By Weston Anson and Joshua Cawthorn
Techniques for valuing intellectual property continue to develop, especially as access to information becomes easier and more efficient. The practice of valuing intellectual property has only been around for the past few decades, during which time the practice itself has grown and refined.
Valuation is necessary in a number of context-specific situations, including:
- In a sale, merger, joint venture or similar commercial transaction;
- In a divorce (be it personal or business related);
- Estate planning
- When licensing IP; and
Valuation analysts and IP professionals agree there are three standard methodologies to value IP, as well as one hybrid methodology: the cost, the income and the market approaches, and the hybrid methodology known as the relief from royalty approach:
A. Cost Approach: The historical cost to develop an asset is sometimes used to determine its value. However, the cost to develop an intellectual asset is rarely representative of its ultimate value. This approach is less useful for intellectual properties used with products that have reached the market and generated revenues. Generally, the cost approach is better suited to analysis of intellectual properties and products that have not yet been developed commercially, or that could be re-created quickly, as it reflects the cost a company could avoid by purchasing, r...