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Contents
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Valuation in the Current Environment The current economic environment has challenged the valuation community in determining the value of most businesses. Valuators not only have to deal with the subjectivity of valuation overall, but are now struggling to support some of the most basic valuation issues such as cost of capital and marketability discounts in quickly changing economic times. The need for increased self-review, research and support for valuation methods utilized has never been greater. Methods to develop the costs of capital and marketability discounts should look familiar but also include an element to account for the current economic environment. Additional thought and support should be given to the following areas:
These are just some of the factors that should be noted when reviewing valuations in the later part of 2008 and early 2009. Our valuation experts are available to discuss these issues with you and are capable to address the current economic conditions in a supportable manner. For more information about our Business Valuation practice, email BVLS@SCandH.com or call (410) 403-1500 | (800) 832-3008.
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Valuations Insights, Second Quarter, 2009 Inexperienced, Unprepared Expert Caught in Deposition Unleashed Magazine, Inc. v. Orange Co., Fla., 2008 WL 4304883 (M.D. Fla.) September 16, 2008 As lawyers and litigation experts know, depositions can sometimes prove to be a real battleground. In this case, a poor pre-trial performance led directly to a Daubert motion that pitted the experience of the expert witness against the reliability of his opinion. The plaintiff hires an expert with little expertise. The plaintiff registered the trademark "Unleashed" in connection with efforts to develop pet-related publishing and television programming, including a magazine called Orlando Unleashed. When the city of Orlando began broadcasting a public TV program called Pet Pals Unleashed, the plaintiff sued for trademark infringement. To support a damages claim, the plaintiff retained a former entertainment executive turned consultant, who had spent twenty years developing media licensing. The expert had never authored any articles or received any formal accounting training other than a master's degree in business administration. He lectured frequently on licensing and once belonged to a professional licensing association, but never received any formal peer review or credentialing. His fee was $100 per hour and he worked twelve hours on his four-page report. The first sections of his report covered the licensing industry and in particular, the value of licensing a magazine's brand to television programs. The second section found that trademark dilution could exist in this case, and concluded that an annual royalty of $7,500 would be a "reasonable fee" for the rights to use the magazine's trademark in the city’s television show. In considering the defendant's Daubert motion, the U.S. District Court excerpted several pages from the expert's deposition, in which the attorney tried to pinpoint the expert's experience with calculating hypothetical royalty rates. (Because the standard rule for calculating royalties, if no actual rate exists in the relevant market, is to project a hypothetical, arm's-length licensing agreement between the patent holder and infringer at the time of the alleged infringement, most often based on the fifteen factors established by the leading 2nd Circuit case, Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970)). Still, when the attorney asked the expert if he knew the Georgia-Pacific factors, he answered, "No I do not." Instead, he maintained that because his consulting work for actual clients involved telling them what they might negotiate for a licensing of their trademark—this experience constituted rendering an opinion regarding a "hypothetical" situation. To calculate royalty income from a specific licensing agreement, the expert said all he needed was an "established market" for the trademark, without relying on any financial statements. But when asked how this differed from "rank speculation," the expert conceded that he had not consulted or conducted any formal surveys to show that the plaintiff’s magazine had an established market. For example:
The expert also admitted that he did not know whether anybody actually read the magazine. He had found no evidence of readership and had never read it himself. He had no specific "matrix" for the potential TV market and consulted no data on potential viewership. Plaintiff's counsel conceded that the expert 'did not do well' in deposition, and prior to trial agreed that he was not qualified to render an opinion whether there was any infringement, consumer confusion, and/or trademark dilution in the case. Under the Daubert standard, the court focused primarily on the expert’s experience. In this case:
"The Court cannot simply take [his] word for it," it concluded, and struck the expert's report. |
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