Survey of IP Brokers on the Use of IP Valuation in IP Transactions

 Many people still view intellectual property valuation, such as patents or non-patented innovations, as more art than science. While IP valuation may appear to be a simple process for a technology/patent broker, it may be difficult to evaluate a patent or technology, even for individuals who work with them daily. In this blog, we'll look at how IP brokers employ common valuation techniques in the hopes of learning more about why they use or don't use IP valuation methods in their transactions and which valuation methods and tools they prefer.

The process of assigning a monetary value to a patented or non-patented technology is called "valuation." As a result, it is a quantitative evaluation. We perform a qualitative assessment when we look at regulatory, technical, commercial, and other challenges that the technology may face before entering a market. This technique, more accurately termed as "evaluation," is not about calculating a number but about concluding based on examining the technology's qualitative aspects.

Some unexpected results:

The survey generated several unexpected results, which are listed below.

• The most often stated justification for not using Intellectual Property valuation methodologies is because each technology is unique, and standard approaches fail to reflect this.
• Brokers that use IP valuation methodologies generally use the discounted cash flow approach to evaluate the net present value of future cash flows generated by the technology in issue while also taking market volume and market share into account.
• IP brokers avoid using valuation software tools and instead depend on more traditional valuation methods or a case-by-case approach.
• It's crucial to understand the basic Intellectual Property valuation methodology, how the IP transaction industry has changed, and how the two cross when understanding the survey results.

Categories of IP valuation methods:

Market, Income, and Cost-based approaches are the three types of IP valuation methodologies. Market techniques are based on the values of identical assets in comparable transactions in the marketplace. Income techniques rely on calculating the asset's future Income, adjusted for risk and time. The DCF approach, as previously indicated, measures the net present value of future revenue from an IP asset or technology, such as royalty rates, and is the most prevalent example. Cost methods are based on calculating how much it would cost to make a similar asset, including all labor and material expenses.

Finally, due to the highly specialized nature of IP value, automated software valuation methods are not well suited to the task. As a result, it's not surprising that just one of the IP brokers surveyed indicated using software valuation tools. There are only a few tools on the market today for evaluating and valuing technologies and intellectual property, including IP score, a free software tool offered by the European Patent Office.

However, based on the quick assessment of the tool, it appears to be more focused on the evaluation process, with limited financial valuation capabilities. With the complexity associated with IP valuation, valuation experts will probably continue to be the province of valuation experts rather than software packages.