An organization or a company does not only have tangible assets, but also intangible assets in the form of intellectual property like patents. A company or an organization invests in the research and development activities to obtain a patent.
The economic valuation of the intellectual property of the company helps in making decisions not only on company’s assets but helps in taking commercialization and transaction decisions. The decisions regarding the licensing and assignment of the intellectual property are the major transaction decisions taken in the market.
Application of Patent valuation
1. Valuation of the company’s intangible assets in cases of taking tax planning decisions. A company does not have to show their tangible assets, but also the intangible assets in the form of intellectual property for paying taxes.
2. Valuation of a company is often done in cases of mergers, joint ventures, and acquisition. A company invests more in the intangible assets, research and development activities, than the tangible assets. Therefore measuring the economic value of the intangible assets can determine the
3. For the licensing and selling of the intellectual property and negotiating deals with the parties, the price of the patent or the intellectual property should be known.
4. In cases of patent infringement, quantification of the damages is done. The correct valuation of the patent would help a patentee to recover the damages from the other party.
5. The valuation of the patent is used as security for bank loans. Patent valuation is also used to attract venture capitalists and investors.
6. The patent valuation helps in making patent protection strategies. It helps an organization identify its weakness, like ownership issues, which can have an impact on the value of the intellectual property.
Method of Patent valuation
The patent valuation is done by different approaches. Two methods are basically used for patent valuation
1) Quantitative approach- which uses numerical and economic data to measure the value of the intellectual property.
2) Qualitative approach- where the analysis of the potential uses of the intellectual property is done. It deals with the opportunities and risk associated with the intellectual property of the company.
The methods used in qualitative approach are:
- Income based method
- Cost based method
- Option based method
- Market-based method