Intellectual Property Valuation Approaches And Methods

Robert F. Reilly
CPA Managing Director, Willamette Management Associates, Chicago, IL, USA

There are numerous reasons to value an owner/operator’s intellectual property. All of these reasons may be generally grouped into the following categories: transactions, financings, taxation, regulatory, bankruptcy, accounting, litigation, and strategic planning. Valuation analysts are often asked to value intellectual property for these various reasons. Valuation analysts may also assist the intellectual property owner/operator in structuring transactions, performing due diligence, complying with taxation and accounting requirements, negotiating and arranging for financings, providing litigation support, and defending and commercializing the intellectual property.

The owner/operator is often involved in the process of: identifying the intellectual property, performing some due diligence procedures, interviewing and selecting the valuation analyst, defining the valuation analyst’s assignment, assembling valuation-related data and documents, reviewing and questioning the valuation work product, and relying on the intellectual property valuation report.

First, this discussion summarizes many of the reasons to conduct an intellectual property valuation. Many of these reasons relate to intellectual property transactions other than licenses between arm’s-length parties. In addition, this discussion describes and illustrates the three generally accepted intellectual property valuation approaches, specifically: cost approach valuation methods, market approach valuation methods, and income approach valuation methods. Most license participants are familiar with the market approach valuation methods, of course. However, many licensees and licensors are not particularly familiar with the income approach or cost approach valuation methods. Finally, this discussion will summarize the intellectual property valuation synthesis and conclusion process.


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