require registration, there are also intellectual properties that do not need to be registered such as trade secret. The intellectual properties recognized by the all respondents exist in the previous literature.
67 World Intellectual Property Organization (WIPO) recognizes 5 types of intellectual properties, namely copyright, patents, trademarks, industrial designs and geographical indications. However, not all of these intellectual properties can be registered internationally by WIPO. Out of the 5 intellectual properties that are recognized by WIPO, copyright is the one that is unable to have International registration. WIPO only offers International registration of patent, trademark, industrial design, geographical indication and microorganism inventions through PCT (Patent Cooperation Treaty), Madrid System, Hague System, Lisbon System and Budapest System respectively (“IP Services,” n.d.). The treaty or system basically consists of many countries that are bind together under a single system. Thus by filing one international application under PCT or the other systems, the applicant can simultaneously seek protection for an IP in a very large number of countries. WIPO offers a set of international system that allows IP to be registered internationally. In order to obtain International registration from WIPO, an applicant has to first have a basic IP registered with their local Office of Origin (the local office for IP registration in Malaysia is MyIPO). The applicant can then apply to have their registration forwarded to WIPO. In order to obtain International register, the applicant and their IP have to go through a formal examination. Next, the IP will be registered in the International Register and published in the Gazette of International registration. A certificate will be issued and all the designated Contracting parties will receive a notification. The scope of protection of International registration will be determined by substantive examination under domestic law, which usually takes from 12 to 18 months. The National or Regional IP office in Malaysia is MyIPO (Intellectual Property Corporation of Malaysia). On top of the 5 intellectual properties recognized by WIPO (copyright, patents, trademarks, industrial designs and geographical indications), there is an additional IP that can be registered with MyIPO. An applicant can register IC layout designs (layout-design of an integrated circuit) locally with MyIPO. Local registration with MyIPO allows the IP right to be protected within the country. All respondents agreed unanimously that the intellectual properties in Malaysia consist mainly of copyright, patents, trademarks and industrial designs. R2 and R3 state that there is a lesser known type of intellectual property called plant
68 variety protection (PVP) or plant variety rights. R3 reaffirmed that PVP is lesser known because instead of registering it with MyIPO, PVP is registered under Ministry of Agriculture and Agro-based Industry (MOA) in Malaysia through Department of Agriculture (DOA). This is not commonly seen as PVP in other countries, such as New Zealand and Singapore are registered under their IP office as stated in the literature. In countries like United States, their IP office do not offer a separate registration for PVP as PVP is registered as a patent. R6 added that utility innovation is another type of IP to be considered in an IP valuation. A utility innovation is the same as a patent except that it does not offer a technical solution and does not come with a worldwide novelty. A patent is basically an innovation where the inventor comes up with a technical solution and it must have a worldwide novelty so any invention without said characteristic are considered as utility innovation. Utility innovation does not solve a technical problem but instead it is an invention that is an improvement on the existing process or design. This is supported by MyIPO as patent is always mentioned together alongside utility innovation. Any application will be analysed by MyIPO to see whether they are just utility innovation or if they fulfill the criteria to be a patent. There is also another type of IP called geographical indication. R6 claims that geographical indication refers to a product or service that indicates a location where people will regard the product higher if that product comes from a location famous for producing it. It is not so commonly seen in Malaysia because it requires a certain association to control the quality. It is not easily claimable and it needs time for people to recognize it.
4.6.1.2 Theme 2: Selection of Valuation Approach
Table 4.4: Approaches used in IP valuation (Interview survey, 2017)
Valuation approaches Income Approach Market Approach Cost Approach Option Based Approach
IVS
IFRS
R1
R2
R3
R4
R5
R6
In previous literatures, the valuation approaches identified are market approach, cost approach and income approach. These valuation approaches are the same ones
69 identified by all the respondents. However, there is an approach called option-based approach that is also mentioned in the literature as shown in Table 4.4. This approach is not mentioned or practiced by any of the respondents. Although R5 displayed some knowledge on this approach, he emphasizes that he does not practice this approach in his valuation.
All of the respondents expressed the same view when it comes into the methods and approach of valuation used by them in IP valuation. The three main approaches used by all the respondents are income approach, market approach and cost approach. R1 and R3 expressed that only these three approaches are used because a good valuation report needs to conform to the International Financial Reporting Standards (IFRS) and International Valuation Standards Council (IVSC). R1 adds that it requires the valuer to be able to defend their methodology, assumptions and discount rates so she would only use those 3 approaches when valuing an IP. R3 and R4 state that the IP valuation model prepared by MyIPO uses only these three approaches because as certified IP valuer trained by MyIPO, they are only being guided to practice these three methods. With the exception of R5, most of the respondent has no knowledge regarding the newer approach called option based approach. R5 expressed a little bit of knowledge regarding option based approach but even so he still does not practice this approach in his valuation. The purpose of valuation is also very important in the determination of valuation approach. R1 mentioned that the purpose of valuation is very important as it will determine the methods that will be used. It is agreed by all respondents that income approach is the most commonly used method when performing IP valuation. This is closely related to the purpose the client seeks out IP valuation. The clients request for IP valuation more often than not to transact the IP or raise fund using it. Therefore, it is only rational to find the value of the IP using income approach to project the future income that the IP is able to bring in. In other words, income approach is more popular among income generating IP as it generally have the best potential to produce the highest value using income approach out of the three approaches used. All respondents provided the same answer when questioned on the most commonly used method in IP valuation. When it comes to income generating IP, it is undisputed that income approach is the mainly used method because income
70 approach provides the highest value and client always wants their IP to be valued to its highest value. Market approach is stated by all respondents as the secondary approach that is used to cross check with the value obtained from income approach. R4 claims that market approach is rarely, if ever used on its own while R6 supported by saying unlike real estate valuation where market approach is the dominant method, income approach is the main approach while market approach is the secondary approach in IP valuation. R3 and R5 stated that market approach is used to cross check with the value obtained from income approach. R5 went on and said that the value obtained from income approach is mostly accepted if the value is not too far away from the value obtained from market approach. All respondents agree that cost approach is the last resort in IP valuation. R1 and R4 states that income approach is used to perform valuation on non income generating IP. R5 states there are only 2 situations which would involve valuation using cost approach, which is for non commercialization of an IP or IP with insufficient information to calculate and value using income approach. The former is supported by R3 who claimed that cost is avoided because it doesn’t really replicate the true value of an IP and is only used if there is no commercialization for the IP. On the other hand, R6 says that cost approach is usually for startups, which are business that have just started, because it doesn’t have an income stream to provide. R6 claim it is because 5 years of historical data of income stream is needed in order to perform a good valuation using income approach.
