Today, intellectual property assets such as copyrights, trademarks, and patents are at the front line of global economics. In 2019, AON and Ponemon Institute published a report showcasing the importance of intangible assets and their risk factors. According to them, “intellectual property rights are rapidly becoming a key basis of wealth.”
Still many businesses fail to recognize the value of their intangible assets even when it accounts for a high percentage of their company’s value. As a result, it is common to find an imbalance in a listed company’s market capitalization value and its net asset backing. Given the contribution intellectual property has to the overall value of your company, it is essential for businesses to manage their assets appropriately. This includes accurate valuation of intellectual property. But what is the importance of an accurate intellectual property valuation? What do you get to gain from it?
What is Intellectual Property?
An intellectual property asset consists of the non-physical properties of your business such as copyrights, patents, trademarks etc. According to WIPO, “intellectual property refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.” They are legally protected, preventing their use by different companies without IP owner’s consent.
There are six distinct types of intellectual properties:
These are the most common types of intellectual properties. It is a form of protection given to authors and artists to help protect their original works. Under the Copyright Act of 1976, a copyright can protect any authorship from the moment it becomes tangible. Copyrights include books, music, artwork to computer programs, databases, advertisement, and technical drawings.
A patent is the most valuable and challenging type of intellectual property to obtain. For this reason, it is also the most expensive. It is the right you get to prevent other individuals from creating, using, selling, or importing your invention or controlling how others use your invention. This does however mean that a patent owner must provide all technical information about the invention. Furthermore, the invention will be publicly available for others to review.
A trademark is any name, word, symbol, or combination that identifies your products in the market, making them distinguishable from all the rest.
An industrial design deals with the ornamental or decorative design of an object. This shouldn’t be confused with a patent, which has to do with the design of an object itself. It can deal with the shape of a surface or the patterns and colors on the object itself. An industrial design can be three dimensional or two dimensional.
A geographical indicator is a form of intellectual property that has evolved out of trademark laws as governments moved to protect the “good name” of regions with a reputation for producing quality goods. Examples of geographical indicators include Florida oranges, Brazilian steaks, and steakhouses, made in the USA tags, and African shea butter. When people see that sign or name they expect a certain quality from the product and assume that certain methods of production have been used.
A trade secret is intellectual property on confidential information which may still be sold or licensed to other businesses or individuals. Unauthorized disclosure of this confidential information is considered a violation and infringement upon the rights of the IP owner.
Reasons for Conducting an Intellectual Property Valuation
Once you know the correct value and importance of your intellectual property, you can make strategic decisions that affect intangible assets. Some of the business situations that require you to have an accurate valuation of your intellectual property include;
Mergers, Acquisitions, Joint Ventures or Strategic Alliance
Companies are shifting their focus on intangible assets such as IP to determine a company’s value rather than the traditional ways of using physical assets. As a result, companies pay a lot of attention to IP assets when considering mergers and acquisitions. An accurate IP valuation helps you make an informed decision on the amount of capital you should accept and the financial leverage strategy you should follow.
Licensing and Franchising
When you have an accurate record of the IP assets, you can adequately negotiate and make an informed decision about the terms and conditions of the intellectual property’s licensing-in or licensing-out. It can also help you determine the royalty rates that should be fair, given the assets’ value.
In franchising, both the franchisor and the franchisee should clearly understand the intellectual properties that affect the trade, such as the trademarks’ value, the trade secrets, and any other IP assets.
Investment in Research and Development
Knowing the value of your IP assets helps to make the right budgeting and resource allocation decisions. You may be spending too much on research and development but losing your footing in the market due to slow product introductions. Therefore, you may need to rethink your research and development strategy as you advance.
An accurate IP valuation can provide you with strategic guidance on the areas you should focus on during the research and development phase to improve product output.
Insurance of IP Assets
Due to heavy costs associated with litigation, IP insurance is essential especially for companies that have multiple patents and intangible assets. The more assets the more likely a lawsuit will be issued at some point. Therefore, IP insurance can help protect inventors and companies if accused of infringement by another business. Most IP insurance covers legal fees and monetary damages if one is found guilty of infringement. For this reason, an accurate IP valuation helps a business understand how much insurance coverage is needed.
GHB Intellect Services
Due to the complexities involved in intellectual property valuation, it is important to consult a qualified valuation expert. At GHB Intellect, we have high-credentialed and industry-seasoned experts with strong valuation skills. Because we have deep roots in the high-tech industry, we are a trusted source for intellectual property consulting services. The company provides intellectual property expertise and management support to companies involved in mergers & acquisitions, patent owners, and firms dealing with patent disputes and litigations.
Our full-service IP services assign each client with a project manager who will assist the client through the entire process, from initial expert selection, through execution of tasks, to the final reports for the project. Contact us today!