Intellectual Property refers to an intangible asset that is creation of mind and is subject to the protection of law. In today’s world, where innovation drives economy, IP has become one of the most valuable assets for businesses. IP valuation, in very simple words, means assessing or evaluating its monetary value. With the growing importance of intellectual property, IP assets often account for a significant portion of a company’s overall value, in many cases exceeding the value of tangible assets. IP can be legally enforced, assigned, licensed, and commercially exploited to generate economic benefits. Considering, the ever-increasing role of IP in business growth and innovation, it is essential to understand the concept of IP valuation and its importance in determining the true worth of intellectual assets.
IP VALUATION- WHAT AND WHY?
IP valuation is nothing but evaluating the monetary value of that asset. This is a new concept which is yet emerging especially in developing nations like India. For any asset to be evaluated, context is the pre-requisite, like value can be determined with reference to time, place or any other variable. The value of an IP essentially comes from the right of the owner of that asset has to exclude competitors from using it. For an IP asset to have quantifiable value, it should generate a measurable amount of economic benefits to its owner/user and enhance the value of other assets with which it is associated. Knowing the value of IP helps across multiple business functions like licensing, franchising, sale or purchase of IP, mergers, acquisitions, divestures, spin-offs, joint ventures or strategic alliances, donation of IP asset and for the purpose of calculation of damages in the case of litigation and enforcement of IP rights. IP valuation is not only beneficial to large corporations and MNCs but also to MSMEs and small but growing companies. PRE-REQUISITES FOR IP VALUATON
For an IP asset to be evaluated, there are certain pre-requisites which are mentioned below:
It must be separately identifiable (subject to specific identification with a recognizable description- the IP should be able to be isolated from the rest of the business, sold or licensed etc like for example -goodwill of the business cannot be sold independently).
There should be tangible evidence of the existence of that asset. (for e.g. Contract, registration certificate etc.)
It should have been created at an identifiable point in time.
It should be capable of being legally enforced and transferred.
Its income stream should be separately identifiable and isolated from those of other business assets.
It should be able to be sold independently of other business assets.
