IP Valuation

What are Intellectual Property Valuation Models?

Intellectual property (IP) has legal recognition and protection thanks to India’ intellectual property laws. Other intangible assets have recognition under commercial and contract law, but the small group of assets involves IP. 

Cost Method

The cost approach is based on the economic belief that informed buyers will not pay any more for a product than they would for the cost of producing a similar product that has the same level of utility. Generally, the cost approach is perfect for the analysis of intellectual properties 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, rather than replicating, a similar development effort.

Market Method

This method depends on the market price comparability or on comparable royal rate. Market price comparability- the value of an IP is determined on the basis of price of comparable IP products. Comparable royal rate: this requires construction of a business plan around an IP. This method is objective and it can provide a realistic analysis of value based on your right’s worth as perceived by both owners and their consumers. This method can be useful for researching the high, low and average royalty rates paid in any given market sector. 

Income Method

This method values the IP asset on the basis of revenue it is expected to generate in the future. It considers both the future income, which a right may generate during its economic life, and the costs of generating that income. Risk and financial costs are factored into the equation. 

Once we look at the IP and asset portfolios, we can determine which IP methodology to use.