The valuation of an intangible asset depends upon how it is used

An article in IP Frontline admonishes that the value of an intangible asset should not be assessed in the abstract. It must be valued within the context of its use. Some of these factors include:

  • What is the intellectual property; more importantly, how does protecting the IP add value to the business? It is only in how the IP impacts the business that there can be found value.
  • What is the remaining useful economic life of the IP? (What have others assigned as useful economic lives of intangibles in purchase price allocations?  See BVR’s Benchmarking report.
  • What is the strength of the IP? Is the intellectual property new or a modification of existing intellectual property? Are the patent claims too broadly focused?
  • What is the likelihood of technological change that would affect the IP being valued? What are the capital requirements to create or respond to such change?
  • Are there any substitutes available and, if so, at what cost?
  • How would you assess management skills and experience with respect to the full exploitation of the intellectual property?
  • How will be the market response to the product(s) driven by the IP?
  • Will there be any regulatory restrictions/difficulties that might affect the exploitation of the IP?
  • Are there any strategic factors at play that make the IP more valuable in the hands of an acquirer?