Valuing your intellectual property
Written by Ellis Sweetenham on 16 April 2016« Return to Reading Room
With it is growing in popularity, intellectual property is also growing in value. It could be your most valuable asset and yet you are none the wiser.
The most important step you can take is to make sure it is valued properly to make sure it is protected for its correct value.
It will also allow you to estimate a correct value for your business as a whole.
This is however a difficult task.
There are a number of methods that are available to you. These may not be suitable for all cases but they are a good place to start. They are also not a complete solution.
The cost method
This looks at the costs you have incurred whilst developing and creating your intellectual property.it therefore gives the price to recreate it. This does not however indicate its current market value.
Costs to be considered include:
- Materials and equipment
- Research and development
- Testing and the creation of a prototype
- And much more
This method would be useful if you are looking to sell your business. It does not however give a full value as it does not include any market value currently or any future value.
The market value method
This method in contrast to the one above, solely focuses on the IP’s market value as the name suggests. It bases its value on its recent rack record in the market.
It is a more efficient way of valuing if you are looking to sell your IP. It will also be useful to look at what similar IP has sold for in the same industry.
This could be difficult however as normally IP transaction data is confidential. It could therefore be difficult to come up with a value. Even if you can find some information, you have to remember that no two transactions are the same.
This would not be suitable for a patent sale, as they are unique and cannot be compare to another.
However, in general, it can provide a realistic analysis of the value of the mark based on how it is received in the market.
The income or economic benefit method
This method looks at the revenue that the IP could bring in the future. This revenue includes any future income as well as the cost of generating that income.
This method also takes into account any financial risks that may incur further costs in the future.
The end result is called the ‘net present value’.
This allows a potential buyer to base their purchase on whether the NPV is positive or negative.
To find this estimate is however very hard to generate.
It does not take into account any additional costs such as those paid if the IP in exploited, any time it takes to develop in the market as well as any risks involved moving it from one business to another.
It therefore does not include any uncertainties that could occur in the future.
While it may be a good method to combine with another, it may not be the best method to use on its own.
Any further guidance, contact Lawdit for more details.
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