Intellectual property valuation is a process to determine the monetary value of intellectual property assets. IP valuation is required to be able to sell, license, or enter into commercial arrangements based on IP. It is also beneficial in the enforcement of IP rights, for internal management of IP assets, and for various financial processes.
Intellectual property assets are part of the non-physical property of a business. They are a sub-set of intangible assets and distinguished from other intangible assets by the fact that they are created by law. As such, IP assets are legally protected and can be legally enforced. These can be independently identified, are transferable and have an economic life (in contrast to their legal life, which is generally longer than their economic life). They include patents, industrial designs, trademarks, copyright, and trade secrets.
Intellectual property derives its value from a wide range of parameters such as usefulness, market share, barriers to entry, legal protection, profitability, industrial and economic factors, growth projections, remaining economic life, and new technologies, all of which will inhere in the valuation. The value of an IP asset essentially comes from the right the owner of that asset has to exclude competitors from using it. For an IP asset to have a quantifiable value it should:
generate a measurable amount of economic benefits to its owner or authorized user; and
enhance the value of other assets with which it is associated. Value can be derived through direct exploitation of the IP by integrating it within the product, or sale or licensing of the IP to a third party or other means, such as raising barriers to entry or reducing the threat of substitutes.
An IP valuation - or economic appraisal - is prepared, for example, for transactions, merger and acquisition, pricing and strategic purposes, financing securitization and collateralization, tax planning and compliance, and litigation support.