Intellectual Property Valuation Examples

What’s the Value of Intellectual Property?  February 10, 2012 – 03:22 pm

Valuations can’t be performed in a vacuum. Regardless of the type of property involved, a valuator’s conclusions depend on many factors, including the scope and context of the engagement, the standard and premise of value, the type of ownership interest, and applicable law.

These factors are particularly complex for intellectual property (IP) valuations. Why? Because an appraisal of IP assets may be required in a variety of contexts and involve different bundles of rights. And the value of IP can depend on applicable statutory law, which defines its useful life and establishes the owner’s rights to commercialize the property.

Purpose of the valuation

Value varies dramatically depending on a valuation’s purpose. An IP asset’s fair market value, for example, may be lower than its strategic value to a specific buyer who has the ability to maximize the asset’s earnings potential. And its fair value for purposes of Generally Accepted Accounting Principles (GAAP) may diverge widely from its value for transfer pricing purposes or in a litigation context.

Interest being valued

The bundle of legal rights that make up an IP asset can be divided in different ways, so it’s important for an appraiser to know what type of interest is being valued. Is it the entire “fee simple” interest? An interest in the entire bundle of rights for a limited time period? Or a license to use the IP? Is the license exclusive or nonexclusive, or is it limited to a particular use or geographic area? Is there an established market for similar IP assets?

Source: Business Valuation Insight | Chattanooga, Tennessee

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Thank you part one

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