How to determine the Value of Your Intellectual Property

by Josh Biggs in Business on 30th May 2019

There is an ever-growing shift toward the knowledge-based economy and intellectual property rights are increasingly understood as supporting and promoting economic growth. In such a climate, businesses that base their operations on intangible assets and innovation need to be cognizant about legally protecting and capitalizing on these investments.

Registered and granted intellectual property rights, such as patent an idea, trademark registrations, and copyright registrations, which are acquired by application to intellectual property offices, provide legal evidence of ownership over intangible assets as well as give businesses the right to exclude others from use of these rights. This allows businesses to protect their intellectual property from use by competitors and provides businesses with an asset which can be profitably licensed or sold.

Why it’s so important?

Intellectual property valuation can help businesses determine the true value of their intangible assets and capitalize on their investments in innovation. For example, assessing the value of patent, trademark or copyright rights may simplify the licensing or assignment process by helping businesses determine the royalty rates that should be paid as a result of others using their intellectual property. Further, valuation of intellectual property, if not currently accounted for, assigns value to a business and may provide a business with collateral for loans or mortgages. For new businesses, an accurate and substantiated valuation of intellectual property assets is likely to increase outside investment into the venture.

Valuation methods

The value of an intellectual property can be determined by many factors, but the overarching principle guiding valuation is how much of a competitive advantage over others in the industry your intellectual property provides. When determining the worth of intellectual property, two methods of valuation have traditionally been used – quantitative and qualitative valuation.

Quantitative valuation relies on measurable data or numerical information to produce an estimate of the value of your assets. It attempts to answer the question by providing a monetary value or contribution that the intellectual property provides, whether directly to the business or indirectly by increasing the value of other parts of the operation or appeal to investors. Sample metrics can include similar market transactions in the industry, assessing the cost incurred in obtaining the intellectual property in question, and the cost of replacing the gains made by the intellectual property in question with another method.

Qualitative methods of valuation provide an estimate of the value of the intellectual property by rating it based on its strategic impact, brand loyalty held by consumers, its impact on the company’s future growth, and other intangible metrics that do not rely solely on numbers.

Further information regarding the various methods of intellectual property valuation can be read about here.

Advantages of each method

Quantitative and qualitative methods tackle the question of value from different viewpoints and should not be treated as mutually exclusive. Depending on the needs of a business, a variation of both methods may be employed. For example, whether the valuation will be used for internal or external purposes, the type of audience that the valuation report will be presented to and the scope of valuation necessary are all important factors to consider when determining the best method of valuation.

Before selecting a valuation method, it is important to consider these questions:

  1. What is the purpose to this valuation?
  2. What assets will be the subject of this valuation?
  3. For whom is this valuation being prepared?

Determining the value of the intellectual property can be a challenging process, but obtaining a valuation can result in significant benefits for your business. An accurate estimate of the worth of your intellectual property can guide your business decisions and help you determine a course of action to take with the assets in your possession which will be most profitable for your business.

If you are considering obtaining further advice regarding protecting your intellectual property, you can always refer to the experts in this field, such as Heer Law. You may also wish to refer to this resource on how to monetize intellectual property.

Categories: Business