Valuation is a term used to ascertain the worth of an Asset. An asset is a resource from which future economic benefit can be expected. Assets can be fixed or tangible like property, machinery movable like jewelry, and intangible like goodwill in a business, intellectual property or IP. Valuation is a common and everyday practice and not all valuations require a formal analysis. Valuation is an art and has a science behind the value ascertained.

IP assets include patents, industrial designs, trademarks, Copyright and trade secrets. IP assets are a subset of intangible assets and distinguished from other intangible assets by the fact that these are created by law – legally protected and can be legally enforced. These can be independently identified, are transferable and have an economic life (in contrast to their legal life, which is generally longer than their economic life). While an IP asset can be defined in terms of particular qualitative features or standards like novelty, originality, it may not directly be linked to market value, e.g. there are patent filed that do not contribute to production of protection of income but are aimed at technical and scientific aspects which indirectly may create a value or block competition.

Copyright Valuation

Copyright is an important practical component of intellectual property / IP rights, brands and intangible assets. In general, copyright protects work such as:

• Literary, dramatic, musical and artistic work, including illustration and photography.
• Non-literary written work, such as software, web content and databases.
• Sound and music recordings.
• Film and television recordings.
• The layout of published editions of written, dramatic and musical works.

Copyright gives the right to prevent copying, distributing copies, renting or lending copies, performing, showing or playing in public, making an adaptation, and putting it on the internet. In most countries copyright lasts a minimum of life plus 50 years for most types of written, dramatic and artistic works, and at least 25 years for photographs. It can be different for other types of work.

Valuing copyright requires an in-depth understanding of the particular business and industry in which the copyright operates. Copyright valuation is something Intangible Business has carried out for a number of different copyright properties including books, films, plays, TV, music, characters, images and musicals.

What Are the Three Basic Valuation Methodologies?

Valuation analysts and IP professionals agree there are three standard methodologies to value IP: the cost, the income and the market-based methods. Here is a brief summary of each.

The cost approach: this method, whether based on historical or future cost, focus on substitution. This means that the worth or value of an IP asset is no greater than the costs to obtain or reproduce the asset. The cost can be measured by purchasing the asset today, by replacing the asset with a substitute of equal quality or by creating an absolute reproduction of the asset.

The market approach: It is applicable when a truly active marketplace exists and actual comparable transactions can be found. But at least until this decade, most IP assets were not being bought, sold, or licensed frequently enough to establish a value based solely on direct market-based comparables. Therefore, it is often necessary for an experienced IP valuation expert to adjust and analyze existing comparables to arrive at an accurate value.

The income approach: This is perhaps the most widely used IP valuation approach. It is based on the assumption that the value of a piece of IP today results from the financial benefits that can be generated and estimated into the future for whatever remaining expected useful life the IP may contain.

Whatever the method of valuation chosen, IP can have multiple values at the same time and all those values can be correct simultaneously. That’s because, unlike real estate, IP can have vastly different values depending on who owns it and how they intend to use it.

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