Five Reasons to Hire an IP Valuation Firm

Intellectual property creates tremendous value for companies and individuals. The value amount varies among the different types of intellectual property. Therefore, determining the value of the entire intellectual property industry is impossible. Intellectual properties exist in several forms, including patents, trade secrets, trademarks, and copyrights, which equates to millions of assets. Without performing due diligence on each and every asset in existence, determining the value of the entire industry is unrealistic. This is because the purpose of the assets, the benefits they bring to consumers/companies, the type of assets, and many other reasons determine value. For instance, a trademark for a soft drink may not command near the value applied to a car that it does for fruit-flavored, sugar-sweetened water. To use a soft drink brand transaction as a basis for establishing the value of a car’s brand is not appropriate either–the two are altogether different in their application and industry.

While determining the value of the entire intellectual property industry is unrealistic, determining the value of individual assets and/or portfolios is paramount. Companies seek IP valuations for a variety of reasons. The following identifies five reasons to seek IP valuation services.

1. Capital formation. Many businesses or individuals seek to raise capital in order to develop an idea, start a business, or to get an invention to market. Capital formation is an especially important step for startups. However, in order to get investors to invest in a particular idea or business, IP asset owners must provide an idea of what their assets are worth. Otherwise, investors won’t invest in something for which the value is not known. It is too risky.

2. Bankruptcy. Just because a company goes bankrupt doesn’t mean that its assets are no longer valuable. By obtaining an IP valuation, a company can determine whether to sell assets to pay creditors or how to properly divide its assets among parties.

3. Expert Witness Testimony. IP valuations provide strong evidence in the court of law. IP valuation analysts spend considerable time reviewing and understanding the assets under consideration. They have to in order to provide a credible valuation. Therefore, hiring an IP valuation analyst can help provide strong evidence in the court of law.

4. Litigation consulting. Law firms hire IP valuation analysts to assist them in determining the worth of assets. Lawyers, plaintiffs, and defendants alike use valuations to give an accurate, unbiased view to present to the court system.

5. Tax valuation. Tax disputes arise often when parties disagree on an asset’s worth. IP valuation analysts provide an unbiased view that can help settle such disputes. IP valuations are also ideal for moving assets that could have tax implications.

As you can see, there are strong reasons to seek an IP valuation firm. At Pellegrino & Associates, we have conducted IP valuations for all of these reasons and more. To learn more about how we can help, contact us today!

Royalty Rate Determination Process

Intellectual property (IP) licensing is big business. So big that it has become a $40 billion industry, according to IBISWorld. IP licensing affords IP owners a way of making revenue while maintaining rights to the IP. It allows them to offer their IP under negotiation to other businesses who want to use an invention that they didn’t create themselves. Therefore, in exchange for a fee, such as a royalty rate, the businesses can remain competitive.

However, determining royalty rates can be a challenging task. The following outlines the four-step process in determining royalty rates.

1. Identify key IP rights. IP valuation analysts determine the key rights that are subject to the royalty rate analysis. Therefore, the analysts seek to understand all fields of use, geographic restrictions, exclusivity restrictions, and others.

2. Identify value proposition of IP rights. The analysts determine the actual micro-economic value proposition associated with the rights afforded by the license grant. This entails quantifying the economic impacts of the IP rights.

3. Identify contributions of licensor and licensee. IP valuation analysts determine how each party contributes to the value of an IP. While the licensor naturally owns the IP rights, a licensee also brings value to the table through sales and distribution, manufacturing capability, and others. In order to apportion the contributions in an equitable manner, the analysts must identify what both parties bring to the transaction.

4. Apportion value based on licensor and licensee. The final, and easiest step, is to apportion the value. However, the analysts cannot perform this step without following the three previous steps. Without the other steps, the analysts would not have all of the details necessary to provide a reasonable royalty rate determination.

As shown, the royalty rate determination process takes four steps, but these steps require serious insight. At Pellegrino & Associates, we have years of experience determining royalty rates. Contact us today for more information!