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Intellectual property valuation

A roadmap for flourishing business
A Business enterprise comprises of Monetary assets, Tangible Assets and Non tangible assets like Intellectual property (IP) in the form of Patents, Trademarks and copyrights. This forms of IPs can be a “propitious asset” to the organisation if they are exploited economically and create wealth in almost every industrial sector. Patented technologies and well established Trademarks can form the basis of core corporate success.

Organisations can either use their IPs themselves, license them or rent them or enter into a strategic alliance with other organisations. But before that it is extremely essential to determine the precise value of IP. Valuation of intellectual property rights is part of the good management of intellectual property within an organisation. Traditionally, tangible assets have been considered responsible for the overall value, competitiveness and growth of the company. In recent years however the contribution of Intellectual property in profit generation is steadily gaining importance.

The process of identifying and measuring the value or worth of an asset and the benefits and risks associated with it. It is a relatively new field and combines both subjective as well as descriptive considerations.

Methods for Valuation

  • Cost approach
  • Market approach
  • Income approach

BENEFITS OF IP VALUATION

  • Valuation of a company is often done in cases of mergers, joint ventures, and acquisition.
  • For negotiating deals for pricing or royalty in case of selling or licensing of IPs, the price of the patent or the intellectual property should be known.
  • The correct valuation of the patent facilitates in determining the accurate damages to be received from the defendant in case of infringement.
  • The valuation of the patent is used as security for bank loans. Patent valuation is also used to attract venture capitalists and investors.
  • The patent valuation helps in making patent protection strategies. It helps an organization to identify its weakness, like ownership issues, which can have an impact on the value of the intellectual property
  • Organisations are required to report on their assets, including their intangible assets. Valuation is therefore a necessary step, as well as in situations of tax planning involving intellectual property.

SOME FACTS ABOUT IMPORTANCE OF IP
​Intellectual property is an economic driver in Canada, the U.S. and the Europe:

  • 51% of Canada’s economy is represented by knowledge- based industries; overtime, Canada is becoming increasingly dependent on industries of intangible goods and industries propelled by research and development.
  • As of 2008, innovative property composed 31.2% of all intangible wealth in Canada, amounting to $47 billion; this proportion continues to grow as intangible industries expand and tangible industries experience little to no change.
  • IP industries account for over 1/3 of the total GDP of the U.S. and for almost ¾ of the U.S.’s exports; the value of America’s intellectual property exceeds $5.8 trillion.
  • Intangible assets account for 70 % of firm assets and over 70% of equity value in the United States: the figure is similar for other developed countries.
  • Intellectual- property intensive industries contribute 26% of the EU’s employment and 39% of the EU’s GDP; 0% of EU exports and 88% of EU imports consist of products manufactured in IPR intensive industries.