Valuation of Intellectual Property

Patents, protected trademarks and protected designs are protected intellectual property that has an intangible value. In order to determine the intangible asset value of this intellectual property, it is first necessary to identify which patents, trademarks and designs exist at all, which of them are protected and how effectively they are protected

Then one looks at how high the contribution of this protected intellectual property to the company’s earnings is or can be in the future. The share of future expected earnings discounted to the valuation date that is attributable to the use of this intellectual property corresponds to the current intangible asset (earnings approach). The method of evaluating intellectual property works similar to the company valuation, specially the capitalized earnings valuation method.

It may be that intellectual property is not useful at all to one company but could be very useful to others and therefore has a market value. In that case, this market value must be determined. The market value is precisely the intangible asset value of this intellectual property (market approach).

Intellectual property that is necessary for operations but is not effectively protected can not only reduce earnings prospects, but can become a threat to the company’s existence. Companies must reckon with corresponding discounts if they are to be sold. Intellectual property which is not reliably protected and which is necessary for business operations may even make it impossible to sell companies at all

In addition to patents and utility models, trademark rights are particularly relevant.


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