ip lawyer how to evaluate value of ip

How do you evaluate the value of an IP?

The principal methods for valuing IP assets are:Income method. The income method is the most commonly used method for IP valuation. ... Market method. The market method is based on a comparison with the actual price paid for the transfer of rights to a similar IP asset under comparable circumstances. ... Cost method.

How do you evaluate the value of a patent?

Conventionally, patent valuation can be performed using three main approaches – market approach, income approach, and cost approach. In the income approach, the value of a patent will be the current value of cash flow or cost savings that it will provide.

How would you estimate the value of intellectual property or comparable intangible assets?

In other words, the intellectual property or intangible assets are valued by comparing them to recent sales, transfers, and transactions that involve similar assets in similar markets (the greater the similarity, of course, the more suitable the transaction is for comparison purposes).

Does intellectual property have value?

Although it's an intangible asset, intellectual property can be far more valuable than a company's physical assets. Intellectual property can represent a competitive advantage and as a result, is fiercely guarded and protected by the companies that own the property.

What is the average value of a patent?

The cost approach for a utility patent's valuation is based on the cost to create these intellectual property assets. These costs include the cost of research and development as well as the cost of the patent attorney and filing fees. The US average cost of a patent is about $50,000.Dec 27, 2021

At what point are patents valuable?

Potential Profit Profits (or savings) derived directly from a patented technology make the intellectual property more valuable. Value can also depend on the industry and target market of the resulting product or service. A larger market often means more potential profits, and therefore a more valuable patent.Sep 21, 2020

What is the most valuable intellectual property?

First, patents are the most tangible form of intellectual property, they enjoy the strongest legal protection, and (except in the media and entertainment fields) they have the greatest effect on the commercial success and market value of companies today.

What is valuation Why is valuation of intellectual property important?

The primary reason for considering an M & A transaction is the value of the IP assets of the target company. IP valuation enables the parties to take an informed decision on the acceptable cost of capital or deciding on financial leverage strategy to be followed.Jan 17, 2019

What is the most theoretically accurate valuation principle used to estimate the value of IP?

Market method is considered as the most practical and logical approach for the valuation of an IP asset where a comparable asset is available in a similar active market. It determines the value by comparing both the assets in similar transactions under similar circumstances.

How do I sell my intellectual property?

Selling Your Intellectual Property Copyrights are able to be sold or transferred as long as the transaction is done in writing. Many copyrights When completing the sale, it is important to have a proper Copyright Assignment agreement done to ensure the rights are transferred from one entity to the next.

What is economic value of intellectual property?

The Economic Value of Intellectual Property Rights. Positive impact of IPRs on dynamic welfare, i.e. creativity (i.e. incentive to invent, incentive to maintain or increase product quality, etc.)

What is IP cost?

Depending on the type of work being protected, currently fees vary between $25-$100 in the US. The most frequent copyright registration sought is for one work by one author, and costs about $35.Jan 6, 2017

What is intellectual property?

Intellectual property (IP) shares many of the characteristics associated with real and personal property. For example, intellectual property is an asset, and as such it can be bought, sold, licensed, exchanged, or gratuitously given away like any other form of property. Further, the intellectual property owner has the right to prevent the unauthorized use or sale of the property. The most noticeable difference between intellectual property and other forms of property, however, is that intellectual property is intangible. That is, it cannot be defined or identified by its own physical parameters. Consequently, IP must be expressed in some discernible way to be protectable.

What is income approach?

Income approaches focus on the future cash flow derived from a particular piece of IP. As with all income valuations the need to accurately forecast future cash flow is of paramount importance. The following variables are needed when using an income approach:

What is relief from royalty?

Relief from royalty is based on deprival value theory and looks at the amount of income that a company would be “deprived” of, if it did not own the intellectual property in question but was required to rent it from a third-party instead. The royalty represents the rental charge, which would be paid to the licensor if this hypothetical arrangement were in place. The ability to determine an appropriate royalty rate depends upon the specific circumstances and requires the identification of suitable comparable transactions and prices involving third parties.

