Is Intellectual Property an Intangible Asset: Everything You Need to Know
When it comes to some of the most powerful companies in the world, intellectual capital can easily be considered one of their most important and valuable assets. 3 min read
You may have asked yourself, "is intellectual property an intangible asset," and the answer is yes. While tangible assets can result from intellectual property, the intellectual property itself is intangible.
The Value of Intellectual Property
When it comes to some of the most powerful companies in the world, intellectual capital can easily be considered one of their most important and valuable assets. Intellectual property is:
- The foundation for dominance in the markets.
- Continued profitability that many of these companies are built on.
Often, obtaining the rights to intellectual properties is the primary objective that drives:
- Corporate mergers.
Smart companies are using these tactics to transfer these important assets to jurisdictions that are known for low taxation practices.
For the most part, the value of intangible assets and intellectual property is vastly misunderstood. Established standards for accounting are usually not very helpful in terms of adequate representation of the worth associated with intellectual properties when viewing a company's accounts. Intellectual properties are typically not properly handled in the following important areas:
- The way in which they are valued.
- The way in which they are managed.
- The way in which they are exploited.
In spite of the complex and important nature of many intellectual properties, there is usually very little in the way of coordination among appropriate professionals when dealing with a company's IPR.
Exploiting an Intellectual Property
One major factor that affects the success or failure of a company is whether it is able to exploit its intellectual properties properly and value the risks associated with doing so.
A company's managers should know the value and risks associated with the company's intellectual properties in the same way they need to understand the underlying values associated with the company's intangible assets. This is because management should generally be aware of the value of all of the company's assets and liabilities they are responsible for in an effort to make sure they are properly maintained.
Exploiting an intellectual property can happen in a number of ways, such as:
- Sale of the intellectual property
- Joint ventures
- Licensing agreements.
Keep in mind that such exploitations will inevitably lead to an increase in the company's risk assessments.
Valuating these intellectual properties is a matter of combining the concepts of "value" and "property." Measuring the presence of an asset is a matter of considering:
- Its ability to create a financial return
- Any applicable discount rates that may apply to that return.
The most common form of valuation states that the value associated with an asset cannot be abstractly stated. In fact, all that can be stated is the value of an asset:
- In a specific location
- At a specific time
- Under specific circumstances.
The Value of Intangible Assets
In terms of valuating intangible assets, calculating the value to be associated with the asset in question isn't usually a large issue when appropriate steps have been taken to protect them in the form of things such as:
However, this isn't necessarily the case when you're dealing with intangible assets such as:
- Operational knowledge
- Training systems
- Training methods
- Technical processes
- Customer lists
- Distribution networks.
Assets of this nature may be considered equally valuable. However, they are more difficult to define in terms of:
- Generated profits
- Financial earnings.
In the case of most intangible assets, it's important to conduct thorough due diligence with the assistance of:
- A company's in-house accounting team
- Intellectual property lawyers.
Generally, there are four concepts associated with valuating an intangible asset:
- The owner's value
- The market value
- The fair value
- The tax value.
The owner's value is typically used to determine the price of an intangible asset when negotiating deals with third parties. This is usually led using a proprietors' view of the asset's value if they were to find themselves without it. Market value is based on the assumption that if a comparable piece of property has been sold for a certain price in the past, then the property in question should also be worth a similar amount.
Evaluating Fair Value
In essence, the concept of fair value equates to a desire to benefit both involved parties. This value takes into account that the transaction is not taking place on the open market. The seller and buyer have come together under legally binding circumstances.
If you need help with whether an intellectual property is an intangible asset, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.