Valuation of intellectual property

Valuation of intellectual property

Valuation of intellectual property (IP) assets and assessment of their current and future status, whether technical or otherwise, is important for successful business of the company. Periodic IP inspections ensure the company’s competitiveness on the challenging and rapidly changing global market. They can also protect the company from violations of regulations, potential litigations and liability.

It is not uncommon that the primary source of income is not only and not so much material resources, as intangible assets of the company including its reputation, i.e. brand, which market value can be manifold above the total value of all its tangible assets. To this must be added that understanding the brand value enables adequate response to willful exchange rate fluctuations reducing the likelihood of inconsiderate steps because of the market underestimates or, on the contrary, speculative overheating of the company shares. So, any branded product has its price, which depends on the prospects, confidence or expectations of consumers and time spent on the market.

Intellectual property (IP) is a right to intellectual deliverables. Either legal entity or individual may be an owner of IP. In the former case, intellectual property is carried in intangible assets.

IP includes owner’s rights confirmed by a patent, license or another document for:

  • Industrial properties (inventions, utility models, industrial designs, trademarks);
  • Trade secrets and know-how;
  • Copyrighted assets.

Valuation of intellectual property (industrial properties, know-how, copyrighted assets) is performed for the following purposes:

  • determination of license transfer or franchising terms and conditions;
  • privatization of public enterprises;
  • mergers and acquisitions (for potential purchase and sale of intellectual property);
  • for judicial purposes;
  • external fund-raising efforts, etc.

When fulfilling intellectual property valuation orders, Good Rights Company experts do the following:

  • collection and analysis of the subject property information;
  • analysis of applicability and choice of approaches and methods for the intellectual property valuation;
  • products and/or services market analysis;
  • determination of the intellectual property share in the cash flow of the firm;
  • calculation of enterprise value as a whole, and value of intellectual property rights in particular;
  • preparation of intellectual property valuation reports.

List of documents and information required to measure intellectual property and intangible assets:

  • name of the intellectual property asset (IPA) and its description; title deeds for IPAs: patents, certificates, license agreements, authorship agreements, etc.;
  • characteristics of IPAs or goods produced using IPAs, where necessary in comparison with similar or competing goods;
  • sources of income from IPA use;
  • IPA market description;
  • costs for acquisition of rights and IPA use;
  • cost and price for product unit using IPA;
  • technical (consumer), performance, environmental and economic indicators of revenue from IPA use;
  • proceeds from sale of property rights or licenses for IPA use;
  • return on investments in IPA development;
  • costs incurred:
  • for acquisition of property rights to IPAs;
  • commercial development and organization of production and sale of IPAs or goods using IPAs;
  • legal and other forms of IPA protection;
  • marketing of IPAs or goods using IPAs;
  • insurance against risks of projects using IPAs and (or) their yield.

This list of documents is provisional and may be shortened or extended after the valuer has carefully analyzed the valuation assignment.

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