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Fair Value on Commons-Based Intellectual Property Assets

Fair Value on Commons-Based Intellectual Property Assets

4th International Workshop on Free/Libre/Open Source Software
Friedrich Schiller University, Jena July 1-2, 2010.

Jesús García

July 02, 2010
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  1. Fair Value on Commons-Based Intellectual Property Assets Jesús García-García1 &

    Mª Isabel Alonso de Magdaleno2 1 Department of Accounting - [email protected] 2 Department of Business Administration - [email protected] University of Oviedo (Spain) 4th International Workshop on Free/Libre/Open Source Software Friedrich Schiller University, Jena July 1-2, 2010
  2. R&D phase (expense) technological feasibility with recoverability of development costs

    pre-commercial phase (capitalize) general realise Expense/Capitalize general framework
  3. Database: • Kernel development history from Linux Foundation. • Main

    variables: SLOC (total, added, modified and removed), days of development, commits, numbers of developers, employeers. • EUROSTAT: Mean annual earnings in high-tech manufacturing and knowledge intensive high technology services for upper secondary and tertiary education. Valuing the Linux Kernel (1)
  4. Valuing the Linux Kernel (2) Intermediate COCOMO'81 where, a=3 b=1.12

    ΠCi=1.55 Size=SLOC Mean salary = 30,040€ Overhead cost factor = 2.4 Results validated developers observed vs. developers predicted. Linear regression R2=86.49%
  5. Why to value commons-based assets? • To raise finance •

    To put a realistic value on business (know-how) • For taxation purposes • To enable effective decision-making • To report accurately providing true and fair view Similar to other assets Not for licensing IP to others
  6. How to report? No report, it's free! Corporate Social Responsability

    Community Value Report Financial Statements: intangible asset
  7. Corporate Social Responsibility • Self-regulation to monitor support to law,

    ethical standards and international norms integrated into business model. • Perspective broader than inmediate short-term profits. • Growing support from academia, accounting profession and firms. • Humanitarism, human development, ecology …
  8. How to value? Past value Future value COST INCURRED: historical

    data MARKET PRICE: needs comparable transactions INCOME: discounted cash-flow /net present value Initial booking value Revised booking value (when needed)
  9. Basic financial reporting frameworks FASB Financial Accounting Standards Board GAAP

    General Accepted Accounting Principles Based on RULES IASB International Accounting Standards Board IFRS - IAS International Financial Reporting Standards International Accounting Standards Based on PRINCIPLES
  10. What is an asset? Future benefit Exclusive control Transaction in

    the past Future benefit Value measured with reliability What is an asset? What is an asset?
  11. So we would need .... • An initial gross value

    • Useful life and amortization rate, or ... basis for determining an indefinite life • Impairment losses (fair value) • Reconciliation: additions, retirements or revaluations
  12. Community Value Report Community profile Who are the members and

    how do they differ from other communities Potential to improve loyalty, generate new collaborations and convert from other projects Collaboration duration How often community collaborates on development How and when members become loyal What is the frequency of contact with community Community role How community is involved in product design, production, delivery or service Community support What programs are in place to communicate and ensure community satisfaction Community success How do customers purchase rate (if applicable), downloads rate and overall satisfaction measure up with similar products
  13. Conclusions • Not enough development on financial reporting. • Commons-based

    IP assets provide competitive advantage not reflected on financial statements and firm's value. • Accounting framework is based on transactions, it does not report external voluntary contributions. • There is chance to generate intangible open source assets, but additional research is needed to evaluate absence of exclusive control and not existance of previous monetary transaction. • Community Value Report may be a first step as voluntary disclosure.