Questions to ask when valuing intellectual property

Worried about a challenge to your intellectual property (IP) valuation?

You’ll be in a better position to defend your work if you do a complete due diligence that includes asking some key questions. Here are a few:

• Has the IP been published, patented, or registered? IP without protection can be vulnerable, so this adds an element of risk.
• Are royalties being paid? If little or no royalties are being paid, maybe it’s not a valuable property. If royalties are being paid, what are the terms of the deal? Get a copy of the contract.
• Has there been a lump-sum advanced payment, requiring additional work on the part of the creator? If the work doesn’t pan out, the project may be abandoned.
• Is the future income stream fixed or variable? A variable income stream is riskier because it depends on certain variables.
• When do rights end? Rights don’t last forever, and the duration depends on the nature of the property.
• If a patent, is there a risk of the patent being declared invalid? Maybe the creator infringed on another patent.
• Have all of the marketing efforts necessary to maximize revenues been completed, started, or planned? If not, find out who will carry these activities out—and whether it will happen at all.
• Has the owner issued any licenses (reproduce, distribute)? If yes, find out the terms and duration of the licenses.
• Are there other licenses that could be obtained to generate revenue? The potential for additional licensing opportunities will affect potential income streams.
• Are there derivative works? A derivative work is a separate work that stems from the original, such as a movie made from a book.
• Who tracks or reports revenues and expenses? Anybody involved in this will have access to records and documentation.

You’ll find more questions to ask in BVR's Intellectual Property Valuation Case Law Compendium, 3rd edition, which provides the crucial takeaways from nearly 200 cases dealing with disputes over the value of IP. This reference also gives you online access to the full court opinions. Insights are provided by leading IP valuation experts.