What is IP valuation?

The main goal of IP valuation is to calculate the financial value of an organisation’s intellectual property assets. Knowing the value of your IP can bring a range of benefits, it can help you to:

• Make informed business decisions

If you are considering licensing or selling your IP assets, understanding their value can allow you to negotiate better contractual terms. It can also facilitate strategic decision making on investing in new technology, or research and development (R&D) for example.

• Develop an IP strategy

The outcome of an IP valuation may influence the prioritisation of actions relating to your IP assets in your IP strategy as you may wish to prioritise those with a higher value. IP valuation may also raise a company’s credibility amongst business partners and potential investors, influencing its ability to attract investment.

See: IP strategy creation

• Secure financing

IP assets can be used as collateral for loans or to generate interest from investors. IP valuation can be key when using IP rights to secure financing.

• Manage IP conflicts

IP valuation can help determine the appropriate course of action when it comes to managing IP disputes. This could involve deciding between initiating judicial proceedings or opting for alternative dispute resolution methods such as mediation or arbitration. Furthermore, in the event of a lawsuit, accurately estimating the value of an IP asset becomes vital in calculating potential damages.

Useful link:

Intellectual property valuation

Preparing for IP Valuation

Identifying the value of IP assets can be quite complex, depending on many factors, including:

• The nature of the IP asset, as well as its qualitative and quantitative characteristics;
• Market share and market potential;
• Revenue potential;
• Competitive advantage;
• Legal protection (e.g. registration with an IP office);
• Lifecycle of the IP asset.

To effectively prepare for IP valuation, it is essential to gather comprehensive information about the matters outlined above, as well as to have a clear understanding of the relevant economic sector and industry. This usually requires conducting an IP audit, as well as undertaking background research.

IP Valuation methods

There are different valuation methods that may produce different results. The most appropriate method is largely driven by the type of IP asset and the purpose of the valuation.

• Income method: the income method is the most widely used valuation method for IP assets. The asset’s value is determined by calculating the expected economic benefits it will generate over time, which are then adjusted to reflect its present value. This method is most appropriate for IP assets with a steady cash flow and a clear estimate of future economic performance.

• Market method: the market method consists in determining the value of an IP asset on the basis of the prices paid for similar assets under comparable conditions. This method is straightforward and relies on market information. It is typically used to estimate the value of royalty rates, taxation, and the inputs for the income approach.

• Cost method: in the cost method the value of an IP asset is determined by assessing the cost of creating a similar or identical asset. This method is particularly useful where the asset can be easily replicated, and its economic benefits are difficult to quantify.

To receive more information about IP valuation or receive assistance in protecting your IP, contact your national IP office or an IP expert specialised in IP valuation.

Useful link:

IP Scan e-tool