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Dan Weiss
UC Davis Graduate School of Management
AOB IV, Rm 252
Email: dweiss@ucdavis.edu
Intellectual Capital and Intangibles
Winter 2003
Course focus
The course traces the meteoric rise over the past two decades in value and impact
of intellectual assets to fundamental changes in the structure and scope of business
enterprises. We focus on drivers of growth and profitability in today’s business
environment: innovative technologies, patents, brands, trademarks, copyrights and human
knowledge.
The course emphasizes different perspectives of intellectual property:
entrepreneurs, management, venture capitals and investors. We emphasize their methods
and models for valuation of brands, start-up companies, patents and human capital.
Special attention is given to the role of intellectual assets in mergers and acquisitions.
Innovation is primarily achieved by investment in research and development
activities, information technology, employee training, customer acquisition, and other
intangible assets. In this course you will have a hands-on learning process of the unique
aspects of intellectual assets: high risk, lack of full control of benefits and absence of
markets.
The course concentrates on integrating finance, accounting, marketing and
economics skills to assess intellectual assets as major components in firms’ strategies.
Fundamental changes that drive the development, management, measurement and public
disclosure of intellectual capital are explored.
The course is highly recommended for students who intend to work in firms that
sell branded products or services, hi-tech industries, start-ups, health-care, or in providing
professional services (e.g. law firms) to these firms.
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Learning process
The course is based on hands-on experience and learning through case studies.
The cases will be presented in class by teams of students. Numerous points of view or the
outcome of different valuation methods will be presented in class by different teams.
I expect you to have read each case carefully before coming to class and to be
prepared to lead the class discussion as well as discuss any aspect of the case during
class. I recommend that you discuss cases in small groups before coming to class.
Required text
1. Baruch Lev, Intangibles – Management, Measurement, and Reporting, Brookings
Institution Press, 2001 (LEV).
2. A reading packet
Final project
The final project will be an analysis of an industry of your choice. You will assess
the strategic contribution of intellectual assets to the competitive advantage of firms,
assess valuations of intellectual assets in three or four firms of your choice and analyze
the changing significance of intellectual assets over time in the industry. The project is to
be about 7-8 pages of text, with accompanying exhibits as additional pages. It will be
done in teams and presented to the class on weeks 9 and 10. Detailed guidelines for the
project will be handed out in class.
Grading
Grades are based on the case-study presentations and assignments (40%), class
participation (40%), and a final project (20%).
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Intellectual Capital and Intangibles - A Tentative Course Program
Week 1
(Jan 7,9)
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Getting a grip on intellectual assets
Setting the stage: getting a grip on intellectual assets of firms.
The role of intellectual assets – facts and effects.
Ranking world most valuable brands
Read:
LEV – Introduction + Chapter 1
Case Study:
Priceline (HBS case, the case will be presented by the instructor).
Week 2
(Jan 14,16)
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The economics of intellectual assets
Scalability, network effects, increasing returns of intangibles, lack of markets and other
features of intangible assets.
Valuation methods – a refreshment, emphasizing classical valuation methods applied for
intangible assets.
Read:
LEV - Chapters 2+3 – The Economics of Intangibles
Case Study:
Cisco – Behind the Hype, Business Week (Jan 21, 2002).
Week 3
(Jan 21,23 )
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Brand and customer equity
Assessing brand and customer value and future benefits
Reading:
(a) Chapter 4 – Assets Analysis in Palepu K.G., Healy P.M., and V.L.
Bernard, 2000, Business Analysis & Valuation. This reading is for
students who have not yet learnt valuation in previous courses only.
(b) Chapter 23 –Valuation of Brands and Intangibles in Pablo Fermandez,
2002, Valuation Methods and Shareholder Value Creation.
Case Study:
The Brita Products Company
Week 4
(Jan 28,30)
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Acquiring brands
Estimating values of brands, acquisitions of national brands.
Should brands be recognized and reported as firms’ assets?
Reading:
Cravens K.S. and C. Guilding, 1999, Strategic Brand Valuation
Case Study:
PepsiCo’s Bid for Quaker Oats (+ “A Touch of Indigestion”).
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Week 5
(Feb 4,6)
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The investors’ perspective
Disclosure of R&D activities.
Financial reporting of intellectual assets – the accounting perspective.
Reading:
(a) Chapter 25 – Disclosure, Segment Reporting.., in Dyckman, Davis and
Dukes, Intermediate Accounting, 2001.
(b) LEV – Chapters 4-6
Week 6
(Feb 11,13)
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Venture capitals (a)
Learning venture capitals’ perspective and decision-making processes. Human capital
aspects will be emphasized as well.
Reading:
Bob Zider, 1998, How Venture Capital Works
Case Studies: (a)
(b)
Week 7
Martin Smith - May 2000
Martin Smith - January 2002
(Feb 18,20)
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Venture capitals (b)
Investing in technology and knowledge development. Markets for innovative
technologies.
Reading:
H. W. Chesbrough, 2002, Making Sense of Corporate Venture Capital
Case Study:
Apax Partners and Dialog Semiconductors: March 1998
Week 8
(Feb 25,27)
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Acquiring technology and R&D from startups
Technology-intensive startups: acquisitions, valuation problems and related issues.
Reading:
M.J. Lasinski, Chapter 4 – Valuation of Intellectual Property Assets in
Mergers and Acquisitions.
Case study:
AOL Acquisition of Mirabilis (Stanford case).
Week 9
(Mar 4,6)
To be announced
Week 10
(Mar 11,13)
Presentations of final projects