August, 2010

Intellectual Property Valuation is an important area to determine the value of an intangible asset in different forms of IPR such as trademark, copyrights, patent, designs and trade secrets. In practical parlance, valuation of IPR is generally carried out for brand valuation, patent valuation and technology valuation. Intangible valuation is generally carried out for determining the valuation of an enterprise in the course of amalgamation, merger and acquisitions. Valuations are also carried out for intangibles to determine the value of damages or compensation in cases involving infringement of trademark or copyright or patent or design. Now-a-days valuations for intangibles are also done for financing by way of securitization and collateralization of intangible assets.

Although accounting for intangible assets, and for the expenditures incurred for research and development is done on a very conservative basis while recognizing intangibles as capital asset, the accounting standards for purchase price allocation (PPA) are very stringent for transactions involving determination of fair value at the time of mergers and acquisitions. Most of the accounting standards deal with the issue of valuation of intangible assets and it will be worthwhile to mention about few of them as below:

• Uniform Standard of Professional Appraisal Practice (USPAP)
• International Valuation Standards Committee (IVSC)
• US Generally Accepted Accounting Principles (GAAP)
• International Financial Reporting Standards (IFRS)
• Financial Accounting Standards Board (FASB)

At macro level, some studies have been conducted which says that about 60% of the wealth of poor nations and 80% of the wealth of the rich nations can be classified as intangible wealth. The study conducted by OECD group says that the average per capita wealth in OECD countries are US$ 4,40,000 comprising US$ 10,000 in natural capital, US$ 76,000 in produced capital and US$ 354,000 in intangible capital.

There are several methods and approaches for doing the valuation but some of the most commonly applied approaches are as below:

• Cost approach
• Market approach
• Income approach

Sometimes the valuation is also done on the basis of prevailing share prices in the stock market, however, the income approach by applying discounted cash flow method (DCF) with certain assumptions for rate of return to arrive at net present value of the expected future benefit of the concerned IP assets is considered the most appropriate method. Software tools are available for doing the IP valuation. However, expertise and common pool of skill of technical, legal and commercial professionals is required for an effective and authentic valuation of any IP asset.

ITAG undertakes valuation of IP assets for commercialization and for technology transfer for the inventions and innovations taking place in the Research Institutions and at the research and development centers of various commercial organizations. Apart from the patent valuation, ITAG also has a dedicated team with financial & commercial background to conduct the Brand Valuation which is needed for various purposes including for determination of value during the course of litigation and arbitration. Intangible Business Limited of UK is our strategic partner for IP Valuation.

- Dr. D. R. Agarwal