Patents are the core asset generator for various industries. Industries and companies earn a lot through licensing and assigning patents. The license and assignment of patents are common practices in the market which makes the licensor earn millions of royalties. With the rapid technology development and increasing users around the world, the trends of licensing and assignment will not be going down anytime soon. The companies not only use these assets for licensing but also use those assets for loan security and sanction. We can understand the huge rise of activities associated with the same with the increasing importance of financial evaluation.
Evaluating your IP is another very important task that the company must undertake. Why it is important is because the company must be clear with the value that the IP holds. The market fluctuates and so is the value of the patents that the company holds. Therefore, the company must be very clear with the valuation. Each time a new technology arrives, the value is bound to decrease. There can be a lot of factors that create a lot of fluctuation in the valuation of IP. Therefore, there are a couple of things which the company must be clear of. Firstly, the company must evaluate IP at regular intervals creating a strong database structuring the value of IP they hold. Secondly, the company must change its strategy from time to time as per the market change and decrease in the valuation. Hence it is important to conduct the patent valuation and if required, the service of a full-time law firm must be taken.
What is Patent Valuation?
In simple terms, patent valuation is all about knowing the economic value of the patents that the organization or company holds. By this, the economic importance of intellectual property can be ascertained, and through this, all the strategic decisions can be taken. Moreover, while knowing the valuation, it is important to understand that this also helps in taking strategic licensing and assignments concerning the IP that the company holds.
There are also several instances where the valuation of IP is required and without it, no such strong mandates can be delivered.
Importance of Patent Valuation
In Mergers, acquisition: Merger, acquisition, and other such activities such as Joint Venture, etc. has a lot to do with the valuation. Undoubtedly, as previously discussed, intangible assets are the bedrock of industries depending on technology. Therefore, when it comes to mergers and acquisitions or even joint ventures, the valuation of IP is much needed to structure the future decision. Mergers and acquisitions are in everyday news and therefore, valuation needs to be perfect.
Licensing IPR: As discussed, licensing of IP has a lot to do with the valuation. The licensing terms will depend on the actual value of the IP and hence, valuation has to be perfect to have a good deal.
Patent Dispute: Another important part where it is necessary to know the value is in the situation of patent conflict and dispute. While in dispute, mostly the correct valuation of IP is essential for the quantification of damages for a fair recovery.
Loans and Capitals: As patents are also used for various loans security, it is important to have the correct quantification of patents to structure the loan amount and also to attract investors.
Internal Strategy: Not only with the outside world, but the correct valuation also helps in the internal strategy of the company. The company knowing the value is in a much better position to structure the decision internally concerning usage of that patents.
Moreover, the valuation is also needed for the accounting and taxation purpose of the company where the companies are required to report their assets. Valuation is indeed an important part here.
With such importance of valuation, the company must undertake it. Different approaches can be taken for the valuation of patents. There can be an approach such as a cost-based method where the development of a patent and its economic value is ascertained. Another can be market-based where the valuation can be done in terms of market transactions. Another can be income-based, where the valuation is dependent upon the income flow that the patent generates. Hence, it is highly advisable to conduct the Patent valuation for the industries owing to its benefits.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.