Beginner’s Guide to Intellectual Property Valuation

Intellectual Property

If you are a business owner, you would have definitely heard of intellectual property, alternatively known as IP. So before we move ahead with our point of discussion, let us know what exactly is intellectual property. 

What is Intellectual Property?

To quote the Oxford dictionary, intellectual property is an “intangible property that is the result of creativity, such as patents, copyrights, etc.” Since these properties are born from the human intellect, they are coined as such. We are sure everyone has heard of words such as copyrights, trademarks, patents, etc. These are nothing but rights that protect intellectual properties. 

So whatever results as a human mind’s creativity can be termed as intellectual property. Whether it is an invention, artistic design and production, or even literary work, they can be included under this umbrella.

Types of Intellectual Property Rights

There are various intellectual property rights in place that help protect the owner against duplication. Here, let’s look at a few of the popularly known IP Rights.

  1. Patents 

A patent gives its owner a legal right over the IP. This means nobody can use, imitate or sell the IP for a stipulated time. Patents can include inventions, designs as well as production processes or plants.

  1. Copyrights

Though copyrights and patents are quite often confused as one, there is a difference between the both of them. As soon as you create a piece of art whether it is music, literature or otherwise, you have a copyright to your creation. The owner can receive a royalty in exchange for the IP.

  1. Trademark

Trademarks are for symbols/logos, or for taglines that are unique to certain brands and companies. The famous fast-food chain McDonald’s, for instance, has issued a trademark over its logo and its tagline. ‘I’m lovin it’.

For a business owner, it is necessary to know what are the various IP rights and how important they are to the business. Shedding light further on this topic, let’s see how the IPs are valued.

What is Intellectual Property Valuation?

Intellectual property valuation is the process that helps in evaluating the market value of the IP assets such as patents, trademarks, etc. The shift in the global economy has influenced the business world such that IP is more important than physical assets. Thus, an accurate intellectual property valuation has become a key feature in determining a business’ potential.

Now that we know why IP valuation is important, let’s look at how IP is valued.

Methods of IP Valuation

The following quantitative valuation methods attempt to evaluate the monetary value of the IPs.

  1. Cost-Based Method

Under this method, the cost of developing or creating the IP incurred is taken into consideration. It also helps define the cost of recreating or developing such IPs. However, it does not take the current market value of the IP into consideration.

  1. Market-Based Method

Unlike the previous method, this one accounts for the market price of the IPs. The valuation under this method is based on the prices of recent comparable or similar IP transactions in the market.

  1. Income-Based Method

This method assesses the revenue that the IP may generate in the future for your business. The cost and risk are also accounted for while predicting the income through the IP.

Which method is the best for valuing the IP? Are there any specific considerations to look out for while choosing the valuation method? 

To answer these and any other questions you may have related to IP valuation, get in touch with us and our experts will guide you through!