9. The Rule of the thumb empirical method
This method is an empirical variation of a mix of the income and market methods. It is described in detail in the study "Use Of The 25 Per Cent Rule In Valuing IP" by R. Robert Goldscheider, John Jarosz and Carla Mulhern. This method has been used for over fifty years by practitioners and has been recognized by case law (both in the USA and in France, see TGI Paris, September 16, 2009).
This consists of setting the share attributable to the intangible asset at 25% of the operating profit (EBITDA) generated by its use. This 25% value is the result of a statistical analysis of the royalty rates applied on the market, in relation to the profits generated in the business sector concerned.
From this value, the applicable royalty rate can be determined by dividing it by sales. As with the ENPV method, risk coefficients must then be applied: in...
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The Rule of the thumb empirical method
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Bibliography
R. Goldscheider, J. Jarosz and C. Mulhern, Use Of The 25 Per Cent Rule In Valuing IP , LES News, December 2002
Websites
http://www.ipresearch.com/index.htm Intellectual Property Research Associates website, offering information on licensing rates by industry sector.
www.lesi.org Licensing Executives Society website
Acronyms and abbreviations
CAPM: Capital Asset Pricing Model
WACC: Weighted Average Cost of Capital
DCF: Discounted Cash Flow
EBITDA: Earnings Before Interest Taxes and Amortization
ENPV: Expected Net Present Value
ISO: International Organization...
Vocabulary
Due diligence: financial audit
Cash flow: surplus of financial flows generated by the operation of intangible assets.
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