VALUING A PATENT OR TRADE MARK PORTFOLIO

Why value IP?

There are numerous strategic and legal reasons why a company might need to assign a monetary value to its IP assets. From a strategic point of view, IP can be valued to help in assessing the complete value of a company, beyond the tangible assets.

From the point of view of financing, IP valuation can provide security to financiers, such as banks, or increase the asset base of a company, and hence realise value for shareholders.Studies have shown that at least 50% of the asset base of an average company can be attributed to intangibles such as IP.

How should IP be valued?

Unlike other asset classes, IP assets cannot always be valued purely as a function of cash generation, or replacement cost, as some IP assets provide value through cost savings, or competitive advantages, which are not assessable through a traditional discounted cash flow approach.

In short, there are three commonly used IP valuation tools:

1. The Cost Method
   The cost method applies a value to an IP asset by estimating the cost of replacing or reproducing the asset. The cost method may include research and development (R&D) as well as expenses which were incurred whilst creating the IP asset, such as patent attorney and patent application costs.
   
   The cost method is useful for IP assets that do not generate an explicit income, such as some patents, which may be used defensively to prevent competitors from operating in a given field.
2. The Income Method
   The income method is beneficial when valuing an IP asset that actively generates income. This method may be used with regard to the sale of patented articles, or alternatively for income generated through patent licence royalties. The income method estimates future revenue by considering factors such as market size; competition; inflation; changing technology and product life.
3. The Market Method
   The market method determines the likely market value of an IP asset by comparing it to sales of comparable IP assets. Whilst the market method is theoretically the most accurate, the information required to make such comparisons is often not publicly available on account of the confidentiality surrounding license agreements. In addition, in many technology fields, comparable products are not available and hence the requisite data is non-existent.

Conclusions

There are numerous strategic advantages associated with accurately valuing IP. However, there is no single method of valuing which works best in all scenarios.

In practice, the best valuations generally come from weighing up all available data regarding the asset and pricing it using two or more of the above identified methods.

CHRIS ATICHIAN, COTTERS Patent and Trade mark Attorneys
Chris is a registered Australian patent attorney specialising in the prosecution and enforcement of patent and registered design rights across a wide range of mechanical technologies. Chris is also a registered Australian trade mark attorney and has broad experience in prosecuting and enforcing trade mark registrations. Chris has gained experience in large patent attorney firms in both Paris and Sydney and draws on his dual engineering and commerce qualifications in working with engineering companies to develop strategies to optimise and best their IP portfolios and maximise the commercial benefits that can be extracted from their IP rights.