Valuation of Intellectual Property: Everything You Need to Know
Determining the valuation of intellectual property is often complicated due to the fact that the property is considered an intangible asset. 3 min read
Determining the valuation of intellectual property is often complicated due to the fact that the property is considered an intangible asset. Intellectual property is becoming an essential asset for corporations to achieve market dominance and maintain profitability as they continue into the future. This intellectual capital is also vital when companies enter into mergers or seek to acquire other businesses. Even though the valuable nature of intellectual property is understood, intellectual property rights are still very poorly understood.
Intellectual Property Rights
Intellectual property rights by themselves are not inherently valuable. The value comes in the strategic ability to exclude other companies from having the ability to use the intellectual property and being able to capitalize on the products, processes, and services that can come from being the sole owner of that property.
To obtain the most from this strategic advantage, you will have to ensure that your exclusionary rights are aligned with business objectives. IP rights that provide you with the most significant advantage over your competition will provide you with the most value.
If the products you provide are uniquely functional, an improvement in the efficiency, or a more desirable aesthetic, your product will be more marketable, and your brand will be at the forefront of the customer's mind.
What makes intellectual property so valuable is if it is an idea that is made in a way that can separate it from the competition. The question is not what the invention is but what makes it unique in the market. A valuable distinction from other competition can make your patent very valuable.
Patents and Trademarks for IP
If your intellectual property involves a design patent, your primary objective is to be the exclusive creator of products that carry that specific visual element. A design patent will help to protect your products' aesthetics and allow you to create trademark strategies and a strong branding message to build your company reputation and brand. A design patent will also prevent others from using similar visuals to ride on the back of your company's success.
When utilizing trademarks for your company, your primary objective will be to have customer recognition with your marks and to have your customers be able to equate those marks to your quality of products and services in your specific market. As your company and reputation grow, the importance of your trademark will grow as well.
To determine the worth or value of IP, normal accounting methods are not recommended. Using an accounting standard will probably leave you with an under-valued and under-managed intellectual property.
Understanding Intellectual Property Rights
Since intellectual property is valuable for any company, it is important to get a clear understanding of your IP to determine a proper value. Some of the information you will need to determine to understand your intellectual property rights includes:
- What will the intellectual property be used for in your business?
- What type of value can be assigned to the IP?
- Who has ownership rights over the IP?
- How can you best exploit the use of the IP, such as a licensing deal or utilizing the technology?
- How much will you need to insure your IP for?
The most important factor to consider with intellectual property is the value of the intellectual capital, as well as how you can exploit it for the betterment of your company. A business manager should not only understand the value of the IP as an asset but also the level of risk the intellectual property incurs. You can exploit your intellectual property rights in a number of ways including:
- The outright sale of an asset
- As a joint venture agreement
- As a licensing agreement
The exploitation of the IP is what will ultimately increase its risk assessment. When valuing your intellectual property, you are bringing together the concept of value with the legal ideas of property. Valuation of IP becomes specifically important in situations such as:
- A merger, sale, or joint venture
- In the event of bankruptcy
- In the event of a divorce
- For estate planning purposes
- If licensing an IP
- In the event of litigation
If you need help with the valuation of intellectual property, 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.