What is ROM in patents?

The Real Options Method (ROM) recognizes that a patent has intrinsic value based on its projected cash flows discounted at the opportunity cost of capital for the owner of the patent. Additionally, the ROM incorporates the value associated with the uncertainty inherent in a business and the active decision making required for a patent-based business strategy to succeed. The ROM values these items using the Black-Scholes option-pricing model.

What Are Some Legal Issues Associated with IP Valuation?

Intellectual property valuation can lead to various legal disputes and conflict. Just as in real property appraisals for homes, IP valuations can be subject to legal issues such as:

Are There Any Legal Remedies for a Property Valuation Dispute?

In the event of a dispute over intellectual property valuation, legal action may often be required to settle a conflict. IP lawsuits can result in various legal remedies such as:

Should I Hire a Lawyer for Help with IP Valuation Issues?

Intellectual property helps a business keep their operations fresh and relevant to consumer needs. IP laws can often be complex and may vary from state to state. You may need to hire an intellectual property lawyer in your area if you need assistance or guidance with any IP valuation concerns.

How to value IP assets?

To be able to value an IP asset, the asset should meet the following conditions: 1 It must be separately identifiable (subject to specific identification and with a recognizable description) 2 There should be tangible evidence of the existence of the asset (e.g. a contract, a license, a registration document, record in financial statements, etc.) 3 It should have been created at an identifiable point in time. 4 It should be capable of being legally enforced and transferred. 5 Its income stream should be separately identifiable and isolated from those of other business assets. 6 It should be able to be sold independently of other business assets. 7 It should be subject to destruction or termination at an identifiable point in time.

Why is IP valuation important?

Knowing the value of an IP asset can influence your decision about what strategy to employ if that asset is infringed upon. Through IP valuation you will be better able to decide whether to pursue the court route, to opt for alternative dispute resolution, or even whether to consider licensing the asset to the infringing party. IP valuation also plays an important role in calculating damages.

What is the most common method of valuation of IP assets?

The income method is the most commonly used method for IP valuation. It values the IP asset on the basis of the amount of economic income that it is expected to generate, adjusted to its present day value. This method is easiest to use for IP assets with positive cash flows, for those whose cash flows can be estimated with some degree of reliability for future periods, and where a proxy for risk can be used to obtain discount rates.

Where does the value of an IP asset come from?

The value of an IP asset essentially comes from the right the owner of that asset has to exclude competitors from using it. For an IP asset to have a quantifiable value it should:

Can you use IP as collateral?

If you want to use IP assets as collateral to obtain financing, you stand a greater chance of success if your assets can be valued separately from your business. In this case it is important to show that the IP assets will remain valid, at least for the duration of the financing repayment period.

What is market method?

The market method is based on a comparison with the actual price paid for the transfer of rights to a similar IP asset under comparable circumstances. This method has the advantage of being simple and based on market information, so it is often used to establish approximate values for use in determining royalty rates, tax, and inputs for the income method.

What is intellectual property valuation?

The valuation of intellectual property involves assigning a dollar value to the non-tangible assets of an entity. This valuation is a major issue in the mergers and acquisitions field, since a potential acquiree typically claims to have accumulated a significant amount of intellectual property, and wants to be paid for it.

What are some examples of intellectual property?

Examples of intellectual property are unique manufacturing processes, patents, copyrights, and brands. It is not possible to assign an exact value to intellectual property, since the underlying notion is so vague. Instead, several valuation methods are used to develop a range of possible valuations. The acquirer then uses this information ...

What is valuation based on?

Valuation Based on Market Price. This is the price that third parties would pay for the intellectual property if it were put up for bid in a fair market, with multiple bidders. An acquirer may want to pay more than this amount in order to avoid a bidding war with potential competitors.

How to value IP?