4.6.1.3 Theme 3: Purpose of Valuation
Table 4.5: Purpose of IP valuation (Interview survey, 2017)
Valuation Purposes Transaction of IP Financing Merger & Acquisition Determination of licensing rate Liquidation Infringement damages Insurance of IP Accounting Purposes Dispute Resolution
R1
R2
R3
R4
R5
R6
71 The purposes of valuation identified from the respondents exist in previous literatures. There are many other purposes in the literatures that are not practiced in the country as the state of IP is still not in an advanced stage. It should also be noted that the statutory of different countries also present different purpose of valuation. This is evident in the literature where taxation is mentioned as a purpose but this does not apply to Malaysia because IP is not taxed in the country. The purpose of valuation is very important in IP valuation or for that matter, any other form of valuation. Purpose of valuation , as shown in Table 4.5, can have a very big impact on the value of an IP. There are many reasons for an IP valuation to be carried out. One of the most common purposes is the transaction of IP. All of the respondents mentioned about having being requested to perform IP valuation for the purpose of transaction. R3 mentioned that it is important to take note on whether it is the buyer or the seller requesting for the valuation. That is because a buyer and seller are exposed to different degree of risk in an IP transaction. A proposed purchaser may have higher risk as they are not sure how will the IP perform in future as IP market can be very volatile. On the other hand, the risk is significantly lower for an IP owner trying to sell their IP to another party because there’s not much you can lose besides the cost of developing the IP. R4 states that even when selling your IP, the sales can be different from a proper sale compared to a fire sale. In a fire sale, the value of the IP would be much lower compared to the value a willing seller can get because you are not given a choice but to sell it. The people who want to buy such IP will be much less so the valuer would need to discount it. Financing or raising fund is another prime reason for people to seek IP valuation. All of the respondents agree that majority of the people request for IP valuation because they want to use IP as collateral for debt financing. However, it must be noted that banks in Malaysia do not accept IP as collateral for funding as stated by R1, R2 and R6. The three respondents asserted that while banks in overseas widely welcome the use of IP as collateral for funding but that is not the case in Malaysia. R1 went as far as saying that during their stakeholder engagement with commercial banks organized by Bank Negara, none of them are keen to take IP as collateral for financing. She adds that he banks in Malaysia would only accept the standard collaterals. In order to encourage the use of IP for funding, R3 and R5 states that government established Malaysia Debt Ventures Bhd (MDV) through the Ministry of Finance to fill this funding gap. R5 claims this is because the government
72 realized that IP have a lot of potential which is not recognized by the conventional bank. MDV was established to provide project financing facilities to ICT companies to finance procurement of the necessary project inputs, capital expenditure and working capital. Another way of getting financed in using IP in Malaysia, as stated by R6, would be through angel investor, private individuals who have the financial capacity and recognizes the potential in IP. In return for their fund, they will seek a percentage of the future profit. In addition to debt financing as mentioned, which is a loan offered by the financial institution like a bank or MDV, another form of financing would be equity financing. It is agreed by R1, R5 and R6 that IP owners would also seek for IP valuation to obtain equity funding. R5 states that a company may want to value their IP because they want to invite investor to get into the company and provide financial injection through equity share. They need to convince the investor that their company with all the IP is worth to invest in while also needing to know how much fund the investor needs to provide to enter the company through shares. Merger and acquisition (M&A) is also a very important purpose when it comes to IP valuation. All of the respondents, with the exception of R6, expressed M&A as the reason people look for IP valuation. A company intending to merge with or acquire another company needs to know how much they need to offer to make the M&A worth their while. R4 added by mentioning that when a company intends to purchase a company which has IP assets, they need to know whether the price offered by the seller is worth the while. The said company needs to know how much does the company asset worth, including the IP. They would need to do an IP valuation for that. R2 supported the statement by claiming that the acquisition can happen to both the company and IP asset. In some cases, the value of the IP asset basically determines majority of the worth of a company. Some other purpose for seeking IP valuation in Malaysia would be the determination of licensing rate, liquidation, accounting purposes, dispute resolution, infringement damages and insurance of IP. R6 states that value of IP in dispute resolution is very important as the compensation needs to be determined if there is a dissolution of a partnership. The compensation would be paid based on the amount of share and the value of the whole business, including the assets and IP. IP valuation for infringement damages of IP would be to determine how much is the value someone needs to pay for damages. R1 claims that the value obtained from
73 infringement would be substantially different from transaction of that IP. This is because value obtained from transaction is considered to be the fair value while value that needs to be paid for infringement damages is not the fair value. Insurance of IP as purpose of valuation received contradicting views from R1 and R6. While R1 claims that insurance of IP is one of the purposes that her client seeks for IP valuation, R6 dissent from this view. R6 says that she doesn’t think insurance company will insure intangible assets.
4.6.1.4 Theme 4: Factors Taken Into Consideration
Table 4.6: Factors taken into consideration when valuing IP (Interview survey, 2017)
Factors in IP valuation Legal Life Contribution Margin Economic Life Purpose of valuation Key Personnel Amount of information Type of IP Market of IP Date of valuation Prior art
R1
R2
R3
R4
R5
R6
The factors taken into consideration provided by the respondent (as shown in Table 4.6) is notably different than what is contained in the literatures. This is caused by a difference in the state of IP and its valuation in different countries. It was mentioned in Theme 3 (purpose of valuation) that the purposes of valuation in Malaysia is different from that of other countries. The difference in purpose defined the valuation approach that will be selected. The respondents affirmed in Theme 2 (selection of valuation approach) that the most frequently used valuation approaches are in the order of income approach, market approach and cost approach. It is asserted that income approach is the most universally accepted approach by the clients because they want to capitalize on the potential of the IP while market approach is often used to back up the figures obtained in market approach. Cost approach is only used if there is missing or insufficient information. The factors that are mentioned by both the literature and respondents are legal life and economic life. This is a testament to the valuation approach practiced in Malaysia as both legal life and economic life are
74 categorized as important factor to be considered in income approach under the literature. It is very important for an IP valuer to take note of factors that can affect the outcome of their valuation. The most prominent factor would be the legal life of an IP. Legal life means how many years of protection left on the IP, in other words it means how much time is left until the registration of the IP expires. R1, R4, R5 and R6 claims that legal life of an IP must be always be taken note of when valuing an IP. R1 mentioned that an IP valuer should check for whether or not the IP have legal protection or not in the first place. If the IP has legal protection then the IP valuer need to proceed by figuring out how many years is left until the protection expires. R2 added that an IP without proper protection around it has no value given to it. R5 further added by saying if an IP has a short legal life left and is non-renewable then a valuer cannot project the income to perpetuity. This could affect the value obtained from the valuation. Another very significant factor that would affect the value of an IP would be the economic life of an IP. It is very important for an IP valuer to anticipate the correct economic life of an IP. As opposed to legal life, economic life of an IP means the period of time that an IP can bring in revenue to its owner effectively. The economic life of an asset is always shorter than its legal life. R5 mentioned that a technical copyright, such as software, may have a short economic lifespan and this will lead to a higher royalty rate. R6 supported that statement by saying that even though the software is still protected after its economic life ended, its salability dropped because it became obsolete as other people will come up with new software which is better. On the other hand, R6 stated that it is very important to understand the business life cycle to grasp the economic life of an IP. Some trademarks, such as McDonald’s and KFC, can have very extended economic life. Key personnel behind the IP are also an important consideration that needs to be given thought of when valuing the value of an IP, which is agreed by 3 respondents in R1, R4 and R6. R4 stated that an IP valuer needs to look at who are the people behind the company to give them a better feel of the IP. In income approach, a valuer needs to project the revenue forward and discount it back. However, there may be an impact on the revenue generated if it the key person can’t upkeep the IP or doesn’t really exploit the IP well. There could be a difference in the value of the IP if it is in the hand of somebody who doesn’t have the skill set or not
75 open minded compared to in the hand of people who are extremely business minded. Furthermore, the capital of the IP owner is also important in determining how fast or whether the IP can reach its true potential. R6 added that knowing the organization structure is very crucial when doing valuation. She said that having a worker who is not efficient and having a worker that is enthusiastic and passionate in his job can be a huge difference while adding that a good worker with a short and long contract can also make difference to the value. R2 mentioned about prior arts being another factor that needs to be taken into consideration when valuing an IP. Prior art is any evidence that your invention is already known. (“What is prior art?,” n.d.). It is very important to know if the IP is truly novel and unique. If a patent has a prior art then that might considerably affect its value.
