Perhaps more so than ever, intellectual property has become one of the more valuable assets of many companies. Companies routinely spend tens of millions of dollars to develop intellectual property such as software, patents, and trade secrets. In a world which is increasingly dependent on innovation, secured creditors may be more willing to accept intellectual property as collateral for the obligations owing to them.
When it comes time to either enforce security over intellectual property, or to resist the enforcement efforts of creditors over intellectual property, some certainty as to the value of the assets of the business is required, either to persuade the court to approve a sale, or to persuade the court that the company needs more time to restructure. With intellectual property assets, however, in particular unique or early stage intellectual property such as software or patentable inventions, the valuation may be open to a more subjective analysis and there may not be simple market comparisons to draw on. In these situations, where parties seek some kind of third party assurance as to value, the reliance on valuation reports may become more prevalent. If so, affected stakeholders will likely need to gain a better understanding of the valuation methods, the levels of assurance provided by the valuator, and the conclusions reached by the valuator, since valuation reports may determine whether stakeholders can expect to recover any funds.
In this paper we will review certain concepts of valuation, and then look at the recent landmark decision in the allocation of the billion dollar assets of Nortel among its international creditors, where those principles were applied.
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Footnote
* The valuation sections of this paper are taken, with some adjustment, from "How to Seize Something You Can't Touch: A Review of Issues and Process with the Foreclosure of Intellectual Property Assets" David Ullmann and Sheldon Title, p. 55 - Annual Review of Insolvency Law 2014, Carswell.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
