Intellectual Property Valuation

Understanding the value of your intellectual property is a very important part of successfully managing an organization's resources effectively. Unless the valuation information relied upon in the decision making process is accurate, however, mistakes are likely to be made. The best way to avoid making mistakes based on inaccurate or incomplete value information is to understand how the conclusions of value were derived. In other words, be an educated IP valuation client.

The first thing to determine when attempting to value intellectual property or intangible assets is the reason 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 value of the assets. For example, the Internal Revenue Service and other tax authorities will want to know as much as possible about the basis for any value determination used when allocating portions of the purchase price associated with the mergers and acquisitions of other companies.

The issue of IP valuation has become even more important since the release of FASB ASC 350 Intangibles-Goodwill and Others, (originally Statement of Financial Accounting Standard 142, Goodwill and Other Intangible Assets) which specifies the accepted accounting treatment of certain intangibles during acquisitions of companies or assets. Instead of a more-or-less blanket treatment of acquired intangibles that featured a stated amortization period, many of these assets will now be carried on the balance sheet at cost and subjected to an annual impairment test. Similarly, the tax authorities will be very interested in understanding how the value of any donated property, including patents and related intangibles, was calculated. Financing and bankruptcy are other situations where a third party will have a valid need to know the value of your intellectual property.

There are many situations where accurate value information is required for internal purposes as well. The purchase or sale of intangible assets obligates management to have a clear IP valuation before entering into negotiations. Similarly, negotiating a fair royalty rate or other compensation when licensing intellectual property makes IP valuation a necessity.

For IP used internally, companies are establishing executive positions to manage them directly. Brand managers at consumer product companies and chief technology officers are examples of this. As these kinds of positions have increased, there is a corresponding need to accurately measure their performance. While it is important to track the performance of the responsible individuals, this information can also be used when making strategic decisions regarding the use or handling of the IP.

The Intellectual Property Valuation services IPmetrics offers encompass all the phases of a growing company's decision-making process; identifying strengths, weaknesses, and opportunities, as well as supporting the development of tactics and strategies. Contact us for a quote on the most suitable services for your organization.

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