Intellect inside intellectual property valuation
Written By: Bibhudatta Kar
Intellectual Property (IP), such as patents, trademarks or copyrights are the assets of every commercial or non-commercial undertaking. Licencing and legal enforcement of such intellectual property rights have become common in the market, to ensure its protection and to exclude competitors from a particular marketplace.
The demand for the utilization of these types of IP asset as loan security is growing day by day. This new reality in the corporate sector has given rise to the importance of valuation of IP assets.
Valuation of intellectual property rights is part of strategic management, within an organization. Without the knowledge of economic value and importance of the intellectual property rights, we cannot create and develop the strategic decisions to protect such IP assets.
Intellectual property can be demarcated, by analyzing the legal perspective regarding its characteristics and standards, which symbolizes its novelty and regarding economic outlook, we can evaluate it by calculating the monetary benefit associated to that IP asset.
The actual value of the intellectual property such as copyright, patents, trademarks and trade secrets, can be evaluated by using some methodologies such as Cost Based Valuation Method, Income-Based or Economic Benefit Valuation Method and Market-Based Valuation Method.
Cost-Based Valuation Method calculates the costs incurred by the time of creation and development of such IPR. Whereas, the Income-Based or Economic Benefit Valuation Method aims to identify and evaluate the possibility of income that a company’s intellectual property rights would generate in the future.
Apart from Cost Based Valuation Method and Income-Based Valuation Method, the Market-Based Valuation Method keeps its strict view on the performance of the product in the market before concluding the valuation.
Furthermore, the Discounted Cash flow analysis (DCF) stands across the last three methods of IP valuation, as it is the most comprehensive and lucrative technique. Under DCF, the prospective profits and cash flow need to be analyzed and assessed carefully, then restated to present the value, through the use of discount rate. DCF is mathematical modeling to calculate the time value of money by adjusting the future returns. DCF is also a great tool, generally used to calculate the economic cost, expected risk of returns and inflation.
Eventually, under the process of IP valuation, it is vital to keep a track record and gather much information about the IP asset. It is essential to conduct an IP audit for the in-depth analysis and real-time understanding of the economy, industry and the specific business that directly affects the value of IP.
In the era of technological advancement, the backbone of every industry is based upon some scientific or intellectual framework, which directly or indirectly termed as intellectual property. Without proper valuation and enforcement, we cannot ensure its better promotion and protection of such IP assets.
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