IP Valuation: Key Considerations To Strengthen Business Transactions

• Published date: 11 November 2021
• Subject Matter: Intellectual Property, Patent, Trademark
• Law Firm: Mathys & Squire
• Author: Lawrence Bickers

Thanks to technological advancements and innovation driving change at an increasing rate, business owners are realising that intangible assets and registered rights such as intellectual property (IP) contribute significantly to overall business value. This has therefore sparked the need to understand the value of IP, but - as with all intangible assets - can often be challenging. Mathys & Squire Consulting provides clients with insights into the IP valuation process and a clear understanding of the components of value, as outlined below. Although the valuing of IP can be complex, it is an essential stage to prioritise before engaging in any IP transactions.

A crucial consideration in IP valuation is to understand your business model and to evaluate whether it is most likely to lead to a transaction within reasonable timescales, with a party that has a key position in a strong value chain. It can often be the case that several business model alternatives exist, and numerous factors need to be reviewed to determine the optimum approach to take when valuing IP.

Another aspect to consider is awareness of the assets' ownership within the value chain (i.e. owned by the customer or sub-contractor). At every step of the value chain, the value of an intangible asset tends to increase, and thus transactions at different levels can yield significantly differing results - both in terms of the level of success of the transaction itself and the ultimate financial outcome.

A further consideration is the reason behind IP valuation in the first place, which could be for the purpose of mergers and acquisitions; securing more funding and investments; asset transfers; infringement-related damage evaluation; or insolvency. All these scenarios call for an IP valuation, but it is likely they will be approached differently. It is therefore crucial to understand the reason for valuation, as it will help determine the most suitable calculation method. Certain circumstances...