Intellectual property valuation tools and techniques

Technology growth continues to make changes and create a huge impact on the global economy. Especially those technology-based companies taking the help of IP valuation firms for the intellectual property valuation. But the main concern is that intellectual property means that it is harder to value, challenging to price fairly, and tough to define. Here, you will learn about the overview of intellectual property and some best practices for getting accurate results that comply with the rules and regulations.

So, what is an intellectual property valuation?

To understand intellectual property valuation, you need to place value on the intangible assets of a business. It includes all the items that a business owner owns, such as copyright, trademarks, and computer software. Additionally, it includes the business items such as industrial designs, patents, and trade secrets as well.

There are various reasons behind this valuation. One of the major reasons among them is if the business owner decides to sell the business to someone else. Another reason can be for tax purposes. IP valuation is the process used by IP valuation firms to evaluate the fair market value of the IP assets. The IP valuation doesn’t only find out the value of IP but also the value of the business as a whole.

What is the importance of intellectual property valuation?

In a tech-oriented economy, the value of physical assets no longer comprises the business value. If you think, then the largest part of the big car company Ford or GM in 1960 would have been the manufacturing facilities and all the inventories.

But in the modern days, the value of Tesla is not the number of cars it produces or the production facilities, but the technology and IP underlying the company. With time, IP is becoming essential for manufacturers, and businesses are heavily investing in creating IP. Without the intellectual property valuation, the company will be undervalued.  

How can the IP be valued?

There are three methods of IP valuation:

  • Cost-based

  • Market-based

  • Economic based

Cost-based

The cost-based method is based on the replacement cost of the historical cost. The historic cost means the actual cost of creating an IP. Similarly, the replacement cost is the cost required to replace the asset. The value of an IP assent is not more than the cost to reproduce the asset. The measurement includes designs, direct cost, material, legal, soft, and engineering and also overhead costs, development time, and a profit percentage.

Market-based

This method is based on market price comparability. Here the value of an IP is decided based on the price of a comparable IP product. An experienced IP valuation expert needs to analyze and adjust existing comparables to get the right value.

Economic based

It is the most preferred method of valuation, and it requires separation, identification, and the quantification of the royalty fees to IP. In the case of capitalization, the longer the period of money receipt, the higher the risk will be. Here, the risk means the discount rate based on the cost of capital, inflation rate, and premium.

Tips for getting reliable IP valuation results

  • Be rational ad pragmatic

If the financial return seems too good to be true for the specific intellectual property, then it is maybe the reality. If both the seller and the buyer find the results too attractive, it will become a reliable IP valuation model.

  • Calculate the potential outcomes

Conducting testing would help to calculate the outcomes for both the seller and buyer. If both parties see this IP transaction as reasonable, then you can think that the methods used are reliable.

  • Take the help of an expert

Only a few companies have intellectual property valuation experts in the house. If you work with a professional and experienced individual, then you can reduce the chances of penalties imposition or audit adjustment. By hiring a qualified expert, you will be able to ensure compliance with the valuation regulation. 

Additionally, the experts will conduct an accurate IP valuation, which is challenging. With the help of professionals, your company will feel confident as they use the right intellectual property valuation methods and eliminate the risk of penalties. There are many IP valuation firms out there that make sure you get the best service at a reasonable price.

 


Location: United States

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