Understanding and valuing intellectual property (“IP”) rights is commonly misunderstood, because it is an abstract and complex process. However, applying a commons sense approach utilizing, business, financial, and legal principles can assist in the valuation process. Generally, the value of any IP, whether it is a patent, trademark, copyright or trade secret, can be summarized or expressed as follows:
1) The owner’s ability to use the IP to develop sales from commercial products or services that embody the IP;
2) The owner’s ability to license the use of IP to others to develop licensing revenues;
3) The owner’s ability to exclude others from the market for products or services that embody the IP;
4) The owner’s ability to develop follow through inventions, works, marks or secrets from existing IP;
5) The owner’s ability to exclude others from developing follow through inventions, works, marks, or secrets from exisiting IP;
6) The owner’s ability to bundle IP rights with one another to create an IP portfolio without misusing the IP; and
7) The owner’s ability to be the first to the market with a product or service developed or protected by the IP.
These seven principles embody a practical use of any IP and how it can generate value for an IP owner. In fact, these seven principles can be combined with raw data to develop a mathematical value for any IP, whether it is a patent, copyright, trademark or trade secret. For example, the following types of raw data should be considered: sales of the commercial embodiment; licensing revenues from the commercial embodiment; potential market for follow through embodiments, a projection of the sales from commercial embodiments over the life of the IP, the market share the owner of the IP can command; the number of available substitutes for commercial embodiments of the IP, and the number of complementary embodiments that an owner can develop from the IP.
Gathering this information is often tricky and working with accountants, financial analysts, business professionals, and owners is crucial to a lawyer’s ability to accurately value the owner’s IP. If you have any concerns or questions about valuing your IP, then please feel free to contact us.