Why Is It Essential To Conduct A Valuation Of Your IP Assets?

Value from an IP asset is obtained through direct exploitation when a sale and licensing of the IP or by not exploiting an IP asset (i.e., by merely owning it), for instance, by reducing the negotiating power of customers, offsetting supplier power, mitigating rivalry, raising barriers to entry by competitors, minimizing the threat of substitutes, etc.

What are the factors that influence IP Valuation?

1. Standard of value

The most often used standards of value are Fair market value and Fair Price Value. It is essential when undertaking an IP valuation exercise. Fair market value (Market value) can be described as the price at which an asset or service passes from an interested seller to a buyer. It is presumed that both buyer and seller are rational and have a reasonable knowledge of relevant facts. Fair value (Fair price) is seen as suitable for use in post-transaction purchase price allotment. It is established on the belief that market candidates would use when pricing the asset. However, fair market value seems to be more relevant when utilizing the premise of value in exchange, and fair value is often based on the premise of value in use. As mentioned earlier, IP valuation is a process to evaluate the fair market value of an IP asset.

2. Purpose of valuation

To determine the premise for the calculation of value, it is necessary to understand the purpose of valuation. For example, valuation from the perspective of market value and investment would be completely different. In commercial situations, market value is the suitable premise. International Value Standards describe market value as “The estimated amount which a property should exchange on the day of valuation between an interested buyer and a seller in an arms-length transaction after proper marketing wherein the parties had each proceeded knowledgeably, prudently, and without compulsion.”

3. Valuation method(s)

The methodology applied and assumptions made while applying a particular patent valuation method affect IP assets' value. A market method is the most helpful form of valuation. The cost method is usually refrained by companies since it ignores the novel characteristic of IP. This method is effective for R&D costs.

4. Nature and strength of IP asset

The competitive strength of an IP asset governs the comparative valuation that it shall hold in the market. The aspects such as customer responsiveness and market circulation of a product or availing service determine its IP value. The threat of new entrants and substitutes influences the value of IP assets.

Reasons to conduct a valuation of your IP assets

1. Sale, licensing, or exchanging of Patents
2. Directing funds towards R & D
3. Transfer Pricing
4. Valuation in case of infringement
5. Valuation for collateral with the bank or raise funds for venture capitalists
6. Companies’ financial status

If you need patent valuation services to ascertain the fair value of your patent, Please let us know.