As a business it is important to consider how much your intellectual property rights are worth. This is not just relevant to business owners who are thinking of selling their business to another, it is also relevant to businesses who may wish to invest in a particular product/ brand or licence the same.
Before attempting to value your intellectual property rights it is important to conduct an audit of your intellectual property rights. In other words, what intellectual property rights is the business using and does the business own these rights.
The below are considerations that should be made during an intellectual property audit:
- Identify your intellectual property rights (note that intellectual property does not just subsist in rights such as copyright, trade marks and patents; there are other rights such as unregistered design rights, confidential information and database rights (and even plant varieties).
- Nature of your intellectual property rights.
- Level of confidentiality in relation to the products that your intellectual property relate.
- 3rd party rights in relation to your intellectual property rights.
- Are you a licensee or assignee of intellectual property rights?
- Are employees creating intellectual property rights for you?
- Whether there is a market for the product(s) which are protected by intellectual property rights, or whether one needs to be created.
After the above is considered it is important to consider the level of protection your intellectual property rights give your business. You will need to review the following:
- Should you register any intellectual property rights
- How long are your intellectual property rights valid?
- Does your business have finance to use your intellectual property rights as a weapon against other businesses who may be infringing?
- Does your business have finances to withstand intellectual property litigation?
- Is it worth using commercial agreements to bolster intellectual property rights?
- Is it going to be expensive bringing your product which is protected by intellectual property to the market?
It is crucial to consider how your business will make money out of its intellectual property rights.
The way money is generated from intellectual property rights is through licensing your product/brand to others and generating royalties or by assigning wholly/partially to others.
In considering generating income from your intellectual property rights it is important to consider the below:
- Cash flow and benefits of licensing/ assigning
- Profitability of the intellectual property right in relation to its duration ( few intellectual property rights last indefinitely)
- Your market share
- Your distribution system
- Potential partners commercial benefits
There are three effective ways to valuate your intellectual property rights; cost evaluation, market valuation and economic benefit valuation, each method has various advantages and disadvantages.
This looks at the costs of developing your product, potential costs of creating a similar product and registering your intellectual property.
The problem with cost evaluation is that although it is attractive to people selling their products it does not help when you consider buyers; as it does not directly reflect how much profit or sales the product will generate.
This approach considers the sales of similar products. The approach naturally has its drawbacks; how do you evaluate a novel product, what if there are not many comparable products.
Economic benefit valuation
This approach considers what income will be generated from the product protected by intellectual property rights over the life span of the intellectual property rights. This approach can be problematic; how are you able to determine the period for which your intellectual property rights generate income plus you will not be able to predict future market developments.
It is important to know the value of your intellectual property rights and as result it is important to consider what your intellectual property rights are, the level of their protection, how to generate income from them and which method of valuation is best for them. If you need assistance with any of these issues please contact INFO.