4.6.1.5 Theme 5: Process in IP Valuation
R1 starts out the IP valuation process from information gathering. Many different information needs to be sorted out in order to carry out a proper IP valuation and these information includes: purpose of valuation, status of IP, owner of IP, what they have been doing with the IP, how much income is the IP bringing in, how much have the owners have spent on the IP, how active is the IP and what is the IP being used for. After the initial information gathering, the valuer needs to conduct some interview if they need verification of the information. The interview is conducted mainly to understand the contribution margin of the IP to the company. The valuer needs to know how much of the income is generated because of the IP. With all the information in hand, the valuer will proceed to the selection of valuation methods. The calculation needs to have all the assumptions and discount rates applied into it. After obtaining the final value, the valuer needs to crosscheck the value with the value obtained from another approach. The valuer proceeds to share with the engaging person who asked to conduct the valuation. Both parties will check if any revision is necessary. Once both parties agreed to the final value then the final valuation report will completed. R2 also starts the IP valuation process by gathering information from the owner of the IP first. Information that needs to be gathered includes revenue stream,
76 contribution margin of the IP and lifespan of the IP. After the IP valuer obtained all the information required, they will do a discounted cash flow to net present value in order to find the value of the IP. The valuer will then conduct a sensitivity analysis to figure out the floor figure and ceiling figure. The value needs to be adjusted for sensitivity in terms of total research price, market value and other factors. After the floor figure and ceiling figure is obtained, the valuation report will be completed and passed to the client. R3 states that IP valuation is carried out by first gathering all the information such as key personnel of the IP, historic financial data, transactions that they have entered or transactions that might be coming in and the business plan for the next 3 years. After that, the valuer will conduct an interview to clarify the information that is being received and anything that they don’t understand through the business plan. The valuer needs to know if the business plan presented to them by the IP owner is too idealistic. After that, the valuer does the selection of the appropriate valuation method to carry out the calculation. R4 starts the IP valuation process by gathering information as well. The information gathered are needed to understand the business of the company, status of the IP, past years of revenue and contribution margin attributable to the IP. After that, the valuer will use the discounted cash flow method to project the revenue forward with a proper discounted basis. The value obtained will be the one that is used for the final report. The valuer then cross checks the value obtained with value obtained from using another approach. R5 conducts the valuation process starting with information gathering too. The IP valuer will ask the IP owner to provide documentation for business plan and 3 years of past audited account. The valuer will also need to perform due diligence to know about the status of the IP. From the audited account, the valuer will need to focus solely on the contribution margin of the IP to the income of the company and discard income not contributed by the IP. Next, the valuer will decide on which method to use and work out on the calculation by taking into consideration of the raolty rate, discount rate and the remaining lifespan of the IP. The value obtained from the calculation will be used to compare with the value obtained from market approach for justification. After that, the first draft of the report will be presented to the client and the valuer will express the figure to them and justify all the figures.
77 When both sides reached an agreement then the final valuation report will be submitted to the client. R6 starts the IP valuation process by gathering information on the IP. The first information to be gathered is to understand the IP that is being valued. The key personnel is the next thing to be gathered on the list because understanding who owns and runs the business is very crucial to the value of the IP. This is important because factors such as the enthusiasm and passion of the worker need to be taken into consideration. After that, the valuer will need to check and search for the status of IP such as looking into the remaining legal life of the IP and also how big are the geographical coverage for that IP. The valuer will then proceed with the calculation part of valuation. When the final value is obtained, the valuer will give the client the draft of the report and explain to the client. If both parties reach an agreement then the valuation process will conclude with the report being completed.
4.6.2 Data Analysis on Research Objective 2: To Determine The Challenges Faced By Valuers In The Practice Of Intellectual Property Valuation
4.6.2.1 Theme 1: Natural Barrier
Table 4.7: Higher education background of respondent (Interview survey, 2017)
Background Economics Science Law Accounting Real estate
R1
R2
R3
R4
R5
R6
Table 4.8: Source of skills and knowledge of respondent (Interview survey, 2017)
Source of skills and knowledge Workshops and training Course conducted by MyIPO
R1 Nil
R2 Nil
R3 Nil
R4 Nil
R5 Nil
R6 Nil
78 Table 4.9: Respondent’s experience in other form of valuation (Interview survey, 2017)
Experience in other form of valuation Business valuation Real estate valuation
R1 Nil Nil
R2 Nil Nil
R3 Nil Nil
R4 Nil Nil
R5 Nil
R6 Nil
It is found that the practice of IP valuation is not completely accessible by all parties. In fact, it is noticeable that the education and other form of background (as shown in Table 4.7 to 4.9) determine whether or not they are suitable to venture into IP valuation. It is observed that certified IP valuers in Malaysia mostly originate from law, accounting and real estate background. It is not impossible for other backgrounds to enter IP valuation but without the stated backgrounds, it is more difficult for them to get involved in IP valuation. Furthermore, there are no programmes in any university in Malaysia that offers IP valuation as its main course. In fact, IP valuers have to undergo extensive workshops and training before they are well qualified to become one. R2 states that he attended an IP valuation program conducted by an American firm. The program is an international program conducted in Bangalore, India. R2 also attended seminars on IP valuation in the United States besides doing additional reading on IP valuation books. The alternate way of becoming an IP valuer in Malaysia is through getting selected to undergo a course conducted jointly by MyIPO. There were two batches of candidates that are being selected to attend the course. Candidates that passed the exam will be certified as IP valuers by MyIPO and the World Trade Institute at the University of Berne, Switzerland. It is also noted that experience in other form of valuation helps in providing a platform to becoming an IP valuer. R5 and R6 have backgrounds in business valuation, which helps them to getting chosen by MyIPO to become a certified IP valuer. Besides that, R6 also has real estate background as she holds a degree in Bachelor of Survey (Property Management). R6 is a registered valuer with the Board of Valuers, Appraisers and Estate Agents, Malaysia. There are also several other certified IP valuers that are affiliated with Valuation and Property Services Department.
