Valuing Intellectual Property

Success in today’s business is no longer based solely on ownership of tangible assets. Many businesses are deriving success from different forms of intellectual property, mainly in technology-based services and products. These intellectual assets are in the form of patents, knowhow, copyrights, brands and trademarks, and owning this property prevents others from practicing what you have created or invented. They can give the owner a competitive advantage in the business that utilizes these properties.

Intellectual property (IP) has only recently been considered a valuable asset. From an accounting perspective, the process of valuing IP is not firmly established because it is a very subjective task and, therefore, is not easy to do. However, there are methodologies that can be used to determine IP value. Why would we want to determine the value of a patent, trademark or any other intellectual property? There are many reasons, including licensing-out or licensing-in, selling, transferring pricing within a company, as security for debt fi nancing, valuing a total business, litigation if someone is infringing on your rights, or donating it to a non-profit organization.

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