IP Valuation right? Let’s see how it works
Due to the indispensability of intangible assets to companies, the valuation of IP assets remains quintessential. The value of IP assets which generally comprise of copyrights, trademarks, industrial designs, patents and trade secrets can be determined by direct exploitation via use, sale, transfer or license, or non-exploitation. IP assets fall under the category of intangible assets being the creation of human intellect or imagination. In the context of IP valuation, there must be the right of exclusive use and control in generating economic and financial benefits.
IP valuation refers to the process of determining the monetary or financial value of a particular IP asset. However, there are prerequisites for undertaking IP valuation some of which include distinct identification, legal transferability inter alia. It is pertinent to add here that there are such factors influencing IP valuation such as premise and standard of value, nature and strength of IP asset, time of valuation, method of IP valuation, purpose of valuation, reliable data, infringement, legal and compliance factors.
Strictu sensu, there are two effective methods of IP valuation, namely; market and income methods. While the former is premised on comparison with the actual price paid for a corresponding IP asset under comparable circumstances, the latter which is mostly used refers to the potential amount of income of an IP asset compared to its current value.
In business, IP valuation transcends the boundaries of mere estimation of intangible assets, as it influences companies’ human capital, legal and financial operations vis-à-vis Research and Development (R&D) prospects. Furthermore, IP valuation is vital to the formulation of an apt business strategy especially in a competitive market. In simple terms, companies with strong IP assets have the tendency to attract high investment and are less susceptible to bankruptcy.
According to the 2017 Intangible Asset Market Value Study, intangible assets rose in value from 17% in 1975 to 84% in 2015 while tangible assets fell from 83% in 1975 to 16% in 2015 during a 20-year span. Interestingly, IPR specialists and lawyers are beginning to specialize in the business of IP valuation, thus emphasizing the growing importance of the subject matter.
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WIPO. Module 11 – IP Valuation. Accessed via https://www.wipo.int/export/sites/www/sme/en/documents/pdf/ip_panorama_11_learning_points.pdf.
Shubham B. and Neha R. India: What Is Intellectual Property Valuation? Accessed via http://www.mondaq.com/india/x/772158/Trademark/What+Is+Intellectual+Property+Valuation.
Ocean Tomo. Intangible Assessment Market Value Study. Accessed via https://www.oceantomo.com/intangible-asset-market-value-study/