79 4.6.2.2 Theme 2: Issues in IP Valuation
Table 4.10: Issues in IP valuation (Interview survey, 2017)
Issues Lack of information Lack of data Lack of awareness Lack of fund Trust
R1
R2
R3
R4
R5
R6
There are several challenges in IP valuation that is identified under the literature. Not all but some of these challenges (as shown in Table 4.10) are also singled out by the respondents such as refining the allocation of economic contribution, forecasts and investigation. The contribution margin of the IP is mentioned in RO1’s Theme 4 (factors taken into consideration) as a defining factor in arriving at the IP’s final value. However, the challenge faced by IP valuers is to determine how much of the profit is attributable to the IP. Furthermore, uncertainty surrounding IP valuation makes it necessary for assumption and forecasting to take place. In spite of that, it is very difficult to be precise in forecasting due to the volatility of IP. Investigation is also a big challenge to the IP valuer in practice as pointed out in the literature. It is mentioned in RO1’s Theme 5 (process in IP valuation) that some respondents require interview to be conducted in order to clarify on the information that they received. The investigation or interviewing process itself nevertheless presents as a huge challenge to the IP valuer themselves. The respondents stated that sometimes the client can be overly optimistic in projecting their income stream. The challenge to the IP valuer, as mentioned in the literature, is that they have to be critical in asking questions during the interview to separate the optimism from realistic expectations. The literature also states a valuer’s challenge can come in the form of possessing a solid understanding of the rights being valued. R1 also mentioned that an IP valuer needs to have some basic understanding on the sector and industries of the IP that is being valued. The statement is supported in the literature which stated that outside experts may be required to supplement particular areas of knowledge. She said that:
80 You need to have some context of the sectors and industries of subject matter that you are valuing (Respondent 1).
There are many issues in IP valuation that can prove to be a challenge to IP valuers in Malaysia. One of the biggest issues is the lack of details, which can be presented internally or externally. Internally, the lack of details comes in the form of information shortage. A lack of information provided by the IP owner is very difficult when a valuer is performing IP valuation. The lack of information mainly comes in the form of incompleteness in terms of financial statements and other relevant records. Without the necessary information, an IP valuation has to involve a lot of assumption as there is a lot of uncertainty surrounding the valuation. R1 states that the problem can come internally from the company because the company may not keep their record. There are also cases where the internal person cannot answer the valuer’s question properly. R2 states that revenue stream is very important when it comes to valuation of IP. The valuer needs to know the revenue that the IP owner is making. Through the revenue, the valuer need to know what is the contribution margin of the IP to the revenue. However, the problem lies in the IP owner requesting for valuation before the IP is commercialized. R4 states that sometimes the IP owner request for IP valuation even though they don’t have a strong revenue stream yet. The IP owner may request for valuation before the IP is commercialized as they want to convince other parties to finance the commercialization of the IP itself. An IP valuer may then then needs to speculate on the possible revenue stream, which in turn will increase the uncertainty in the valuation report. R2 further states that without the revenue stream then the IP valuer will have to contemplate on using cost approach to value the IP if they do not wish to speculate the revenue stream. However, R2 notes that cost approach does not truly reflect the actual potential of the IP. R5 supports R2’s statement by saying that IP valuers are left with no choice but to use cost approach if there is insufficient information to value using income approach. The lack of data is also a major problem in IP valuation. All 6 respondents agree that a lack of data can be challenging for a valuer when valuing an IP. The data that is lacking can appear as the lack of comparables to the IP and royalty rate of similar IP transacted. An IP valuer needs to know similar IP in the market that is transacted to understand the nature of the field that the IP is in. Furthermore, IP
81 valuers have to know the most commonly accepted royalty rate for an IP transaction in a particular field. R1 states that the main problem in IP valuation is the lack of organized data especially in a new field or industry like artificial intelligence. It is going to be difficult to find industry data in a growing industry because a lot of data is going to be very new. This makes it even harder to find transaction data as there will be very less transaction data. R2 supports the statement by saying that there are not enough publicly disclosed figures to compare the valuation to what is in the marketplace. Most of the time the transaction of IP asset is confidential but sometimes listed companies will disclose it to the stock market. This statement is backed by the literature where it is mentioned that the most difficult aspect of intellectual property is its comparability because the terms of the exchange are often not disclosed to the public. R5 notes that IP valuation can be very difficult to get because of the cost required to acquire the data. In order to acquire external data for comparable IP, a valuer have to subscribe to certain database. The subscription fees for these databases can be astronomical. R6 revealed that external data guides the valuer when projecting the future income stream of the IP being valued. Revenue stream projection is very important in IP valuation especially when using income approach. This is because the projection of revenue stream by the owner can be unrealistic and over inflated so guidance is needed to help valuer assess and project the revenue stream properly. R4 agrees with the statement by saying the IP owners can overstate their case and be too aggressive in their financial information because they want a higher value for their IP. Lack of awareness is also a challenge for IP valuers in the country. R3 expressed that the level of awareness for IP valuation in the country is very concerning. IP owners especially from SMEs (Small and medium-sized enterprises) does not have the appreciation to prioritize IP valuation proactively. The IP owners would rather prioritize on expansion and marketing compared to IP valuation. R5 agrees that the awareness of IP valuation is not there so the IP owners are very reluctant to pay for the valuation services. This in turn leads to the emergence of other problem such as ignorance in the information to be gathered for IP valuation. This is because the IP owners who are not aware of IP valuation practice would not have kept the relevant information needed to be provided to IP valuers. The IP owners will not be able to provide complete information when they decide to value their IP and this leads to uncertainty in the value of their IP.
