2017: A Year in Review

The year 2017 was a great one for Pellegrino & Associates. We worked with a number of repeat clients and enjoyed working with many new ones. All of these clients bring interesting concepts from a variety of industries. Among these industries, the law industry increasingly seeks our services. In fact, nearly half of our engagements in 2017 involved law firms. As a result, we provided our expertise to two of the biggest IP litigations in the country last year! Also, one of the rulings on Mike’s opinions made headlines on Docket Navigator. Our firm’s experience as expert witnesses continues to prove valuable in many cases related to intellectual property.

Throughout the year, we attended a variety of conferences and were invited by several organizations for speaking engagements. These organizations and conferences included the following: Global IP ConfEx, ICLEF webinars, Financial Poise webinars, LES webinars, USPTO Global Intellectual Property Academy, and IAM’s 3rd Annual Patent Licensing.

Via our projects and speaking engagements, we have traveled all over the country. For instance, we traveled to Baltimore, Battle Creek, Chicago, Columbus, Dallas, Los Angeles, Philadelphia, San Francisco, and Washington, D.C., to name a few. Not only do we get to travel to some interesting places for our projects and speaking engagements, but we get to learn about interesting topics daily. Some of our project topics in 2017 included the following: airlines, battery technology, bicycle crank systems, biotechnology, cardiovascular innovations, catheterization, chain drive systems, customer service, electronic health record systems, face protection market for both industrial and extracurricular activities, medical, monoclonal antibodies, system and methods for allocating resources in a network, and women’s handbags.

Other highlights include the publication of Mike’s article, “Flawed System Leaves Innovators Without Fair Patent Protection” in the Indianapolis Business Journal. Click the article title to read Mike’s perspective on the topic of patents and asserting patent rights. Mike was also nominated as one of the world’s leading IP strategists on IAM’s Strategy 300, which lists the top 300 people in the intellectual property world. Check out Mike’s bio at the following link: http://www.iam-media.com/strategy300/directory/Detail.aspx?g=eb47c05b-eac0-4f8a-a182-4e292d59c7a4&q=P. In addition, Mike is working on a new version of BVR’s Guide to Valuing Intellectual Property. This third edition will feature updated content, as well as new chapters. Examples of new chapter content will include information on Monte Carlo simulations, the intersection of big data and patent valuation, ways to build models to account properly for time variance, and others.

While we love what we do, we also find great value in taking time every quarter to regroup and connect as a team. This past year, we enjoyed some friendly competition at former racecar driver Sarah Fisher’s go kart facility. We also took some opportunities to take in some fresh air for a hike in beautiful Brown County and another adventure in southeastern Indiana for a peaceful kayak trip. We finished the year collaborating on an island in the Breakout Game room. All of our adventures as a team outside the office give us a moment to appreciate each other and a chance to regroup. And every adventure is so much fun!

As you can see, we’ve had a productive year filled with fun adventures, interesting projects, great business relationships, new speaking engagements, and educational conferences. As we enter our 15th year in business, we look forward to learning more about innovations and working with former and new clients in 2018!

Tax Reform and Its Effect on IP

Tax reform typically has many implications for businesses and people in general. In terms of the 2018 tax reform specifically, the new changes will have positive effects for a lot of businesses and people as tax rates will be lower. This reform presents a positive outcome for intellectual property (IP) owners as well. Since many valuation analysts use the income-based approach for determining IP value, the tax reform changes the value of IP for the better. Read more to understand how the tax reform changes IP value for IP owners.

Generally, the income-based approach is a common and accurate approach for determining value of IP. A valuation analyst using the income approach bases his or her opinion on the intellectual property owner’s business plan, marketing and operational inputs, and other external references. Using this method, the valuation analyst projects the economic income generated solely from the intellectual property over a discrete period, known as the remaining economic life (REL) as well as any residual value after the REL.

To determine economic income, the valuation analyst projects the revenue (or cost savings or other economic benefit) generated from the intellectual property over the REL, and then offsets that revenue with costs related directly to the intellectual property’s exploitation such as labor, materials, required capital investment, and any appropriate economic rents or capital charges.

With cash flows for each discrete year in the REL and a calculated residual value, the valuation analyst discounts the cash flows and the residual value using an appropriate discount rate to the present value. The present value becomes the intellectual property’s value before the valuation analyst applies any applicable value adjustments.

As indicated, a valuation analyst has to discount cash flows to determine the present value of IP. The tax reform directly affects the value of IP as income tax places a direct burden on cash flows. Since the tax reform now has a lower tax rate, the value of the cash flow is higher. For instance, if a patent owner has an asset that generates $1,000 and $100 in profits, the owner will now pay a lower percentage in taxes. For instance, the owner may have paid 40% of the $100 in 2017 versus 20% of the $100 in 2018. Therefore, the patent owner generates more cash flow as they pay fewer taxes, making their IP worth more.