Valuing Intellectual Property

For many businesses, intellectual property (IP) assets, such as patents, trademarks, copyrights, trade secrets, software, customer lists, and research, are an important part of their value. Because these assets are intangible, meaning that there is high degree of uncertainty regarding their future worth, it can be extremely difficult to determine their value. However, it is increasingly becoming more necessary for businesses to establish the value of IP assets, including mergers and acquisitions, for tax or litigation purposes, or for an ongoing business valuation, or liquidation.

An accurate valuation of IP assets requires that the appraiser look very carefully at the following factors:

• The nature and size of the market to be served
• The competitive advantages of your asset
• The price customers are willing to pay for your solution and related value proposition
• Costs of implementing the technology or products
• The impact of the technology on the processes used by the business to service its customers
• Length of time before new competition will enter the market

There are three methodologies that generally are used to value IP assets:

• Cost Approach
• Market Approach
• Income/Relief-From-Royalty Approach

There is overlap among these approaches, and an appraiser should use all three of these methodologies to determine the valuation of an IP asset. (We will cover these valuation methodologies in another post.)

Make sure to select a competent appraisal firm that follows recognized standards for the valuation of intellectual property.

By: Present Value

Tags: Intellectual Property, IP assets

This entry was posted on Thursday, August 6th, 2009 at 7:35 pm and is filed under Appraisal Terms, Business Valuation, Custom Appraisal, Intellectual Property, business appraisals. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.