82 Lack of fund for IP valuation is also a noteworthy challenge for IP valuers. R3 states that even though there are times IP owners would prioritize in other aspects compared to valuing their IP, sometimes IP owners don’t look for IP valuation simply because they don’t have the money to do so. The statement is supported by R4 who says that there could be a startup who wants to take a loan from the bank but they don’t have any asset except for IP. They need the IP to be valued for them to go to the bank buy they don’t have the funds to actually get the proper valuation done so lack of fund could prove to be a challenge for IP valuers. Lastly, R3 expressed that trust could also present as a challenge to local IP valuers. Local valuers faced discrepancies when it comes to IP valuation even if they are certified by MyIPO and World Trade Institute. She claimed that the market tends to think that local valuers are relatively new so there is distrust in local valuers to perform IP valuation. Instead, they depend on foreign valuers to carry out the IP valuation task and R3 opines that this would hinder the growth of IP valuation in Malaysia and also growth of local economy in general. She adds that IP is very integral to a country’s development so getting local valuers to carry out the valuation will be very favourable to the country.
4.6.2.3 Theme 3: Information and Data Acquisition
Figure 4.6: Source of database (Interview survey, 2017)
All respondents agreed that it is very difficult to acquire existing comparables and data to complete the valuation. The information collected can be categorized into three major categories: free database, paid database and in-house database as shown
83 in Figure 4.6. There are many different methods of retrieving these information, which includes: collecting it from the IP owner, accessing web search engine, subscription to database, performing due diligence, and collecting and building data over time. Free database are data that can be accessed and collected free of charge. There are several ways of collecting free data. Firstly, it can be obtained from the IP owner who requested for the IP valuation service. These information are particularly important to allow the IP valuer to get a grasp of the IP valued and to project its revenue stream. Such information are mostly financial information such as financial statement of the company. R1 states that there are also free journals and publications that are published by researchers who research a paper. R3 states that some information can be extracted from the newspaper while R4 states that information regarding the IP can be obtained from the IP registry. R6 claims that Google Finance and Yahoo Finance can also be used to acquire data online. Paid database are data that can be accessed through paid subscription. There are many databases that can be accessed and the databases listed out by the respondents include: RoyaltyStat, Thomson Reuters / Thomson One, S&P 500, Capital Market and ktMINE. These sites are very useful especially when the valuer is looking into the royalty rate albeit it may come at a very expensive cost. Finally, information needed to perform IP valuation can be acquired through in-house database as stated by R1. R6 says that IP firms will have their own database if they have been around the industry for a long time.
84 4.6.2.4 Theme 4: Dealing with Uncertainty
Figure 4.7: Methods of dealing with uncertainty (Interview survey, 2017)
Valuation is a subjective practice so it is bound for a valuer to deal with uncertainty surrounding the valuation process. However, it is noted that there are many different ways for an IP valuer to deal with the uncertainty. In some cases, an IP valuer will have to adopt some assumptions as valuation is a very subjective practice. Due to the uncertainty surrounding the assumptions, a valuer will have to express to the client how the figures are being obtained in the report. Figure 4.7 illustrates the respondent’s methods of dealing with uncertainty. R1 would apply a disclaimer in the report to allow the client to understand the assumptions used. For the final value of the IP, R1 uses discount rate and some other assumption to reflect the value. If there are many uncertainties for different reasons such as a lack of information then the discount rate will be adjusted in the calculation of the value. The discount rate will reflect the degree of uncertainty surrounding the IP. R2 would cope with uncertainty by not providing an exact value to the IP owner. R2 would practice sensitivity analysis to acquire the floor figure and ceiling figure for the value of the IP and any value will be acceptable if it is within the two figures. R3 would use qualification statement to deal with the uncertainty. Before arriving at the final value of the IP, all the factors that is considered has already been laid down upfront so the client understand what the valuer takes into consideration.
85 R4 and R6 would set up and include limitation clause to claim that there is no certainty in a valuation and that the valuation practice is only an assessment of the value. In all cases, all respondents agreed that the value has to be informed to the client before the final valuation report is completed. There will be discussion between the valuer and the client to justify all things. If an agreement is reached then the valuation report would be finalized by the valuer.
4.7
Summary
Through the use of thematic network analysis, all the elements in Research Objective 1 and 2 are organized into three themes. The global theme of the research is Intellectual Property, the organizing theme is Practice of IP Valuation and Challenges of IP Valuation respectively. The basic theme of the research is the findings drawn from Research Objective 1 and 2. The overall finding of Research Objective 1 (to investigate the practice of IP valuation) is that there are many purposes to request for IP valuation. The first major finding is classification of IP. It is understood that there are many different ways of classifying IP depending on each countries. In addition to that, the second major finding leads the research into understanding that some more modern approaches are not adopted in the country. There are many approaches and methods that other countries practice when valuing IP. Lastly, The third major finding of this research is that there are many reasons for an IP owner or investor to request for IP valuation. However, there are also many purposes that the more advanced countries practice which are not practiced here. Some of these purposes are IP valuation for taxation or statutory purpose and also as collateral for bank financing. The overall finding of Research Objective 2 (to investigate the challenges faced by IP valuers in the practice of IP valuation) is that there are many challenges that an IP valuer has to overcome to perform a complete IP valuation. The first major finding is that natural barrier of IP valuation means that not everyone is suitable to perform IP valuation without the appropriate skills and experience. Furthermore, the second major finding is that challenges can come internally from the IP owner or externally from the market and comparables referable, or lack thereof. Lastly, the
86 third finding is that there are many ways for an IP valuer to communicate the uncertainty regarding IP valuation to the person who requested for IP valuation. Chapter 5 will further discuss on the summary of the findings and recommendations.
87
CHAPTER 5
CONCLUSION AND RECOMMENDATIONS
5.1
Introduction
In this chapter, findings of this study are drawn and explained based on the analysis of the data in chapter 4. According to Hess (2004), one of the purposes of the discussion is to explain the meaning of the findings and why they are so important. The results of this investigation are productive and expedient to institutions and policy makers. The inquiry concluded with remarks and recommendations and at the same time given creating prospects for forthcoming research. The study summarizes the research findings, while conclusions are deduced on the practice of IP valuation in Malaysia. Consequently, the findings from the study indicate evidently how the practice of IP valuation are being carried out in Malaysia and the challenges faced by IP valuers in practicing IP valuation. In an attempt to summarized, conclude and make positive recommendations, this chapter is subdivided into several different sections. Consequently, results and discussions, contribution of the study and limitation of the study are discussed. Furthremore, recommendations from the respondents and recommendations for future research are provided. Overall conclusion of IP valuation practice and the challenges faced by IP valuers are summed up. The results obtained were summarized with the ultimate aim of answering and accomplishing the research questions and research objective respectively, which is to understand the practice of IP valuation in Malaysia.
