Businesses derive value from their intellectual property. This is why it’s vital to take steps to protect your intellectual property.
What is Intellectual Property?
When we talk about intellectual property, we’re referring to intangible business assets such as:
- Your brand name, logo, and livery.
- Your website’s domain name.
- Patents, trademarks, business plans, and even ideas.
- Client lists and databases.
But how can you put a price on something as immaterial as a business logo, or a font?
In this post we’ll explore some techniques that will help you value your intellectual property, so that you can best protect the fruits of your creativity.
Why You Need to Value Your Intellectual Property
Your intellectual property is likely the very thing that makes your customers choose you over your competitors. So in many ways, your intellectual property is just as valuable a business asset as your premises or your stock.
Because it’s such a valuable asset, intellectual property is often integral for seeking funding and securing finance. But it’s also useful knowing the value of your intellectual property during joint ventures, mergers, acquisitions, and even during bankruptcy.
Yet apart from anything else, as a business owner you should have a complete idea of exactly what assets you own, and exactly how much they’re worth. If you can put a price on your IP, you might find that your shares in your company are worth more than you thought!
How to Value Intellectual Property: Three Ways
Broadly speaking, there are three methods to calculate the value of your IP:
- Cost – What costs did you incur when developing or creating your intellectual property rights? How much would it cost to develop a similar product or service?
- Market value – If you track the market value of your products or services, you can get a good idea of how much people might pay for your intellectual rights.
- Income, or economic benefit – How much revenue might your intellectual property rights generate for your business in the future?
Let’s explore each of these methods in greater depth.
Valuing Intellectual Property Based on Cost
Take into account the various costs you incurred when developing or creating your intellectual property rights. Also think about how much it might cost you to develop something similar.
Think about:
- Labour, materials and equipment
- Research and development
- The cost of creating a prototype, including testing and trials
- Regulatory approval and certification costs
- The costs of registering your intellectual property rights
- Overheads, including utilities, staff, etc.
Once you’ve accounted for these figures, in theory you’ll know what sort of costs a buyer would avoid were they to buy your IPR outright.
The problem with this method for valuing your IPR, though, is that it ignores critical factors like profit and market value. The total focus on costs means that you might not recognise your IPR’s market potential, or how its value might change in future.
Valuing Intellectual Property Based on Market Value
Track how your products or services perform in the market place and you’ll get a good idea of how much people might be willing to pay for your IPR. You might also be able to find figures for how similar products or services were sold or licensed.
Unfortunately, most IP transactions are confidential. And if you can find figures, any deal you might potentially make will vary in terms of exclusivity, market conditions, and other factors.
It’s for this reason that this method is unreliable for valuing IPR such as patents, as their value often depends on novelty.
Valuing Intellectual Property Based on Income or Economic Benefit
Think about the income that your IPR might generate in the future, and the costs associated with generating that income, including risk and financial costs.
The resulting figure is known as a Net Present Value, or NPV. And it’s possible for NPVs to be negative, as well as positive.
Many factors will affect the economic benefits that your IPR might bring, including market trends, the changing economic climate, your competitions’ activities, and of course, the costs associated with registering, enforcing and defending your IPR.
Further Support With Valuing Intellectual Property
So can you put a price on your intangible business assets? Any figure you establish will just be an estimate, and you must always remember that market values invariably change over time.
But as we’ve seen, there are some scenarios where you’ll need to quote a figure for your IPR’s value.
You’ll find some useful documents to help you value your intellectual property on the government’s website, including this handy IPR valuation checklist.
How to Protect your Intellectual Property
Valuing your intellectual property is also a vital step to protecting your intellectual property. So too is taking out intellectual property insurance. Indeed, cover alone can act as a deterrent to anyone who might otherwise think that your business lacks resources to pursue an infringement claim.
At Anthony Jones, we are passionate about protecting the rights and ideas of individuals. That’s why we are a member of IPAN (Intellectual Property Awareness Network).
Our team of experts can work with you to value your IPR, and establish if intellectual property insurance is necessary for your business. We can also help tailor a policy that meets your unique requirements.
For more information, call us on 020 8290 9080. Alternatively, you can email us at ip@anthonyjones.com.
