Valuation of Patents, Trademarks, and Copyrights

How should you value your company’s intangible assets? A new idea or invention is the base of any business’s development, and these innovations help your company stay ahead in the industry. The only way to utilize your innovation’s maximum use is by assigning a value to it.

Doing so can protect your intangible assets for at least a certain period. It also helps investors to know your overall company’s worth and consider funding it for further growth. We call the process of tagging a price to these assets an “Intellectual Property (IP) valuation.”

You have come to the right spot if you run a startup business and want to know about valuing your intellectual property. We will help you understand the complete IP valuation and what to do and what not to do. Let’s discuss this further.

What is Intellectual Property?

Intellectual property is a collection of ideas, concepts, or other intangible assets that businesses own and that are legally protected against unauthorized use. Intangible assets refer to those that do not have a physical appearance.

Intellectual Property (IP) is a broad term that covers various assets, including:

• Patent
• Trademarks
• Copyrights
• Logos
• Trade secrets and more.

The main motive for having intellectual property is to give importance to an individual’s ideas and thoughts as they have equal weightage, just like physical properties (tangible assets).

What is the importance of valuing Patent, Trademarks, and Copyrights?

Valuing your IP is important for several reasons:

Makes a financial difference: Valuing these IP assets allows you to assign monetary values to a wide range of strategic company deals, including,

• Licensing
• Sale
• Joint venture and
• Donation of IP rights

Attracts investors: Investors and potential buyers’ interest in financing your startup aligns with the valuation of your intellectual property. Investors will have a positive impression of your company if its intellectual property is high since it contributes significantly to its overall value.

Financial understanding: Valuing patents, trademarks, and copyrights can provide insight into your company’s financial performance. If you assign your intangible assets a value, you can make better decisions about your plans based on the information you get about their revenue-generating potential.

Legal compliance: Valuing these IP assets will ensure your business fully complies with all laws and regulations. You can use IP valuation to prove damages or FMV in the event of an infringement or dispute. Being transparent about your IP within the legal system is necessary for staying compliant, which is possible through a timely IP valuation.

What are the methods to value Patents, Trademarks, and Copyrights?

All intellectual property has three common valuation methods to determine its worth. They are:

Income method

The income method is the popular approach to IP valuation. This method assigns a monetary value to an IP asset by considering its expected future economic income and adjusting it for its current market value by a discount rate.

The income method will be the easiest way to find an IP’s value if your company has:

• Positive cash flows.
• Cash flow with some level of reliability for future periods and
• A proxy for risk to determine the discount rate.

Market method

The market method values an IP by comparing it with similar IP assets. It focuses on determining the value of the target IP by examining how much a similar IP sells for under common situations.

As this method uses market information, it is useful for IP assets with strong IP markets and enough comparable transactions for analysis. You can use the market method of IP valuation for:

• Licensing deals
• Business disputes and
• Company sales/purchases

Cost method

The cost method focuses on the cost of creating or replacing IP. It answers the question, “How much would it cost to recreate this intellectual property from scratch today?” and then uses that result to determine the value of an IP asset. The cost approach works well with easily replicable IP assets or those for which financial benefits are difficult to evaluate.

It is important to remember that valuing patents, trademarks, and copyrights is trying to assign a value to an asset that cannot be physically seen and measured. So, IP valuation methods are mostly estimations, and the values may vary from one method to another for the same IP asset.

What are the challenges in Valuing Patents, Trademarks, and Copyrights?

As we know, one of the common challenges in valuing these IP assets is their intangible nature. As we cannot physically weigh their performance, valuing them could be tough. Apart from that:

Valuing patents, trademarks, and copyrights includes factors like market demand, technology, and legal considerations, which can sometimes be subjective. There might be differences in valuation opinions because different stakeholders have different ways of evaluating IP assets.

The complex regulations governing copyrights, patents, and trademarks can affect their monetary worth. For example, the chances of infringement or litigation affect an IP asset’s value.

What are the best practices for valuing intellectual property?

Consider the following suggestions into account to ensure a thorough IP valuation:

The initial stage is to investigate the IP extensively. As a result, IP assets are better valued accurately.Be familiar with the various forms of intellectual property. Valuation methodologies can differ for each IP asset. You can improve the valuation if you know it thoroughly.

Consider the potential monetary worth an IP could have. It includes evaluating:

• Technological advancements
• Potential expansion into new markets and
• Market demand

Determine how far you can legally protect your intellectual property. The value of an intellectual property asset will rise if it is well-protected.Figure out the possible risks of the IP asset. This includes considering:

• Possible legal challenges
• Competition and
• Changes in market conditions

How can Eqvista help you with your company’s IP Valuation?

Any business that strengthens its market position should know its actual value through an intellectual property valuation. Understanding the value of the IP is crucial for businesses to grasp the importance of their ideas. Companies can make informed decisions regarding their inventions by considering their unique features, market position, and competitors.

If you want an accurate valuation done for your intellectual property, you should consult with professionals. If you need assistance with a business valuation, our experts at Eqvista can do it quickly and accurately with their knowledge and years of experience in the valuation area. Contact us to know more!