88 5.2
Results and Discussion
5.2.1
Research Objective 1
Figure 5.1: Themes in Research Objective 1
The first objective of this research is to investigate the practice of IP valuation. Based on the research objective, the findings are classified into five themes as shown in Figure 5.1. The five themes are as follows: classification of IP, selection of valuation approach, purpose of valuation, factors taken into consideration, and process in IP valuation. For the first theme which is classification of IP, it is understood that IP is classified differently by different regions and different organizations in the world. The 5 types of IP that are most common are copyright, patents, trademarks, industrial designs and geographical indications. These IPs are recognized by both WIPO globally and MyIPO locally. In addition to that, MyIPO also allow for the registration of integrated circuit layout design. This allows the owner the integrated circuit layout design to be protected legally if they register their design with MyIPO. Out of the 5 most common IPs, geographical indication is the only one that is not identified by all the respondents. This is because geographical indication is not very common in Malaysia so there are not many parties who own IP rights to
89 geographical indication, let alone requesting IP valuation for it. It needs to have a certain association to control the quality of the product for it to be recognized as an IP. Trade secret is another noteworthy IP because it exists and is recognized but it is not registered with any organizations because the owner wants to keep it as a secret perpetually. An IP owner has to reveal the content and details if they want to register their IP so that people know what is considered to be infringement to the IP rights. However, IP is only for a certain period of time so trade secret owners refuse to reveal or register their IP to enjoy benefits in the longer run. Lastly, plant variety rights are another very interesting IP. It is regarded differently in different countries and in Malaysia it is registered with the Ministry of Agriculture and Agro-based Industry (MOA) instead of the IP governing body, MyIPO. In other countries, plant variety rights are registered with their IP office except for United States, where plant variety rights are registered both at their IP office and their Department of Agriculture. In the second theme, which is selection of valuation approach, all respondents provided the same response by using the same approach when performing IP valuation. The valuation approaches used are income approach, market approach and cost approach.
These approaches are also the ones that are recognized by the
International Valuation Standard (IVS) and International Financial Reporting Standards (IFRS). The priorities for the approaches are income approach, market approach and cost approach respectively. The option based approach, which is identified in past literatures are not practiced by any of the respondents. However, the approach is recognized by IVS. Thus, it can be concluded that the level of IP valuation in the country still did not reach the advanced level of other countries. The third theme is the purpose of valuation. All respondents agree that the most common purposes for IP valuation are the transaction of IP and financing purpose. An IP owner or buyer who wants to transact IP will want to have a valuation done to protect their interest. It should be noted that even though IP are used for financing purpose, the conventional financial institution does not accept IP as collateral for financing purpose. The financier would come in the form of Malaysian Debt Ventures Bhd (MDV), angel investor or new shareholder. Merger and acquisition (M&A) is also a very popular purpose with 5 out of 6 respondents mentioning about having to perform IP valuation for M&A purpose. Other purposes to request for IP valuation includes determination of licensing rate, liquidation,
90 accounting purposes, dispute resolution, infringement damages and insurance of IP. There are also many other purposes for IP valuation that are practiced overseas but not practiced in the country such as taxation and statutory purposes. The fourth theme is the factors taken into consideration when valuing an IP. The most important thing that needs to be taken into consideration is the remaining lifespan of the IP. The legal life and economic life of an IP is equally important as evident by the support of 4 respondents apiece. An IP valuer needs to know remaining duration of legal protection (legal life) and the effective life of the IP (economic life) to value the IP accurately. Secondly, the IP valuer must definitely know the type of IP that he is dealing with and the market that the IP is in. Another very important factor that cannot be overlooked is the contribution margin of the IP and key personnel behind the IP. A valuer must identify the income that is attributable to the IP from the total income to understand the significance of the IP. It is crucial to know the key personnel behind the IP such as the owner and the organization structure to understand how and whether or not the key personnel can utilize the IP to its full potential. The details of valuation such as date and purpose is also very important as such details can have significant impact on the value of the IP. Other factors that need to be taken into consideration are amount of information and prior art. The fifth and final theme is the process in IP valuation. While it is evident that the method for each respondent to carry out IP valuation is slightly different, it is also apparent that the IP valuation process must begin with information gathering. However, the information that is gathered varies for each respondent. Some respondent gather information comprehensively while the others focus more on the financial aspect of the IP such as revenue stream and contribution margin of IP to the revenue. After that, some valuer will opt to decide whether to conduct an interview with the key personnel to clarify on the information gathered. Next, the valuer will select a valuation method and proceed with the calculations and figures to obtain the final value of the IP. The value obtained will be cross checked with value obtained from another method. The valuation report will be finalized after the valuer communicates and reach an agreement with the client. The process to carry out IP valuation for each respondent is quite identical but it is notable that there are some slight differences in the details building up to the final report. For example, R2 uses the sensitivity analysis to provide the client with a range of value compared to a fixed
91 value when valuing an IP for the client. Thus, it is very important for a framework to exist as guidance for consistent IP valuation.
5.2.2
Research Objective 2
The second objective of this research is to determine the challenges faced by valuers in the practice of intellectual property valuation. Based on the research objective, the findings are classified into four themes as shown in Figure 5.2. The four themes are as follows: natural barrier, issues in IP valuation, existing comparables and data acquisition, and dealing with uncertainty.
Figure 5.2: Themes in Research Objective 2
The first theme is natural barrier to practice IP valuation. It is noted through the profile of each respondent that there are some specific criteria to meet in order to practice in IP valuation. Through the list of all 23 certified IP valuer in Malaysia obtained from MyIPO, it is found that the background of the valuers are predominantly real estate, legal and accounting. It can be inferred that the nature of job for these profession coincides with what is required in IP valuation. Experience in other form of valuation also helps in the practice of IP valuation. R5 has an accounting background and is involved in business valuaton while R6 has a real estate background and is involved in real estate valuation. There are also several
92 other real estate valuers in the list of certified IP valuer working in public and private sector that are chosen to undertake the course conducted by MyIPO. The explanation is that the nature of each valuation practice is very similar with the only differences being the small details. Lastly, the local industry does not have too many IP valuers due to local higher education institutions not offering programme on IP valuation. Instead, those who practice IP valuation in Malaysia needs to attend extensive workshops and training on their own initiative. The alternate route of practicing in IP valuation is to get selected to a course conducted by MyIPO. The second theme is the issues in IP valuation. The most significant issue in IP valuation is the lack of data. In Malaysia, IP does not have a consistent or prominent marketplace and the transactions are not very active. Furthermore, the transactions of IP are not disclosed most of the time. This makes the referencing of previous transactions very difficult for an IP valuer. They have to rely on paid databases to acquire the needed information. Another issue is the lack of information. Sometimes, the information provided by the person who requested for IP valuation is not sufficient. This makes the job of the valuer very difficult as they may have to make many assumptions, which will reduce the accuracy of the valuation report. The issue can also be the lack of awareness for the SMEs to request for IP valuation. The lack of awareness would significantly reduce the demand for IP valuation as the IP owner may not realize the importance of IP valuation. Other issues arising in IP valuation are the lack of fund to perform IP valuation and the trust towards local IP valuer to do the job. The third theme would be information and data acquisition. The information such as comparables and data can be acquired through different means. The source of these information can be categorized as free database, paid database, and in-house database. There are different ways to retrieving these information such as collecting it from the IP owner, accessing web search engine, subscription to database, perform due diligence, and collecting and building data over time. Free database are data that can be accessed and collected free of charge while paid database are data that can be accessed through paid subscription. There are many paid database that can be accessed such as RoyalStat, Thomson Reuters / Thomson One, S&P 500, Capital Market and ktMINE. Lastly, information and data can also be acquired through inhouse database.
