What is IP Valuation?

Value, much like beauty, resides in the eye of the beholder.

Invariably, two individuals may assess an Intellectual Property (“IP”) asset from distinctly different perspectives. This is where IP Valuation becomes indispensable, as it serves to quantify and ascertain the benefits derived from the ownership of such assets and estimate a likely transaction price.

But what exactly is IP Valuation? To grasp this concept, one must first understand the term ‘valuation’. In essence, valuation is the process of quantifying the economic benefits associated with owning an asset. Typically, this process involves the application of three analytical approaches. For a refresher on the approaches, you may refer to my brief article on the Methods of IP valuation at:

𝐈𝐏 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐌𝐞𝐭𝐡𝐨𝐝𝐬

In the realm of IP Valuation, economic benefits are measured in monetary terms, such as sales, incremental profits, or cash flow improvements. The choice of economic measure depends on the valuation approach employed, the nature of the asset being valued, the intangible nature of the subject assets, and the purpose of the valuation.

A valuation opinion must therefore establish key parameters, including the analysis date, valuation date, standard of value, and premise of value. These parameters are typically determined before the valuation analyst presents their calculations and opinions. For ease of reference, the following terminologies are pertinent:

𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧: 𝘵𝘩𝘦 𝘢𝘤𝘵 𝘰𝘳 𝘱𝘳𝘰𝘤𝘦𝘴𝘴 𝘰𝘧 𝘥𝘦𝘵𝘦𝘳𝘮𝘪𝘯𝘪𝘯𝘨 𝘵𝘩𝘦 𝘷𝘢𝘭𝘶𝘦 𝘰𝘧 𝘢 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴, 𝘰𝘸𝘯𝘦𝘳𝘴𝘩𝘪𝘱 𝘪𝘯𝘵𝘦𝘳𝘦𝘴𝘵, 𝘰𝘳 𝘪𝘯𝘵𝘢𝘯𝘨𝘪𝘣𝘭𝘦 𝘢𝘴𝘴𝘦𝘵.

𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐃𝐚𝐭𝐞: 𝘵𝘩𝘦 𝘴𝘱𝘦𝘤𝘪𝘧𝘪𝘤 𝘱𝘰𝘪𝘯𝘵 𝘪𝘯 𝘵𝘪𝘮𝘦 𝘢𝘴 𝘰𝘧 𝘸𝘩𝘪𝘤𝘩 𝘵𝘩𝘦 𝘢𝘯𝘢𝘭𝘺𝘴𝘵’𝘴 𝘤𝘰𝘯𝘤𝘭𝘶𝘴𝘪𝘰𝘯 𝘰𝘧 𝘷𝘢𝘭𝘶𝘦 𝘪𝘴 𝘢𝘱𝘱𝘭𝘪𝘤𝘢𝘣𝘭𝘦.

𝐒𝐭𝐚𝐧𝐝𝐚𝐫𝐝 𝐨𝐟 𝐕𝐚𝐥𝐮𝐞: 𝘐𝘥𝘦𝘯𝘵𝘪𝘧𝘪𝘤𝘢𝘵𝘪𝘰𝘯 𝘰𝘧 𝘵𝘩𝘦 𝘵𝘺𝘱𝘦 𝘰𝘧 𝘷𝘢𝘭𝘶𝘦 𝘣𝘦𝘪𝘯𝘨 𝘶𝘴𝘦𝘥 𝘪𝘯 𝘢 𝘴𝘱𝘦𝘤𝘪𝘧𝘪𝘤 𝘦𝘯𝘨𝘢𝘨𝘦𝘮𝘦𝘯𝘵 (𝘦.𝘨., 𝘍𝘢𝘪𝘳 𝘔𝘢𝘳𝘬𝘦𝘵 𝘝𝘢𝘭𝘶𝘦, 𝘍𝘢𝘪𝘳 𝘝𝘢𝘭𝘶𝘦, 𝘐𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵 𝘝𝘢𝘭𝘶𝘦, 𝘓𝘪𝘲𝘶𝘪𝘥𝘢𝘵𝘪𝘰𝘯 𝘝𝘢𝘭𝘶𝘦).

