Valuation of Intellectual Property : LexPatent

Valuation of intellectual property objects (hereinafter, IP) is based on valuation of the economic benefit received from their use.

Upon valuating there are used the following methods:

cost plus method;
market method;
profitable method.

A cost plus approach is based on studying of opportunities of a buyer to purchase IP and proceeds from the assumption that a buyer, showing prudence, would not pay for an IP object a sum that would greater than the one which is required for obtaining an IP object analogous by its purpose and quality to the above-stated one. This approach can lead to objective results if there is an opportunity to evaluate amount of expenses for creating a similar IP precisely. The cost plus approach is mostly applied to value intangibles which are not involved in formation of future income generation and render no profit at the present time. In practice, cost plus methods of valuation are used where field of IP application is a social sphere, cosmic space, military defense, safety programs, etc.

A market (or comparative) approach is based on an opportunity to choose IP subject-matters from others, similar to them and performing the same functions, and provides comparison of IP valuation over a bargain being planned and a similar bargain that has already taken place. In addition, among some several IP subject-matters of approximately identical purpose and utility a buyer should have an opportunity to choose that one which satisfies him by a complex of qualities including functional properties, reasonable price, lifetime, degree of protection, originality and other characteristics. Moreover, a right holder should have an opportunity to choose the buyers the most preferable to him in order to prefer that one who would pay more and with whom he would cooperate in future.

A profitable approach, most widely applied in valuation of intangible assets, is based on estimation of profit due to introduction of IP into business. Generally, a profit, rendered as a result of IP use, is expressed in increase in revenues from realization of rights to IP, in increase in revenues from realization of products, works, services, in increase of profits of a company, economy of net profit, etc. A profitable approach provides that, for purchasing IP subject-matter, nobody will invest much money if the same income can be received in another way. This approach can lead to objective results if there is an opportunity to evaluate the size of profits rendered from IP use.

Valuation of Intellectual Property

Republic of Belarus, Minsk