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This article incorporates text from a free content work. Licensed under CC-BY-4.0. Text taken from Valuing Intellectual Property Assets , WIPO.
Intellectual property valuation is a process to determine the monetary value of intellectual property assets. IP valuation is required to be able to sell, license, or enter into commercial arrangements based on IP. It is also beneficial in the enforcement of IP rights, for internal management of IP assets, and for various financial processes.
Intellectual property assets are part of the non-physical property of a business. They are a sub-set of intangible assets and distinguished from other intangible assets by the fact that they are created by law. As such, IP assets are legally protected and can be legally enforced. These can be independently identified, are transferable and have an economic life (in contrast to their legal life, which is generally longer than their economic life). They include patents, industrial designs, trademarks, copyright, and trade secrets. [1]
Intellectual property derives its value from a wide range of parameters such as usefulness, market share, barriers to entry, legal protection, profitability, industrial and economic factors, growth projections, remaining economic life, and new technologies, all of which will inhere in the valuation. 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: [2] [3]
An IP valuation - or economic appraisal - is prepared, for example, for transactions, merger and acquisition, pricing and strategic purposes, financing securitization and collateralization, tax planning and compliance, and litigation support.
Finally, the information is devoted to be turned into financial models to estimate the fundamental value of a particular type of intellectual property based on such adapted International Valuation Standards.
In order to be able sell, license or enter into any commercial arrangements based on IP, the owner need to be able to put a value on an IP asset. IP valuation is also beneficial in the enforcement of IP rights, for internal management of IP assets, and for various financial processes.
The valuation process necessitates gathering much more information as well as in-depth understanding of economy, industry, and specific business that directly affect the value of the intellectual property. Therefore, such information may be gathered from external and / or internal sources
To be able to value an IP asset, the asset should meet the following conditions: [2]
The valuation analysts use numerous approaches in order to reach a reasonable indication of a defined value for the subject intangible assets on a certain date which is referred to as the valuation date. The most common approaches to estimate the fundamental or fair value of the intellectual property are defined as the following: [2] [1]
Regardless of the method used, the valuation process requires gathering much information about the IP asset, as well as an in-depth understanding of the economy, industry, and specific business that directly affect its value. This information can be obtained by conducting an event-driven IP audit, as well as background research.
This article incorporates text from a free content work. Licensed under CC-BY-4.0. Text taken from Valuing Intellectual Property Assets , WIPO.
The discounted cash flow (DCF) analysis, in finance, is a method used to value a security, project, company, or asset, that incorporates the time value of money. Discounted cash flow analysis is widely used in investment finance, real estate development, corporate financial management, and patent valuation. Used in industry as early as the 1700s or 1800s, it was widely discussed in financial economics in the 1960s, and U.S. courts began employing the concept in the 1980s and 1990s. Related is the carbon discounted cash flow, which integrates climate-related considerations.
Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, copyrights, trademarks, and trade secrets. The modern concept of intellectual property developed in England in the 17th and 18th centuries. The term "intellectual property" began to be used in the 19th century, though it was not until the late 20th century that intellectual property became commonplace in most of the world's legal systems.
Intellectual capital is the result of mental processes that form a set of intangible objects that can be used in economic activity and bring income to its owner (organization), covering the competencies of its people, the value relating to its relationships, and everything that is left when the employees go home, of which intellectual property (IP) is but one component. It is the sum of everything everybody in a company knows that gives it a competitive edge. The term is used in academia in an attempt to account for the value of intangible assets not listed explicitly on a company's balance sheets. On a national level, intellectual capital refers to national intangible capital (NIC).
Real options valuation, also often termed real options analysis, applies option valuation techniques to capital budgeting decisions. A real option itself, is the right—but not the obligation—to undertake certain business initiatives, such as deferring, abandoning, expanding, staging, or contracting a capital investment project. For example, real options valuation could examine the opportunity to invest in the expansion of a firm's factory and the alternative option to sell the factory.
In accounting, book value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or impairment costs made against the asset. Traditionally, a company's book value is its total assets minus intangible assets and liabilities. However, in practice, depending on the source of the calculation, book value may variably include goodwill, intangible assets, or both. The value inherent in its workforce, part of the intellectual capital of a company, is always ignored. When intangible assets and goodwill are explicitly excluded, the metric is often specified to be tangible book value.