𝐏𝐫𝐞𝐦𝐢𝐬𝐞 𝐨𝐟 𝐕𝐚𝐥𝐮𝐞: 𝘈𝘯 𝘢𝘴𝘴𝘶𝘮𝘱𝘵𝘪𝘰𝘯 𝘳𝘦𝘨𝘢𝘳𝘥𝘪𝘯𝘨 𝘵𝘩𝘦 𝘮𝘰𝘴𝘵 𝘭𝘪𝘬𝘦𝘭𝘺 𝘴𝘦𝘵 𝘰𝘧 𝘵𝘳𝘢𝘯𝘴𝘢𝘤𝘵𝘪𝘰𝘯𝘢𝘭 𝘤𝘪𝘳𝘤𝘶𝘮𝘴𝘵𝘢𝘯𝘤𝘦𝘴 𝘢𝘱𝘱𝘭𝘪𝘤𝘢𝘣𝘭𝘦 𝘵𝘰 𝘵𝘩𝘦 𝘴𝘶𝘣𝘫𝘦𝘤𝘵 𝘷𝘢𝘭𝘶𝘢𝘵𝘪𝘰𝘯 (𝘦.𝘨., 𝘨𝘰𝘪𝘯𝘨 𝘤𝘰𝘯𝘤𝘦𝘳𝘯, 𝘭𝘪𝘲𝘶𝘪𝘥𝘢𝘵𝘪𝘰𝘯).

𝐆𝐨𝐢𝐧𝐠 𝐂𝐨𝐧𝐜𝐞𝐫𝐧: 𝘛𝘩𝘦 𝘢𝘴𝘴𝘶𝘮𝘱𝘵𝘪𝘰𝘯 𝘵𝘩𝘢𝘵 𝘵𝘩𝘦 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴 𝘶𝘵𝘪𝘭𝘪𝘻𝘪𝘯𝘨 𝘵𝘩𝘦 𝘚𝘶𝘣𝘫𝘦𝘤𝘵 𝘈𝘴𝘴𝘦𝘵 𝘸𝘪𝘭𝘭 𝘤𝘰𝘯𝘵𝘪𝘯𝘶𝘦 𝘵𝘰 𝘰𝘱𝘦𝘳𝘢𝘵𝘦 𝘧𝘰𝘳 𝘵𝘩𝘦 𝘧𝘰𝘳𝘦𝘴𝘦𝘦𝘢𝘣𝘭𝘦 𝘧𝘶𝘵𝘶𝘳𝘦.

𝐈𝐏 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐢𝐬 𝐚 𝐜𝐫𝐢𝐭𝐢𝐜𝐚𝐥 𝐩𝐫𝐨𝐜𝐞𝐬𝐬 𝐭𝐡𝐚𝐭 𝐚𝐥𝐥𝐨𝐰𝐬 𝐬𝐭𝐚𝐤𝐞𝐡𝐨𝐥𝐝𝐞𝐫𝐬 𝐭𝐨 𝐨𝐛𝐣𝐞𝐜𝐭𝐢𝐯𝐞𝐥𝐲 𝐚𝐬𝐬𝐞𝐬𝐬 𝐭𝐡𝐞 𝐞𝐜𝐨𝐧𝐨𝐦𝐢𝐜 𝐰𝐨𝐫𝐭𝐡 𝐨𝐟 𝐢𝐧𝐭𝐞𝐥𝐥𝐞𝐜𝐭𝐮𝐚𝐥 𝐩𝐫𝐨𝐩𝐞𝐫𝐭𝐲 𝐚𝐬𝐬𝐞𝐭𝐬. 𝐁𝐲 𝐞𝐬𝐭𝐚𝐛𝐥𝐢𝐬𝐡𝐢𝐧𝐠 𝐜𝐥𝐞𝐚𝐫 𝐩𝐚𝐫𝐚𝐦𝐞𝐭𝐞𝐫𝐬 𝐚𝐧𝐝 𝐞𝐦𝐩𝐥𝐨𝐲𝐢𝐧𝐠 𝐫𝐨𝐛𝐮𝐬𝐭 𝐯𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐦𝐞𝐭𝐡𝐨𝐝𝐨𝐥𝐨𝐠𝐢𝐞𝐬, 𝐢𝐭 𝐞𝐧𝐬𝐮𝐫𝐞𝐬 𝐭𝐡𝐚𝐭 𝐭𝐡𝐞 𝐯𝐚𝐥𝐮𝐞 𝐨𝐟 𝐭𝐡𝐞𝐬𝐞 𝐢𝐧𝐭𝐚𝐧𝐠𝐢𝐛𝐥𝐞 𝐚𝐬𝐬𝐞𝐭𝐬 𝐢𝐬 𝐚𝐜𝐜𝐮𝐫𝐚𝐭𝐞𝐥𝐲 𝐪𝐮𝐚𝐧𝐭𝐢𝐟𝐢𝐞𝐝, 𝐟𝐚𝐜𝐢𝐥𝐢𝐭𝐚𝐭𝐢𝐧𝐠 𝐢𝐧𝐟𝐨𝐫𝐦𝐞𝐝 𝐝𝐞𝐜𝐢𝐬𝐢𝐨𝐧-𝐦𝐚𝐤𝐢𝐧𝐠 𝐚𝐧𝐝 𝐞𝐪𝐮𝐢𝐭𝐚𝐛𝐥𝐞 𝐭𝐫𝐚𝐧𝐬𝐚𝐜𝐭𝐢𝐨𝐧𝐬.