Valuation of Intellectual Property and Intangible Assets: Everything You Need to Know
Determining the valuation of intellectual property and intangible assets can be difficult as they are considered non-monetary and do 3 min read
Determining the valuation of intellectual property and intangible assets can be difficult as they are considered non-monetary and do not have physical components. Intellectual Property, or IP, is a term used to describe intangible assets in which the creator of that property has rights to under the law. IP can refer to a number of things including:
- Patents that are created to protect products
- Designs that lay out the style and image of the product
- Distinctive trademarks created to convey a brand image to consumers
Intangible assets are considered valuable business assets and are often core brand components that promote customer loyalty and retention. Intangible assets can include such things as:
- Trade secrets
- Customer relationships and business relations
The laws created to protect intellectual property rights give protections to the owner against theft, copying, selling, and transferring the property to third parties. To help protect their intellectual property rights, creators should apply to register their trademarks, design, or patents.
The amount of time that the property is protected will depend on where in the world the registration occurs. For example, in the UK a trademark registration will last ten years with the availability to renew it indefinitely. Protection for patents extends for up to 20 years, and design rights can last for 25 years although regular renewal is required for both.
For copyright protection, there is no need to register, but the person who created the intellectual property must be able to produce proof of the recorded date of creation in the event a dispute arises. There are restrictions on the length copyright can stay protected which is usually around 70 years from the death of the author for written, dramatic, or musical copyright.
Key issues in Managing Intellectual Property
When managing intellectual property for a company, performing your due diligence is critical. It is important for businesses to know exactly what type of IP they are purchasing or creating internally with their employees so that they can put an accurate value on the creation and control the ownership of the rights. Patents and intellectual property can be valuable to a company, especially when they are seeking funding such as often typical of a startup company.
This means it is essential to register for patents or have pending patents on intellectual property that may have a costly development or a long process to completion to ensure that you have sole ownership when the process is complete. You can use these pending patents to entice investors.
If there may be more competition in the product or process, it may be best for you to hold the knowledge of the pending patents as a company trade secret to prevent competitors from seizing on the opportunity to try and create the product or process themselves once you have made the idea known. These types of decisions show that effective management of a company's intellectual property is not only important to take legal action against violations, but also as a tool to position your company with investors or the competition.
If you experience a case of infringement, it is important to realize that intellectual property infringement or rights violations is a civil, not a criminal matter, so enforcing your IP rights can be an expensive and sometimes complicated process.
Another option companies can choose when managing intellectual property, in what may be considered a more competitive market, is to release the IP to encourage competition, then seize on that sudden growth to market products and services related to the new technology.
When managing intellectual property, it is also important to know the rules about transferring the property to a holding company in the event that there is a business failure in one of the subsidiaries. When transferring the IP, you will need to consider the international jurisdictions and understand the tax issues in each country to ensure the proper protection of the IP. When doing this, it is vital to consider pricing structure of the IP and the idea that the value of IP assets should be based on what is referred to as the arm's length principle in which the prices will reflect those that would be found if sold on the open market.
If you need help with the valuation of intellectual property and intangible assets, 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.