Valuation of Intellectual Properties (IP) : An important tool in IP Management
In today’s global knowledge economy, all businesses irrespective of their size and scale are bound to create ‘intangible assets’ of various kinds and their value may exceed even their ‘tangible assets’. This equally applies to individual IP holders, institutes, SMEs, start-ups as well as other large scale businesses. The valuation of Intellectual Properties and other intangible assets is one of the important concepts of intellectual property (IP) law. The value of an IP is a monetary compensation that is expected to be received from assignment or licensing of an IP, or from sale or exchange of other intangible assets, and includes Patents, Copyright, Goodwill, Trademark, Trade secrets and other technology valuation.
The value of an IP lies in the fact that the creation and protection of an IP involves creative efforts along with involvement of time and fund. Plus a good amount is also spent on the advertising of brands, registering and maintaining the IP among other factors. There are various methods available for the valuation of intellectual properties which can be used wisely to assess the value of IP while entering into any commercial transaction. The valuation process requires gathering relevant information and research about the IP asset, as well as an in-depth understanding of the economy, industry, and specific business that directly affect its value.
Once an IP holder identifies his IP assets, it becomes desirable to assign a justifiable value to those assets. As per WIPO [World Intellectual Property Organisation], for an IP asset to have a quantifiable value it should not only generate a measurable amount of economic benefits to its owner/user; but also enhance the value of other assets with which it is associated. Intellectual property (IP) assets are part of the non-physical property of a business. They are legally protected and that protection can be enforced in a court of law. IP assets can be independently identified, are transferrable, and have an economic lifespan.
One of the key factors affecting a company’s success or failure is the degree to which it effectively exploits intellectual capital and values risk. A study reported that while in 1978 only twenty per cent of corporate assets were intangible assets, and eighty per cent of corporate assets were tangible assets, by 1997 the relative value of tangible and intangible assets had practically reversed, with seventy-three per cent of corporate assets being intangible assets.
Correct evaluation of an IP to determine its fair market value by using a relevant method of valuation would be beneficial to IP holders so as to realise the true potential of their IP assets, which are no less than the other tangible assets and properties.
Source : www.wipo.int/sme/en/value_ip_assets