An intangible asset is an asset that lacks physical substance. Examples are patents, copyright, franchises, goodwill, trademarks, and trade names, as well as software. This is in contrast to physical assets and financial assets. Intangible assets are usually very difficult to value. They suffer from typical market failures of non-rivalry and non-excludability. Today, a large part of the corporate economy consists of intangible assets.
In finance, valuation is the process of determining the value of a (potential) investment, asset, or security. Generally, there are three approaches taken, namely discounted cashflow valuation, relative valuation, and contingent claim valuation.
In accounting, fair value is a rational and unbiased estimate of the potential market price of a good, service, or asset. The derivation takes into account such objective factors as the costs associated with production or replacement, market conditions and matters of supply and demand. Subjective factors may also be considered such as the risk characteristics, the cost of and return on capital, and individually perceived utility.
Real estate appraisal, property valuation or land valuation is the process of developing an opinion of value for real property. Real estate transactions often require appraisals because they occur infrequently and every property is unique, unlike corporate stocks, which are traded daily and are identical. The location also plays a key role in valuation. However, since property cannot change location, it is often the upgrades or improvements to the home that can change its value. Appraisal reports form the basis for mortgage loans, settling estates and divorces, taxation, and so on. Sometimes an appraisal report is used to establish a sale price for a property.
In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan. The collateral serves as a lender's protection against a borrower's default and so can be used to offset the loan if the borrower fails to pay the principal and interest satisfactorily under the terms of the lending agreement.
Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. Here various valuation techniques are used by financial market participants to determine the price they are willing to pay or receive to effect a sale of the business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and many other business and legal purposes such as in shareholders deadlock, divorce litigation and estate contest.
Patents are legal instruments intended to encourage innovation by providing a limited monopoly to the inventor in return for the disclosure of the invention. The underlying assumption is that innovation is encouraged because an inventor can secure exclusive rights and, therefore, a higher probability of financial rewards for their product in the marketplace or the opportunity to profit from licensing the rights to others. The publication of the invention is mandatory to get a patent. Keeping the same invention as a trade secret rather than disclosing it in a patent publication, for some inventions, could prove valuable well beyond the limited time of any patent term but at the risk of unpermitted disclosure or congenial invention by a third party.
Intellectual property assets such as patents are the core of many organizations and transactions related to technology. Licenses and assignments of intellectual property rights are common operations in the technology markets, as well as the use of these types of assets as loan security. These uses give rise to the growing importance of financial valuation of intellectual property, since knowing the economic value of patents is a critical factor in order to define their trading conditions.
In accounting, goodwill is an intangible asset recognized when a firm is purchased as a going concern. It reflects the premium that the buyer pays in addition to the net value of its other assets. Goodwill is often understood to represent the firm's intrinsic ability to acquire and retain customer business, where that ability is not otherwise attributable to brand name recognition, contractual arrangements or other specific factors. It is recognized only through an acquisition; it cannot be self-created. It is classified as an intangible asset on the balance sheet, since it can neither be seen nor touched.
An intellectual property broker mediates between the buyer and seller of intellectual property (IP) and may manage the many steps in the process of creating a deal with regard to the purchase, sale, license, or marketing of intellectual property assets. This may include: patents, trademarks, or inventions (prototypes).
The following outline is provided as an overview of and topical guide to intellectual property:
Intangible asset finance, also known as "IP finance", is the branch of finance that uses intangible assets such as intellectual property and reputation to gain access to credit. Like other areas of finance, intangible asset finance is concerned with the interdependence of value, risk, and time.
In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything that can be used to produce positive economic value. Assets represent value of ownership that can be converted into cash . The balance sheet of a firm records the monetary value of the assets owned by that firm. It covers money and other valuables belonging to an individual or to a business.
Brand valuation is the process of estimating the total financial value of a brand. A conflict of interest exists if those who value a brand were also involved in its creation. The ISO 10668 standard specifies six key requirements for the process of valuing brands, which are transparency, validity, reliability, sufficiency, objectivity; and financial, behavioral, and legal parameters.
Certified in Financial Forensics (CFF) is a specialty credential in financial forensics issued by the American Institute of Certified Public Accountants (AICPA).