93 The fourth and final theme would be dealing with uncertainty. Valuation is a subjective practice and therefore it is inevitable for a valuer to deal with uncertainty surrounding the valuation practice. This is especially true for the valuation of IP as IP itself can be extremely volatile. There are several ways for a valuer to handle the uncertainty. Firstly, a valuer can apply a disclaimer in the report to communicate to the client why the assumptions are used. The uncertainty regarding IP will be reflected through the discount rate. Secondly, a valuer can use sensitivity analysis to cope with the uncertainties. Through sensitivity analysis, a valuer will be able to provide a value range to the client rather than just a value. The value range are formed by a floor figure and ceiling figure. Any transaction within the value range would be appropriate. Thirdly, qualification statement could be used by the valuer. The client will understand what is taken into consideration through the factors that has been laid down upfront. Lastly, a valuer needs to include limitation clause in the valuation report to make the client understand that the value is not always certain and that the valuation practice is only an assessment of the value. A valuer should inform the client after arriving at the final value and let the client assess the draft of valuation report to look for any amendment. If both sides agree to the final value then the valuation report would be finalized.
5.3
Contribution of the Study
5.3.1
Contribution to new knowledge
Existing knowledge from MyIPO, Royal Institution of Chartered Surveyors, Malaysian Valuation Standard does not provide clear statement on the best practice of IP valuation. The results of this research add value to the existing knowledge by contributing input towards improving the existing practice by identifying five important themes that need to be considered for IP valuation within Malaysia context. It is important for these identified themes to be consistently used by the valuers in undertaking intellectual property valuation. Thus, the contribution of this research is completed through the identification of elements (themed) in the IP valuation practice that will lead to the development of concrete framework for IP valuation in local context.
94 5.3.2
Contribution to practical knowledge
Findings from this research are expected to be beneficial to practitioners in IP valuation as well as policy makers in IP industry. Thus, this study is hoped to contribute to improve the landscape of IP valuation practice in Malaysia. Due to the lack of guidance and framework, there is some inconsistency regarding IP valuation practice in Malaysia. Even though the IP valuers chosen as respondents for this research are some of the most prominent ones in the country, they have slightly varied methods of carrying out IP valuation from the beginning to the end. The difference in each valuer carry out their valuation is being pinpointed in the analysis. It is hoped that the policy makers will be able to introduce a framework on IP valuation to guide IP practitioner intro practicing consistent and uniform IP valuation. Furthermore, this research is also hoped to be able to help contemporary and future IP valuers to anticipate the challenges that can be faced in IP valuation. Due to the state of IP being different from other countries, there is a different set of challenge presented to the IP valuers in this country compared to challenges faced in other countries. For example, the challenge of insufficient data is less significant in other advanced countries than in Malaysia because their IP market is much more active. Thus, this allows for more transaction record obtainable to be used for evaluation and comparison. Furthermore, the lack of trust is also an issue in the country which would not be an issue in countries with advanced level of IP valuation. The lack of trust is due to local IP valuation practice still experiencing growing pains, which causes IP owners to opt for service from foreign valuers instead of local valuers.
5.4
Research Limitation
According to Price & Murnan (2004), the limitations of the research are those characteristics of design or methodology that impacted or influenced the interpretation of the findings from your research. They are the constraints that are the result of the ways in which you initially chose to design the research.
The limitations that are faced in this research are as follow:
95
1)
Time constraint The research was limited by the time given to complete it. Due to the packed schedule of the candidates for respondent, there were a few candidates that could not arrange an interview session with the researcher in time. This limited the input towards the research.
2)
Lack of prior research on the topic It is evident that there are little to no prior research on the topic due to IP valuation being a relatively new and growing industry in the country. This limited the scope of the interview question, which is the data collection tool.
4)
Small sampling size for interview The population of IP valuer is very little compared to other industry in the country. This limited the available sample size of the researcher. Furthermore, there are only 23 certified IP valuer in the country, which is a very minimal amount. In spite of that, the researcher managed to collect 4 certified IP valuer out of the 23 available. This maintained the credibility and quality of the research.
5.5
Recommendation from Respondents
The recommendation given by the respondents in order to improve IP valuation in this country are listed as the following:
1)
Raise the awareness of the public It is reaffirmed by the respondents that lack of awareness is a challenge to the IP valuation industry. The people in Malaysia generally do not have any idea on IP valuation and its importance. The government should raise the awareness of the public to allow the industry to grow at an accelerated rate.
2)
Increase financing portals for IP
96 The respondents state that there are many purposes to perform IP valuation, where financing is one of the purposes. However, the number of IP valuation performed is limited by the conventional financial institution refusing to take IP as collateral for loan. Therefore, people can only look to Malaysian Debt Venture (MDV), angel investor or shareholders to finance their IP. This greatly reduces the potential of IP that is well capable of making the country prosper. Thus, it is important that government introduce policy to encourage bank to take up IP as collateral or provide more financing source for IP in order to boost the IP market. The growth of IP will in turn lead to the growth of IP valuation industry.
3)
IP valuer must take the initiative to perform due diligence when conducting IP valuation Due to the limited number of information and data available to an IP valuer, it is very important that IP valuation practitioners take the initiative to perform due diligence before valuing the IP to minimize the uncertainty. There are several aspects that valuers have to press on such as checking the status of IP with the IP office and checking the reliability of the revenue stream provided by the IP owners. Performing due diligence greatly enhances the quality of the final valuation report and figures.
5.6
Recommendation for Future Research
There are many recommendations that can be proposed to future researchers regarding studies related to IP valuation:
1)
Research on a framework for IP valuation It is evident that there is a lack of proper framework for IP valuation in Malaysia. Future researchers that intend to build on this research can work on the framework that is suitable for IP valuation in local context. There may frameworks that are established in overseas but the difference in the state of IP meant that each country has different factors to take into consideration when valuing. Thus, it is highly recommended that future researchers work out on the
97 framework of IP valuation that can be suitably used by the IP market in Malaysia.
