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Certificate of Merit
Several methods can be used to appraise proprietary technology. They include the market approach methods, the cost approach methods, and the income approach methods. Each has the same objective: to arrive at a reasonably defined value for the proprietary technology.
For this discussion, we will use a fairly broad definition of "proprietary technology." Included in our definition are patents, patentable inventions, mask works, trade secrets, know-how, confidential information, and copyrights of such technical material as computer software, databases, and instruction manuals.
There are many reasons for conducting a technology appraisal. They can be grouped into six categories:
1. Transaction pricing and structuring for either the sale or license (transfer pricing) of proprietary technology.
2. Financing securitization and collateralization for both cash-flow-based financing and asset-based financing.
3. Tax planning and compliance with regard to amortization, abandonment, charitable contributions, gifting, intercompany transfer pricing, estimation of built-in gains tax, and other federal tax matters.
4. Management information and planning, including business value enhancement, estate planning, and other long-range strategic issues.
5. Bankruptcy and reorganization analysis, including the value of the estate in bankruptcy, debtor-in-possession financing, traditional refinancing, restructuring, and assessment of the impact of the value of technology on proposed reorganization plans.
Litigation support and dispute resolution, including infringement, fraud, lender liability, tax-related controversies, breach of contract matters, and a wide range of deprivation-related reasons.
ATTRIBUTES TO CONSIDER
Table 1 presents a nonexhaustive list of attributes that often are considered important in the value assessment of proprietary technology. The influences on technology value also are indicated.
Clearly, not all of these attributes will apply to every technology, and each of these attributes does not have an equal influence on the economic value of a technology. Some are more important in some industries than in others-and are more important for certain products and services than others. It is worth noting also that there is a substantial range (both qualitative and quantitative) of positive to negative influences for each attribute.
MARKET APPROACH VALUATION METHODS
Typically, analysts attempt to apply the market (sometimes called sales comparison) approach methods first in the valuation process because "the market"-the economic environment where arm's-length transactions between unrelated parties occur-is typically the best indicator of the value of a technology. Analysts will research...