INTELLECTUAL PROPERTY VALUATION PRIMER: "Everyday Business Issues and Questions on Value and Valuation"

By Weston Anson

 

PART I
I. INTRODUCTION TO IP VALUATION

Our business and legal world has changed substantially in the last two generations; from a society and an industrial focus based on hard assets, hard work and machinery and equipment, to one that owes its strength, growth and future to a much less visible group of attributes-our countries’ collective intellectual property. Compounding this change in our industrial and business base is an increasingly complex environment in which we all must live and operate. The Sarbanes Oxley Act, Section 482 of the IRS Code, FASB 141/142/147 these are just a few of the regulations that increasingly impact corporate life and find their genesis either in, or in connection with, intellectual property. Thus we start at the base of today’s new wealth and our countries’ current prosperity: intellectual property.

But first, what is intellectual property? In many ways a piece of intellectual property is an intangible asset, which is classified as part of a company’s goodwill. However, an intangible asset is not necessarily a piece of intellectual property, and the general category of goodwill is certainly not intellectual property; although in most cases intellectual property and intangible assets can be part of the pool of goodwill. With this confusion swirling around, the questions we have to answer here are; so what is a piece of intellectual property? An intangible asset? When are they the same and when are they different? And, most importantly, what are the different groups of intellectual property and how do we describe and value them?

At the same time, another key set of questions that we all increasingly deal with revolves around value. Do pieces of intellectual property have value? Do they all have value? If not, why not? Is the answer that sometimes a given piece of IP can have great value and at times no value at all, and if so, how can this be? Of greater importance to everyday and practical business decisions is the subject of whether a piece of IP or an intangible asset always has the same value at the same point in time; and if not, why not? We have to deal with the questions of what influences value of IP, and are those influences different than are found for tangible assets such as buildings, equipment, automobiles, inventory, etc. The short answer is that the influences on IP are by their very nature less tangible, and include the two most important influences: Context and time; as well as business environment, two specific strategy driving the valuation, and ownership of the IP. Even when all of these criteria or influences remain the same, the value of the IP may or may not be the same at all times, so the valuation is a confusing subject at best.

Here we attempt to briefly cover the frequently asked questions on IP and intangible assets, and engage in brief discussions or descriptions on the subject of identifying value. We briefly identify many of the main types of IP and intangible assets. We also look at the primary, traditional and not so traditional methods of valuing these assets, and also include case studies and various situations in which the valuation of these assets is required.

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