IP Valuation Techniques

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IP Valuation Techniques

By: David Drews & Daryl Martin

Unlike many of the other assets found on a company’s balance sheet, the intangible assets, such as patents, trademarks and copyrights, are among the most difficult to quantify in terms of their value.  It becomes further complicated to ascertain value when contemplating more obscure intangible assets, such as trade dress, trade secrets or software code.  While difficult, the value of these assets can be accurately calculated via a number of industry accepted methodologies.  The key to a successful analysis is to develop a comprehensive plan of action.

The initial point to determine when attempting to value intellectual property or intangible assets is the rationale for undertaking the analysis in the first place.  Why do you need to know the value of the assets?  The most obvious situations are those in which a third party has an interest in the asset values.  For example, the Internal Revenue Service and other tax authorities want a detailed understanding about the basis for any value determination used when allocating portions of the purchase price associated with the acquisition of other companies.  

There are many situations where accurate value information is required for internal purposes as well.  The purchase or sale of these kinds of assets obligates management to understand value before entering into negotiations.  For example, acquisition of substantial in-process research and development could impact earnings per share as the acquired value of the IP is amortized over a relatively short economic life.  Similarly, negotiating a fair royalty rate or other licensing compensation necessitates an understanding of intangible asset value...

Download the complete article (Originally published in The Licensing Journal)

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