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.
