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The most common types of Intellectual Property, Intellectual Capital, and Intangible Assets that need valuation are:

• Patents – Single patents or groups of patents that refer to a common technology.
• Software.
• Trademarks — Including logos, slogans, brand names, etc.
• Copyrighted art, musical compositions, writings, etc.
• Having special deals pre-negotiated with suppliers, which a competitor would have difficulty matching.
• Customer relationship assets such as a core customer base, etc.
• More specific customer assets, such as a mailing list, order contact, etc.
• Human resource assets, such as a trained crew or network of agents in insurance, stock brokerage, etc.
• Real Estate connected assets, including lease contracts, air & water rights, etc.
• Goodwill – The net present value of the excess earnings of a company (due to its superior performance) when compared to the earnings of other similar companies.

There are many other assets that can be categorized as Intellectual Property (“IP”), Intellectual Capital, Intangible Assets, or other similar terms. To keep this as brief as possible, I will make references to these categories using the word "IP.”

There are four key issues that need to be kept in mind when valuing, or reviewing a valuation of, IP assets:

1. Generally, the best reflection of the value of an IP asset is the Net Present Value of the reasonable future cash flows that will be produced by the asset. This means that special attention must be paid to the asset's future value.
2. Quite often, the most accurate methodology for valuing IP assets is to value them as if they were a stand-alone business. For example, a group of patents that all relate to a better copying machine would most likely be marketed as a bundle since some of the patents may rely on other patents within the group of patents.
3. At times, an IP asset gains much more value because it is a unique selling point or operations advantage over competitors. For example, a favorable long-term supplier contract should be valued in terms of the net present value of the advantage in pricing produced by the contract over its life.
4. Other times, the value of the IP asset can depend on the cost expenditures in developing the asset, compared to how much a competitor would need to pay to build the same item. For example, the value of a trained workforce should be roughly equivalent to what it would take to reproduce a similar trained workforce.

There are many other complicating factors that are present in the valuation of IP assets, just to mention a few:

• Is the asset to be sold or licensed for some finite period.
• If there is a license in order, will there be one or more licensees?
• If the asset is a patent, how many years has the patent been in use and how many years of patent protection remain?
• If there is a patent pending, but no assurance that it will be approved, then there may be no value to the patent application itself.

Keep in mind that a unique group of skills will be required in order for a valuation consultant to produce a credible Intellectual Property valuation. Some of those skills include:

• Knowledge of the IP creation, ownership, and transfer process.
• Knowledgeable in many types of valuation methodologies.
• Knowledgable in financial math and it's applications.
• Knowledgable in the needs and goals of corporate finance.
• Knowledgeable in how to determine and analyze market factors.
• Knowledgeable in business systems, organization, and management techniques.
• Never assume that a C.P.A. can carry out a proper IP valuation. As you can see from the above cited list of skill requirements, many of them are beyond the areas of training, experience, and competence of a C.P.A.

Bear in mind that this short artlcle can only cover the main points of IP valuation, as it is a complex and diverse field. If you require an IP valuation for any purpose, take it seriously and make sure that you hire someone that understands the nature of the IP assets to be valued

About the Author

The author of this article is an experienced intellectual property expert with extensive and is available to discuss your IP valuation needs. As a background for his recent projects, he's worked and trained with Citicorp, Chase, and Bank of America.Since 1989, he has testified or consulted on over 400 cases nationwide as an expert witness consultant.  He is one of the many expert witnesses found in Consolidated Consultants.

Tags: assets, copying, Copyright, copyright infringement, expert witness, intellectual property, ip, original, patent, piracy, Trademark