2)
Research on the impact of IP valuation towards a country’s development Future researchers can work on the impact of IP valuation towards a country’s development. It is found that advanced countries have advanced state of IP market and valuation. Thus, it is important that future researchers study the significance of IP valuation in order to encourage effort to be put into IP and its valuation. Coincidentally, this could improve the awareness of the public on the importance of IP and its valuation.
5.7
Overall conclusion
The research was conducted with the aim of reaching Research Objective 1 and 2. Both objectives were met as practice of IP valuation was probed into and the challenges in IP valuation were pinpointed. It is found that there is no proper framework or guidelines regarding IP valuation in Malaysia. This leads to inconsistency issue when it comes to IP valuation practice. The policy makers should work on introducing an IP valuation framework that is suitable to be practiced in Malaysia to uniform the practice. This is because not all countries have the same state of IP market, where each country warrants its own IP valuation framework as there are different factors taken into consideration. Thus, it is not effective to adopt frameworks practiced by other countries. A good valuation framework provides consistency to the industry and protects the interest of all parties related to IP. In order to enhance the country to become more advanced, government should be provide more financing for IP because IP is very essential to a country’s growth. Government can also introduce policies that will encourage standard financial institution such as bank to accept using IP as collateral for funding. This would encourage the public to request for IP valuation service. Lack of awareness is one of the biggest challenges faced by IP valuer. Sometimes, IP owner have no idea that they need to keep track of information such as the registration of their IP and financial statement. These information are very
98 important in order to fulfil a good IP valuation. Thus, the public sector and private sector should work closely with the government to promote awareness among the people in the country. IP plays a very important role in strengthening a country’s position. In more advanced countries, IP is well known to their people and they are educated to learn to protect their IP from a very young age. Their IP valuation level is very high, which is evident in many different methods of valuing an IP which are not practiced here. It is fair to say the level of IP valuation can reflect the status of the country. The government should provide more funds to promote IP awareness among the people and to train more capable IP valuers to boost the status of the country.
99
REFERENCES
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103 Moerman, L. C., & Van Der Laan, S. (2006). Accounting for Intellectual Property: inconsistencies and challenges, 11(4), 243–248. Monika, K., Nitu, M., & Latika, S. (2013). Intangible Assets : A Study of Valuation Methods. BVIMR Management Edge, 5(1), 61–69. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=70504380&l ang=pt-br&site=ehost-live Pagourtzi, E., Assimakopoulos, V., Hatzichristos, T., & French, N. (2003). Real estate appraisal: a review of valuation methods. Journal of Property Investment & Finance, 21(4), 383–401. https://doi.org/10.1108/14635780310483656 Patent Basic. (n.d.). Retrieved December 25, 2017, from http://www.myipo.gov.my/en/1814-2/?lang=en Patton, M. Q. (1980). Qualitative evaluation methods. Sage Publications. Retrieved from https://books.google.com.my/books?id=7wxHAAAAMAAJ Penman, S. H. (2007). Financial statement analysis and security valuation (3rd ed.). Boston: McGraw-Hill Irwin. Plant Varieties Protection. (n.d.). Retrieved January 2, 2018, from https://www.ipos.gov.sg/understanding-innovation-ip/other-ips/plant-varietiesprotection Plant Variety Protection. (n.d.). Retrieved January 2, 2018, from https://www.ams.usda.gov/services/plant-variety-protection Plant Variety Protection Malaysia. (n.d.). Retrieved January 2, 2018, from http://pvpbkkt.doa.gov.my/ Plant Variety Rights. (n.d.). Retrieved January 2, 2018, from http://www.plantvarietyrights.org/plant-variety-rights.html Price, J. H., & Murnan, J. (2004). Research Limitations and the Necessity of Reporting Them. American Journal of Health Education, 35(2), 66–67. https://doi.org/10.1080/19325037.2004.10603611 Property. (n.d.). Retrieved May 8, 2017, from
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106 APPENDIX A (Interview Questions)
__________________________________________________________________ Universiti Tun Hussein Onn Malaysia (UTHM) 86400 Parit Raja, Batu Pahat, Johor, Malaysia. Tel: +607-453 7000 Fax: +607-453 6337 Website: www.uthm.edu.my ________________________________________________________________ Research Topic: The practice of intellectual property valuation
Introduction:
Intellectual property (IP) plays a very essential role in our daily life. It helps to drive innovation by serving as an incentive for innovations that can help change our live.
Objectives:
(1)
To investigate the practice of intellectual property valuation
(2)
To determine the challenges faced by the valuers in the practice of intellectual property valuation
Prepared by: Tan Chong Hien Bachelor’s Degree of Real Estate Management with Honours Faculty of Technology Management and Business Universiti Tun Hussein Onn Malaysia (0166165356)
[email protected] Supervisor: Associate Prof Dr Rozilah Binti Kasim Jabatan Pengurusan Harta Tanah Fakulti Pengurusan Teknologi Dan Perniagaan (FPTP)
107 Part A: Respondent’s Background
1. Name:
2. Education:
3. Organization:
4. Scope of work:
4. Working experience:
Part B: IP Valuation Practice
1. Do you have any background in other form of valuation such as real estate valuation?
2. Where did you obtain the skills and knowledge to perform intellectual property valuation?
3. How do you classify intellectual property?
4. Do you perform intellectual property by practicing conventional method of valuation or a combination of conventional and modern method of valuation? “Classic” Methods
5.
Quantitative Methods
Cost Approach
Renewal Rates
Income Approach
Value Indicators
Market Approach
How important is the Purpose of valuation in determining value?
108
6. How does the process of the valuation look like? (Please explain about time, steps and, obstacles)
7. What are the factors that can affect the value of an intellectual property and needs to be taken into consideration when performing IP valuation?
Part C: IP Valuation (Patent)
1. When valuing patent, what are the most commonly used method. (Provide 3 with ascending order from least used to most used)
2. What are the justifications in choosing these methods to perform valuation on patent?
Part D: IP Valuation (Copyright)
1. When valuing copyrights, what are the most commonly used method. (Provide 3 with ascending order from least used to most used)
2. What are the justifications in choosing these methods to perform valuation on copyrights?
Part E: IP Valuation (Trademark)
1. When valuing trademarks, what are the most commonly used method. (Provide 3 with ascending order from least used to most used)
2. What are the justifications in choosing these methods to perform valuation on trademarks?
109
Part F: Challenges in IP Valuation
1. What are the problems that you faced from each aspect (such as internal, external, financial, strategic, operational and, legal) in performing intellectual property valuation?
2. How important is existing data and comparables when it comes to intellectual property valuation?
3. Where do you collect the data and comparables of an intellectual property and do you find the collection of data and comparables to be difficult?
4. If you do experience the valuation of intellectual property to be more difficult and to include more uncertainty, how do you communicate this uncertainty in your valuation reports and to your clients?