Valuation analysts and IP professionals agree there are three standard methodologies to value IP: 1 Cost Approach: The historical cost to develop an asset is sometimes used to determine its value. However, the cost to develop an intellectual asset is rarely representative of its ultimate value. This approach is less useful for intellectual properties used with products that have reached the market and generated revenues. Generally, the cost approach is better suited to analysis of intellectual properties and products that have not yet been developed commercially, or that could be re-created quickly, as it reflects the cost a company could avoid by purchasing, rather than duplicating, a similar development effort. 2 Income Approach: The income approach calculates the present value of future income streams specifically attributable to the intellectual property asset. This method utilizes forecasted financial results based on factors such as historical financial results, industry trends, and the competitive environment. 3 Market Approach: The market approach values intellectual properties by comparing the subject asset to publicly available transactions involving similar assets with similar uses. This provides a reasonable indication of value if an active market exists that can provide examples of recent arm’s-length transactions, with adequate information regarding terms and conditions. 4 Relief from Royalty Approach: In the relief from royalty approach, a hypothetical situation is created to estimate what a business would pay to license its own intellectual property assets in an arm’s-length transaction. The value is then calculated as the present value of the avoided hypothetical royalty charges.

Who is Weston Anson?

Weston Anson is Chairman of CONSOR®, an intellectual asset consulting firm specializing in trademark, patent and copyright licensing, valuations, and expert testimony. The firm is headquartered in La Jolla, California, and has offices in New York and London. He served for ten years as an officer and board member of the Licensing Industry Merchandisers' Association and is a lifetime member of the Board of Advisors. He currently serves as an active member of the International Licensing Executives Society board of delegates.

Is intellectual property still valued?

Valuing and analyzing intellectual property is still at a premature stage, the field itself hardly more than a few decades old. As the process continues to evolve and experts refine a multitude of methodologies, the art of valuing IP will continue to witness developments, innovation, revision, and diligent progression of techniques to value intellectual property and intangible assets. In all probability, the techniques listed above will either be outdated or refined further to become industry standards.

What is auction method?

One of these methods is called the “Auction Method.” If a hypothetically perfect auction market existed, several potential buyers that each had all available information regarding the IP would compete with each other to bid on the IP. Through this auction process, a market-based price of the IP would be determined through bidding.

What is IP in business?

Intellectual property (IP) often represents one of the largest asset classes that a company holds, and unlocking its value is a key element in any business sale. The value of intellectual property such as patents, trademarks, brands, databases, and trade secrets, can be valued using a number of methodologies.

What is the income method of IP valuation?

The income method of IP valuation, also known as the economic benefit method, aims to identify the income that a company’s intellectual property rights could generate in the future, and the costs of generating that income – in other words, the economic benefit to the business over the IP’s useful economic life.

What is cost method?

The cost method use s the costs incurred by the business in the creation and development of their IPR. It also takes into account the potential cost of recreating such an IP asset or developing a product that is similar in nature.

What is market value method?

The market value method uses a product’s performance in the market to arrive at a valuation. Transactions involving similar products are also used for comparison purposes. Again, this method of valuation has pros and cons.

Methods for valuing IP

Valuing IP is not an easy task. How much is your brand name worth after years of marketing? Does your patent protect your product or is it redundant?

The cost method

This valuation is based on the costs you incurred developing or creating an IPR. It also values what it might cost to recreate or develop a similar product or service. It doesn’t take into consideration the current market value of your product.

The market value method

Understanding the value of your product based on its recent track record in the market place. This may be a more reliable way of establishing what people might pay for your IPR. Assessing the sale or licensing of similar products in the market may provide a useful benchmark.

The income or economic benefit method

This method focuses on the revenue IP rights may generate for your business in the future. It considers both the future income, which a right may generate during its economic life, and the costs of generating that income. Risk and financial costs are factored into the equation. The end result is described as the ‘Net Present Value’ or NPV.

Supporting checklists

We provide these supporting checklists which set out the major issues you need to think about when valuing IP: