IP Valuation and Finance
IPSI - Summer 1995
This is a closed book, no-notes examination. You may use a calculator and scratch sheets where necessary. Students for whom English is a second language may also use a language dictionary.
75% - The proctored portion of the examination consists of 15 true/false questions, 10 multiple choice questions, and three short essay questions. (112 points)
25% - Be sure to turn in the take-home portion of your examination, and make sure that your examination number is on all materials you turn in. (38 points)
True/False Questions (2 points for each question - 30 points total) Mark your answers on the answer sheet. Only the answer sheet will be graded.
Multiple Choice Questions (4 points for each question - 40 points total) Mark your answers on the answer sheet. Only the answer sheet will be graded. For the multiple choice questions be sure you mark all correct answers. For each multiple choice question there may be any number of correct answers (from 0 to 4).
Short Essay Questions (14 points per essay - 42 points total) Use the provided blue books to answer the questions. Write legibly on one side of the page only. Start each question on a separate page and clearly indicate the number of the question you are answering.
IMPORTANT - You must stop writing as soon as the proctor announces that the examination is over. Failure to do so may result in a conduct code violation.
GOOD LUCK AND HAVE A GREAT REMAINDER OF THE SUMMER
True/False Questions (2 points for each question - 30 points total)
1. "Value" is a fixed, inherent property of any bundle of rights that can be transferred.
2. When one speaks of the "market price" of an asset it is based on the assumption that the asset would change hands between a willing buyer and a willing seller, both being adequately informed of relevant facts and neither being compelled to buy or sell.
3. The comparable market transaction method is one method of valuation that is rarely used today since computers have become cheap and readily available and can perform more sophisticated valuation techniques.
4. X is more valuable than Y if X has higher worth or importance to the decision-maker than Y.
5. A properly done asset appraisal is not a search for the single correct answer to the question, what is the asset worth?"
6. One of the characteristics of an asset is the probable capacity to produce future economic benefit.
7. The sale of knowledge or information assets is essentially the same as the sale of tangible assets with regard to the possession of the asset after transfer to the buyer.
8. The timing of when one receives information is often a significant factor of its value.
9. In that intangible assets are often more difficult to describe in any degree of detail and specificity when compared to tangible assets, the valuation of intangible assets can be more complicated than the valuation of tangible assets.
10. A properly done valuation is timeless.
11. Value is a measure or indicator of absolute worth or importance.
12. By any measure gold is considered more valuable than steel.
13. Internal Rate of Return (IRR) is the discount rate necessary to make a series of cash inflows and outflows equal to zero.
14. The standard decision-tree symbol for a chance or uncertainty Node is a square.
15. It is generally accepted that copyright damages cannot be assessed on the basis of speculation. However, uncertainty will not preclude a recovery of damages if the uncertainty is to amount but not as to the fact that actual damages are attributable to the infringement
Multiple Choice Questions (4 points for each question - 40 points total)
1. Post judgment interest is often available to the successful litigant in an infringement action. Which of the following would be logical choices in calculating post judgment interest?
a . The risk free rate.
b . The weighted cost of capital.
c . The T-bill rate.
d. The cost of debt.
2. Select each of the following that are correct regarding the concept of "value of use"?
a. These are damage calculations that have often been used by the courts to estimate the saved acquisition costs to the infringer.
b . The concept has been universally accepted as a potential measure of damages.
c. The concept is employed in copyright infringement cases.
d . The concept is employed in trademark infringement cases.
3. Which of the following factors may be considered in the determination of a reasonable royalty for a patent.
a . defendant's profits
b . licenses of similar patents
c - licenses of the patent to other parties
d. the cost to produce the infringing articles
4. While on summer break from law school in 1990 Keeno Lipleer wrote a popular, but violent, CD-ROM game entitled "Death & Destruction". Having previously attended an IPSI program at a famous New Hampshire law school Keeno duly registered the copyright to the game. Keeno also set-up a small corporation to distribute the game. The net profits of the corporation have been as follows:
Year Net Profits
Early this year, Keeno discovered that another company, Imotater, Inc., had included his game on an anthology CD-ROM that Imotater began distributing in 1993. The net profits of Imotater, Inc. from the infringing sales of "Death & Destruction" are as follows:
Year Net Profits
Keeno immediately hires the now famous Para Mason, known in the profession as the Lethal Litigator, to represent him. Para makes a first cut analysis of the value of case in order to explore the possibility of settlement. Which of the following are possible recovery combinations if Keeno prevails in his infringement action against Imotater, Inc.?
I. $10,000 in lost profits for the years 1993 and 1994 based on the argument that the precipitous drop in sales was due solely to the infringement by Imotater, Inc.
II. Statutory damages for the infringement.
III. Injunctive relief prohibiting any further sales of the the anthology CD-ROM that includes "Death & Destruction".
IV. $14,000 in defendant's profits from the infringement use. V. $2,000 for year 1993 and $2,000 for year 1994, based on the difference between Keeno's lost profits and Imotater's profits from "Death & Destruction".
a. 1, 111, 111 and IV.
b . III and either [I and VI or .
c . III, and any one of the following 1, H or IV.
d . 1, II III and [IV less V].
5. Paul Linolly, an attorney representing a major biotechnology company, would like to assess a settlement offer made by opposing counsel in a patent dispute. He has heard about the technique known as "risk analysis" or "decision-tree analysis" and would like to use the technique to evaluate the likely outcome of the dispute and make trade-offs among alternative litigation strategies and settlement offers. Which of the following are benefits of using the technique? (Select all answers that apply.)
a. It allows one to dissect a complex problem into smaller, manageable parts.
b . It forces lawyers to identify and assess the various uncertainties involved with the case.
c. I It permits the consideration of multiple possible outcomes that stem from a decision.
d . It requires differential calculus and thus can be used to intimidate opposing counsel and uninformed judges.
6. All things considered equal, it is generally more valuable to have a dollar today than wait to receive the dollar at some time in the distant future. In order to determine the present value of a future dollar one must apply an appropriate discount rate. Which of the following is an element of the appropriate discount rate?
a. The risk aversion of the payor.
b. 'Me risk aversion of the recipient.
c . The risk associated with receiving the future dollar.
d . The risk associated with potential future investments.
The following two questions refer to the unfinished balance sheet for the law firm of Bluster & Blohard (B&B) that is shown below:
Balance sheet for Bluster & Blohard
June 30, 1995
|Cash on hand $||10,000||Accounts Payable||$45,000|
|Accounts Receivable||$50,000||Pre-paid liability insurance||$10,000|
|Office Equipment||$150,000||Short term bank loan||$50,000|
|Building||$1,500,000||Long term mortgage loan||$750,000|
|Less Accum. Deprec||($500,000)|