Can Intellectual Property Ever Be Universally Valued

IP Valuation is process of handling context specific items: It will deal with high level of brand, trademark name issues, and its patent status along with IT and software portion.
In more details, it will have to deal with whether it is internal development or purchased product, joint venture or sale based efforts, and licensing issues. Another area to look at is time specific parameter where it will determine the value of asset as being the current value, or look at it from past point in time or future potential.

You, like many others, may wonder how the value of Intellectual Property is determined. It would seem that the answer would be easy. But, the reality is, it’s anything but easy to determine an IP’s value. And, that’s because there are various ways to determine it.

Now, an IP asset’s worth will depend on the technique that’s being used to determine its value. But, the issue is there is a lack of consistency in how they’re obtained. One method may get a different answer from another, causing answers to vary greatly. 

Different Valuation Methodologies Used

For the past couple of decades, traditional valuation techniques were used including the cost approach, market approach and income approach. The cost method will determine the value of assets by measuring how much money it will cost to replace the same items (or assets) in question. Usually it will include any costs such as development, production, human resources, marketing/advertising fees, application/registration and legal fees, while not every single cost will be included automatically. 

On the other hands, market approach utilizes comparison of recent sales amount or transaction value for the similar assets in similar markets. This method would be fair enough if there are active transactions in the market. The issue is that there might not be enough data in similar niche, and each asset items are very specific to its own, thus making it hard to compare one by one.

Other alternatives are VALCALC Method, Brand Value Equation Method (BVEQ) and VALMATRIX Analysis Technique that are popularly used.

At this very moment, no key authority is available to set the standards for this process or ratify that the IP values are both precise and reasonable. It’s no wonder that problems can crop up all around the world especially since the value is utilized to determine corporate worth.

Many groups are looking to have just one IP valuation standard be used – U.S. Financial Accounting Standard Board and the International Financial Accounting Standard Board to name a couple.  So far, their efforts have not been successful.

Four Reasons Groups Have Not Be Successful With A Standard IP Valuation

1 – The role in which IP values play isn’t clear-cut. Does it count towards an accounting issue or something else entirely? The answer changes depending on who you ask.
2 – Coming up with a standard means an array of professional communities around the world have to agree on it. And, all groups have their own agendas when it comes to IP valuation.
3 – Assets appear in various types, which means the technique to determine the value will differ based on the kind of asset.
4 – Terms to talk about the assets will vary in different situations.

While the task is a bit tricky, the recession has developed some urgency in the developing of a consistent process. There is little doubt that the IP asset process has gotten some serious scrutiny all around the world especially with the fluctuating markets.

Both IP and corporate professionals says it’s vital that a process be developed to determine the value. Not just to boost consistency and reduce market fluctuations but to lessen the amount of immoral IP valuations.

Due to previous failures, the majority of the groups feel an agreement on one standard is impossible. Rather, it may be better to come up with a framework that could help with streamlining the IP valuation process.

What will this mean to investors and other folks? Basically, they’ll have to pay close attention to new developments that are taking place the field. And, any recommended changes are likely to be done in stages, not all at one time. When focused on the entire process, everybody will know the hottest IP valuation tools and techniques the moment they become available.