What is IP Evaluation? The role of IP in the value of a Start-up

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What is IP Evaluation? The role of IP in the value of a Start-up

A resource that a company possesses as a result of its previous experiences and from which future economic benefits are anticipated is referred to as an asset of that particular company. An asset of a company can be a tangible or an intangible asset. These assets are determined or evaluated to know the fair value of the company in the market. In a nutshell, the value of an asset is its potential fiscal benefits. Intellectual property is an example of an intangible asset, and this includes trademarks, copyrights, patents, designs and trade secrets. IP evaluation as the name suggests means evaluating the value of the Intellectual Property or IP. It is a process wherein the monetary value of IP assets that a company owns is assessed. Thus, prior to evaluating, it is essential to maintain a detailed portfolio of all intellectual property owned by the company.

Intellectual property (IP) differs from other types of intangible assets primarily because it is seen from both an economic and legal standpoint. It can be recognised by its commercial profits and also through its legally enforced attributes, such as the exclusive rights that are granted to an IP owner. For intellectual property to be considered an asset, each of these viewpoints must be balanced, i.e., the period of protection of an IP granted as per the law must still be valid and it also needs to produce financial benefits. If the period of protection is
valid but if the IP is not generating any economic gains, then it may not be considered as an asset.

There are mainly three methods to evaluate IP assets. They are as below: –

 Market-based method – In this method, a price comparison of similar kinds of IP that are available in the market is taken to determine the worth of a particular IP.
 Cost-based method- This approach calculates the costs associated with producing the intellectual property in question as well as future similar assets and an average is calculated.
 Income-based method- A prediction is made on the financial income that the IP in question will generate in the future by identifying its beneficial features.

Each method comes with its own set of pros and cons; therefore, it is important to choose the right method that is most appropriate for your IP portfolio.

Coming to the role of IP in the value of a Start-up, IP plays an important role right from the foundational level of a start-up. Many tend to forget that IP plays a key role in increasing the overall value of a start-up. It is vital and has to be considered right from the beginning as it
will help in protecting not just the brand name, goodwill and reputation of the company, but the exclusive rights granted for different IPs will also help in improving the overall financial health by exploitation of the said IPs.

A company or a start-up may possess a variety of intellectual property, and each of these IPs have unique advantages and protection. For eg, the brand name, product name etc., of a company can be protected as a trademark; if that particular product is novel and is capable of being used industrially, the same can be applied for a patent; if the product has a unique design, it can be protected for design protection and the product literature can be copyrighted.

Thus, a single start-up may have multiple IPs for which they can secure protection and it is essential that they are identified and protected in the earlier stages itself. Many start-up owners are yet to realise the value of IP and its importance. It not only facilitates the successful exploitation of intellectual property and creates revenue for the future—which in itself is a positive—but it also enhances the startup’s reputation and relevance in the marketplace. Even if they are aware of the various types of IP, many are still oblivious to the exclusive rights that they would receive, its market value and monetary relevance etc. Thus, it is essential that the public, especially the start-up owners are made aware of intellectual property valuation and its various benefits.

By

Adv. Shwetha S Menon

This blog is for information only and should not be treated as an opinion in the matter.

By |2024-03-26T07:08:12+00:00March 26th, 2024|IP Unplugged|0 Comments

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