What IP valuation method should a company use?

| Oct 3, 2019 | Firm News |

There are undisputed benefits to valuing your Colorado business’s intellectual property and other intangible assets. However, there is more than one method of IP valuation. 

According to The Federal Lawyer, the three primary methodologies for valuing an organization’s IP include the following: 

  • Cost-based valuation: Performing a cost-based valuation allows you to learn how much it would cost to replace your IP. This includes both how much it took for you to create it before, and how much it would cost to re-create it in the current marketplace. 
  • Market-based valuation: Although your IP is necessarily unique, you may reach conclusions regarding its value based on sales and purchases of similar assets. This method may use comparable uncontrolled transactions as a basis for valuation. 
  • Income-based valuation: Your IP has brought in a stream of income over time. Identifying what historical and estimated future earnings are attributable to your IP can help determine its value to your company. 

You may need to use more than one method in order to ascertain the value of your intangible assets, or a proprietary or specialized approach such as the subtraction theory of value or profit-split approach may be relevant. Regardless of the method you use, you will need to know the following about your IP: 

  • A clear identification and unambiguous title 
  • Its earnings capacity and profitability 
  • Its qualitative and quantitative characteristics 
  • The market share it supports 
  • Its product life cycles 
  • Its historical growth and future prospects 

This general information about IP valuation is provided for educational purposes only and should not be interpreted as legal advice.