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.
* 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,
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.
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A recent Saskatchewan Court of Queen's Bench decision allowed a court-appointed receiver to sell and transfer intellectual property rights free and clear of encumbrances, finding that a license to use improvements of an invention was a contractual interest and not a property interest.
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