Valuation Of Intellectual Property


Intellectual property (IP) assets include a variety of non-physical assets, such as patents, trademarks, copyrights, industrial designs, and trade secrets. IP assets can represent a significant portion of a company’s value, and the accurate valuation of intellectual property assets is key in determining the company’s overall value. These valuations can also influence several aspects of a business transaction, such as the sale price, nondisclosure agreements, and share ownership. At War IP Law, PLLC our team of dedicated intellectual property lawyers can help with IP valuation and numerous other intellectual property matters. Contact us today at 202-800-3754 to learn more.


What Gives Intellectual Property Value?

According to the World Intellectual Property Organization (WIPO), intellectual property derives its value from two main areas: exclusivity and future benefits.



Intellectual property has value when the owner’s intellectual property rights exclude competitors from using the IP asset. For example, if a business owner trademarks their branding, they would be granted exclusive usage rights for the trademarked content, and these exclusive rights would give the trademark value.


According to WIPO, an IP asset has quantifiable value if the following two conditions are met:

  • It produces measurable economic benefits for the owner or user.
  • It improves the value of other assets that the IP asset is associated with.


Future Benefits

The value assigned to an IP asset is a representation of the potential future economic benefits that the asset could provide to the IP owner or authorized user. 


Future economic benefits may include:

  • Direct use of the intellectual property by integrating it into products.
  • Sale or licensing of the intellectual property to a third party.
  • Other means, such as limiting the threat of substitutes or using barriers to entry. 



What Is an IP Valuation and Why Is It Important?

IP assets should be assigned a value before making any sales, licensing, or commercial arrangements based on intellectual property. In the modern global business environment, IP is often one of the main components for establishing value and potential future growth for companies. Valuation also helps intellectual property owners more easily enforce their IP rights, manage IP assets internally, and conduct various other financial processes.

Because of these conditions, accurate valuation of IP and legal measures for protecting that value are both critical for companies in virtually all industries.


Asset Requirements for IP Valuation

According to WIPO, an IP asset can only be valued if it meets all of these conditions:

  • The asset is separately identifiable, meaning that it can be specifically identified and has a recognizable description.
  • The asset has tangible evidence, such as a contract, license, financial records, etc.
  • The asset has a specific creation date.
  • The asset is transferable and has legal protections.
  • The income stream of the asset is separately identifiable and separate from other company assets.
  • The asset can be sold separately from other company assets.
  • The asset is subject to an expiration date (either through termination or destruction).

If you have questions about the valuation of intellectual property for your business, you can learn more by contacting the intellectual property lawyers of War IP Law, PLLC.


What Are the Main Valuation Methods for Intellectual Property?

Companies generally use three valuation methods for intellectual property: income-based, market-based, and cost-based. These methods may either be applied individually or concurrently to reach an accurate valuation of the company’s IP assets. 


Income Method

Income-based valuations are based on the expected future income of the IP and all economic benefits that it could potentially have for the company. The income-based approach is commonly used when selling/buying a company or licensing an IP asset.

When employing this method, companies must forecast projected future revenues, costs, and risks of the IP asset. These figures should then be used to calculate the net present value (NPV) of the IP, which is either positive or negative. 


Market Method

The marked-based IP valuation method assigns value to IP assets by evaluating the value previously assigned to similar IP assets in transactions between other parties. When using this method, data from similar IP transactions must be accessed and analyzed, and this data is used to arrive at an estimated fair value for the IP asset. Certain adjustments may be necessary for unique aspects of the transaction, such as litigation and bankruptcy. 

Market-based valuations are most common in licensing deals, tax defenses, business purchases and sales, and corporate disputes. 


Cost Method

The cost-based method bases the value of an IP asset on the cost of creation and development. The valuation is calculated by considering all expenses related to creating and developing the IP asset, such as labor, equipment, machinery, overhead, legal protections, testing, and trials. The estimate can either be the past costs of creation and development or the projected costs the company would incur if creating and developing a similar IP asset.

Cost-based valuations are most commonly used in IP licensing, investment seeking, patent valuations, portfolio valuations, mergers, and acquisitions. 


How to Prepare for an IP Valuation

Like all major business decisions, IP valuation requires thorough research. Regardless of which method or combination of methods is used, the company should gather ample information about the IP asset involved and on the broader economic and industry forces that may affect the value of the IP asset.

The World Intellectual Property Organization suggests conducting an event-driven intellectual property audit, otherwise known as IP due diligence. This process can be used to assess the value and risk of all of a company’s IP assets. An IP audit can either be conducted in-house or with guidance from a professional, such as an intellectual property lawyer.


Learn More From Our Intellectual Property Lawyers

Valuation of intellectual property is necessary for a wide range of business transactions. Arriving at an accurate estimate of an IP asset’s value is key, but reaching an accurate figure can be a complicated process. The team of experienced IP lawyers at War IP Law, PLLC can help accurately value IP assets as well as provide legal guidance on all other legal intellectual property matters. Contact our office today at 202-800-3754 to learn more about how we can help your company.