Intellectual property valuation

https://en.wikipedia.org/wiki/Intellectual_property_valuation

Rationale[edit]

There are numerous individual reasons or motivations for conducting an intellectual property valuation or economic appraisal analysis. It is prepared, for example, for transactions, pricing and strategic purposes, financing securitization and collateralization, taxplanning and compliance, and litigations support.

1. Cost approach: The cost approach is based on the economic principle of substitution. This principle states that an investor will pay no more for an asset than the cost to obtain, by purchasing or constructing, a substitute asset of equal utility. There are several cost approach valuation methods, the most common being the historical cost, replacement cost, and replication cost.

2. Market approach: The market approach is based on the economic principle of competition and equilibrium. These principles conclude that, in a free and unrestricted market, supply and demand factors will drive the price of an asset at equilibrium point. Furthermore, it provides an indication of the value by comparing the price at which similar property has exchanged between willing buyers and sellers. Data on such similar transactions may be accessed in several public sources, including specialized royalty rate databases.[citation needed]

3. Income approach: This approach estimates the fair value of intellectual property by discounting the future economic benefits of ownership at an appropriate discount rate.

4. Direct approach: The direct approach is based on the current value of shares of intellectual property in an Intellectual Property (IP) Share Market.[1]

5. Using the pay-off method on top of the four above mentioned methods is a way to enhance the valuation and analysis of intellectual property [2]