Intellectual Property Valuation

INTELLECTUAL PROPERTY RIGHTS | INTELLECTUAL PROEPRTY VALUATION     An Intellectual Property Right, Intellectual Property Valuation is one of the areas in finance which play a major role in finance like buy/sell, solvency, merger, acquisition. Intellectual Property Valuation is considered the most important management strategic issue.   Intellectual Property Valuation or economic appraisal analysis are conducted for various reasons like transactions, pricing, strategic purposes, financing securitization, collateralization, tax planning, compliance and litigations support.   The Intellectual Property Valuation process necessitates gathers information about understanding the economy, industry and specific business which directly affect the value of intellectual property. Some information is gathered from external and internal source. The intellectual property valuation analysts use various approaches to reach a reasonable indication of a defined value for the intangible assets on a certain date which is called valuation date.   The following are the common approaches to estimate the fair value of the intellectual property:   v     Cost Approach: It is based on the economic principal of substitution. Here the investor will not pay any more for an asset than the original cost, the purchasing or constructing a substitute asset of equal utility. There are several cost approach valuation method like the historical cost, replacement cost and replication cost. v     Market Approach: It is based on the economic principal of competition and equilibrium. Here, in the free and unrestricted market, supply and demand factor will drive the price of an asset at equilibrium point. An indication of the value is provided by comparing the price at which similar property has exchanged between willing buyers and sellers. v     Income Approach: This estimates the fair value of intellectual property by discounting the future economic benefits of ownership at an appropriate discount rate. v     Direct Approach: It is based on the current value of shares of intellectual property in the IP share market. The purpose of Intellectual property valuation defines the legal or regulatory statutes, jurisdictional court of resolution, acceptable methodologies and 'rules of the thumb' that have developed in the particular field.   The valuation description states the general characteristics of the intangible asset. Intellectual property refers to patents, trade secrets, copyrights, trademarks/trade dress. IP gives the owners rights against anyone regardless of the contract.   Intellectual valuation premise refers to the underlying assumption on how the asset will be exploited in future. The asset will be valued under a specific use that differs from historical usage.   Intellectual valuation standard refers to the definition of value tied back to the valuation purpose. The most common valuation standard is the fair market value.   Intellectual valuation pyramid refers to the legal, business/strategic and financial characteristics of the asset. The profile level articulates the business and legal issues. Most of the hard work and creative energy of the valuation analysis takes place in this level.

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