Valuation of Intellectual Property
We specialise in valuing intellectual property (IP).
We specialise in valuing intellectual property (IP). Knowledge about the value of intellectual property is not only of importance for tax or accounting purposes (Purchase Price Allocation), but also in litigation when an infringement of intellectual property has been established, when drafting licence agreements and when allocating budget to the patent portfolio. Establishing the value of intellectual property is a complicated matter. We have extensive experience in valuing intellectual property in the aforementioned contexts.
Economic damage to intellectual property
Quantifying economic damage, for example, in the case of infringement of intellectual property, is complicated. The predetermined principle in patent litigation is to adequately compensate the patent owner for the infringement. The appropriate compensation can be calculated in different ways, for example, using the ‘reasonable royalty rate method’ and the ‘lost profit method’. Each party involved in the dispute will have a different perception of the facts and circumstances that lead to the final compensation. For example, based on a reasonable likelihood, what is the effect of infringement on price erosion, on increased costs or on add-on sales of the patented product?
We are experienced in preparing different analyses and reports that address the various methods of calculation of damages and can assist in litigation cases. We assist companies of various sizes and also provide our services internationally.
With a valuation report or loss/damage report pertaining to your intellectual property, produced by specialists with extensive expertise in valuation, you have a better negotiating position in disputes concerning the value of the intellectual property, as well as an impartial understanding of the value of the intellectual property when a related transaction takes place.
Licence agreement and financing of emerging technologies
Emerging technology projects are generally risky. The investments in these projects are usually funded by share issue or through cooperating parties. A common financing instrument is the issue of a licence. The negotiations between the patent holder and the licensee (or the provider of the capital), is a process in which both parties want to decide on the best deal, a good long-term working relationship and a certain cost of capital. We offer expert support which speeds up this process, provides an independent insight into the case and assists in closing the deal.
Obtaining financing for a project is an important step, because this secures the financing requirement and can significantly lower the risk profile. In addition, for the initiators of the project, this is proof that their findings are supported by external parties. Often, start-up companies have no experience with negotiating with potential licensees and are often satisfied with the knowledge that financing has been secured, without taking into account the ‘cost of capital’ (dilution of their own share in the company).
We support this process by preparing an independent valuation of the patent and preparing overviews of the financing requirement in which different financing strategies of the project are considered (which can range from share issue to licence structures with different embedded options). These detailed analyses lead to insights into the full spectrum of outcomes, to enable the risk/return structure of the licence agreements to be optimised and the best result to be obtained from the negotiations.
Budgeting and R&D portfolio optimisation
To ensure that the utilisation of the patent and R&D portfolio is optimised, the management of the intellectual property must also consider the value of individual intellectual property in decision-making. It is only possible to optimise the patent and R&D portfolio if there are certain restrictions, such as limited financing and R&D capacity. In addition, there must be optimisation goals, such as aiming for maximisation of value, profit generation that is as fast as possible, the greatest chance of success or the highest market dominance.
Simply put, the most common method of decision-making for portfolio optimisation involves ranking the components based on key elements that align with the company’s general objectives. Elements are, for example, strategic connection (the company’s existing business and ‘pipeline development’), the costs and benefits of a project, the technical risk associated with the project, or even safety, or supply chain-related matters. More extensive technologies include simulations, where the projects are not regarded individually, rather with dependencies on the success of the project.
We use a decisive qualitative and quantitative approach to generate maximum shareholder value for the client at every stage of development. During the past few years, we have been involved in various patent and R&D portfolio optimisation projects within different sectors.
Accounting and tax purposes
In recent years, the value of companies has been shifting from tangible assets to intangible assets, a process that makes it all the more important for company stakeholders to understand the value of a company’s intellectual property. The valuation is not only important for patent litigation, but since the introduction of tax planning, which involves IP, the valuation of IP in situations not relating to litigation has become essential.
In general, a distinction can be made between two situations for accounting and tax purposes: IP obtained externally and IP generated internally. IP obtained externally is usually activated (IAS38). The transaction price is used to determine what value the intellectual property will have on the balance sheet. Conversely, if the intellectual property is part of a business acquisition, a further IP valuation will be required to allocate the correct part of the transaction. This is done using PPA (purchase price allocation). To ensure that the PPA can be performed correctly, a sound valuation of the purchased intellectual property is required.
Internally generated intellectual property is usually charged against the profits and would benefit from a valuation in the event of an acquisition. However, internally generated intellectual property can also be activated. In this case, a valuation would take place; this would usually be on the basis of a ‘historical cost analysis’ (IAS 38). Accounting in respect of intellectual property will also have an impact on tax, as intellectual property can be written off and charged to profit as R&D expenditure, depending on whether or not the intellectual property is activated. In any case, the valuation of intellectual property is clearly important for accounting and tax purposes, to ensure that the figures on the balance sheet and the profit and loss statement are correct.
Our consultants are familiar with the necessities of a ‘purchase price allocation’ and are happy to assist you.
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