There are any variety of reasons to value intellectual property. The valuation becomes essential in several business scenarios. As an example, in acquisitions, investment, and litigations intellectual property valuation is vital. For some companies, it is their most precious asset. Some common kinds of intellectual property are patents, trademarks, copyrights and trade secrets. As we see them on each of the products we purchase the majority people are familiar with brands. Trademarks allow an organization to file a symbol to differentiate it from other firms. Many of us are acquainted with patents. Patents are inventions that allow a service or product to have edge in the market. Copyrights are used to protect works of art, like tunes or novels. Trade secrets are techniques used by businesses to get a competitive advantage in the marketplace.
There are tons of strategies to valuing intellectual property. In a given instance, several strategies may be utilized. The most frequent approaches in many cases are adequate for most cases and are useful in both company and litigation strategy. There isn’t always a clear motive to select one valuation strategy over another. Sometimes it’s just a matter of style.
The most frequently used strategy of intellectual property valuation is the income approach. This approach also makes lots of intuitive sense to those contemplating IP law. The income approach tries to estimate the future income value of a piece of IP by viewing its past and current operation. Particularly, the income approach tries to assess hoped-for economic benefits from a piece of IP. In a few cases the IP will get increasingly more valuable, while in others its value will decrease as it becomes less important in the marketplace.
Another common method of IP valuation is the cost approach. The cost approach is founded on estimates of how much it would cost to replace a piece of IP, like an invention. The replacement must attain the same aim as the creation that it is replacing. This approach can become quite complicated because there are many intangibles. Things like R&D prices are hard to establish firm amounts on. This process is often used when there’s not lots of financial data available to use another system like the income approach. While valuation predicated on cost is somewhat high risk, it is a helpful IP valuation approach in the best scenario.
Some consider the market strategy to be more exact than other strategies of IP valuation. The marketplace approach focuses on economic factors such as supply and demand. The value of IP sometimes has a lot more to do with the marketplace itself than the expense of making the IP, or how much it would cost to replace it. A royalty database is often used when using the market approach. The royalty database helps to make a market standard for a group of IP. Keep in mind that much intellectual property isn’t used by the owner, but simply let to others who need to use it for their business.
A somewhat less common IP valuation approach is the relief from royalty method. This approach takes into consideration the amount of money a company would lose without owning their vital intellectual property. An example could be a specific invention that makes one firm’s product more desirable to consumers than those of their competitors. The question then becomes what would their sales be without that innovation. The relief from royalty method is usually useful as a quick intuitive valuation method.
There are a host of other procedures used for valuing IP while others are reasonably practical in special situations a few of these methods are quite obscure. There need to be many strategies for evaluating its worth, because intellectual property is so pervasive. This informative article lays out the basics, but you should always get the advice of an intellectual property specialist. Nevium has created a guide to intellectual property valuation here.