rebuttable presumption. In valuation, or as defendants in a patent infringement suit, we would not be afforded this convenience. Rather, it would be our job to estimate how likely and how strong displacement would be. Remember our earlier discussion of the cross-price elasticity of demand? It returns again here as a way of determining displacement.
Relating Georgia Pacific to the PIE-B
Many of the economic underpinnings of the Georgia Pacificfactors are, of course, related to PIE-B criteria. Readers are encouraged to think about how each of these factors reflects on ownership and economic benefits of some intangible asset. For example, consider the ninth factor: the utility and advantages of the patent property over the old modes or devices, if any, that had been used for working out similar results. The greater the utility, the greater the benefit. And by definition, if there are advantages, then owner- ship conveys benefits over nonowners.
Court found for Victor’s Little Secret, writing “There is a complete absence of evidence of any lessening of the capacity of the Victoria’s Secret mark to identify and distinguish goods or services sold in Victoria’s Secret stores or advertised in its catalogs.” In the case, an army officer had been offended by an advertisement of Victor’s Little Secret, but as the Court noted, the officer’s conception of Victoria’s Secret had not been changed. Had his conception of Victoria’s Secret been changed (i.e., if he had thought that perhaps Victoria’s Secret was now selling adult novelties as Victor’s Little Secret had been), then dilution could have occurred. The 1995 Federal Trademark Dilution Act (FTDA) defines dilution as “the lessening of the capacity of a famous mark to identify and distinguish goods or services.” Short of proof that capacity had been reduced, there can be no trademark dilution. Mere mental associa- tion of the junior mark with the famous mark is not enough.
This is interesting to us here because the criteria for whether a mark is distinctive and famous and the Court’s dilution test both have a familiar economic ring. The FTDA’s nonexclusive list for whether a mark is distinc- tive and famous is:
(A) The degree of inherent or acquired distinctiveness of the mark;
(B) The duration and extent of use of the mark in connection with the goods or services with which the mark is used;
(C) The duration and extent of advertising and publicity of the mark;
(D) The geographical extent of the trading area in which the mark is used;
(E) The channels of trade for the goods or services with which the mark is used;
(F) The degree of recognition of the mark in the trading areas and channels of trade used by the marks’ owner and the person against whom the injunction is sought;
(G) The nature and extent of use of the same or similar marks by third parties; and
(H) Whether the mark was registered under the Act of March 3, 1881, or the Act of February 20, 1905, or on the principal register.
The 10 factors that the Second Circuit has developed to determine if dilution has occurred are:
1. Distinctiveness
2. Similarity of the marks
3. Proximity of the products and the likelihood of bridging the gap 4. Interrelationship among the distinctiveness of the senior mark, the simi-
larity of the junior mark, and the proximity of the products
Intangible Assets and Litigation 123
5. Shared consumers and geographic limitations 6. Sophistication of consumers
7. Actual confusion
8. Adjectival or referential quality of the junior use 9. Harm to the junior user and delay by the senior user 10. Effect of [the] senior’s prior laxity in protecting the mark
By this time, readers will recognize the economic concepts of consumer preference, substitution, elasticity, and market definition in these legal guidelines.
SUMMARY
Litigation often is the place where intangible asset valuation is scrutinized most highly. When a party is seeking damages because it alleges that its intangible assets have been stolen, diluted, or misused, it will hire an expert to put a value on them. And because accused parties are interested in limit- ing their exposure, often they will hire a rebuttal expert to respond to the valuation. Many times these types of professional valuations are done within the economic frameworks outlined in the Panduit and/or Georgia Pacific cases. Many of the economic principles established therein provide excellent insight for valuing intangibles in nonlitigation matters too. In the next chapter, we take a look at some strategic implications of intangibles.
Securitization plays a large role.
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CHAPTER 10
Intangible Assets:
Strategy and Securitization
S
o far we have discussed the economics of intangible assets, how the accounting rules treat them, and how the three basic valuation method- ologies apply to intangibles. We have tried to capture these concepts with a simplifying framework that considers ownership and economic benefit as the two primary dimensions of value.This chapter is about strategy—the strategy of turning proto-assets into intellectual property. In some management texts, this is described as the process of extracting value from intangible assets. The process is compli- cated, though. Intangible assets usually are not left lying about just waiting for a manager to pick them up and squeeze some productive value out of them. Nor are they created out of thin air despite the fact that we cannot touch them.
To examine strategies, we are going to return to the basics of the port- folio of intangible economic benefits (PIE-B). Identifying intangible assets will first on the list. Identification here is nearly synonymous with finding an asset’s optimal use. (There is no morality implied—“optimal” simply means the most profitable use.) At center stage is the idea of securitization.
We mean the term plainly: Securitizing intangibles means making intangi- bles more secure.1
This chapter’s discussion is not meant to be exhaustive. Rather, the examples aim to provide some creative ideas of how proto-assets get con- verted into more secure intangibles. Some of the strategic aspects of securi- tization to be examined include:
■ Identifying optimal use
■ The dynamic nature of securitization
■ Securing intellectual property through extension
■ Securing off–balance sheet intangibles
As a case study, we will also examine what insecurity has meant in the recording industry.