IP ASSET VALUATION AND IP

AUDIT

IP ASSET VALUATION
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ASSETS
An economic resource.
Anything tangible or intangible that is capable of
being owned or controlled to produce value and
that is held to have positive economic value is
considered an asset.
An item of economic value
owned by an
enterprise that could be converted into cash
An asset is a resource controlled by the
enterprise as a result of past events and from
which future economic benefits are expected to
flow to the enterprise

TWO KINDS OF ASSETS

Tangible
Building
Machinery

Intangible
Goodwill
Intellectual Property

IP ASSETS
Intangible asset knowledge based
Legal Right to exclude others from using
Limited duration
Assignable/ Licensable/Transferable

Can be bought, sold, licensed, or given away free

Multi-usable
Use does not exhaust

FACTORS DRIVING THE INTELLECTUAL

PROPERTY

Intellectual property derives its value from a

wide range of significant parameters such as

Market share
Barriers to entry
Legal Protection
IPs profitability
Industrial and economic factors
Growth projections
New Technologies

RISKS IN IP ASSETS
New Patents
Revocation of Patents
Infringement Suits
Trade Secrets
Weak Enforcement Regimes

VALUATION
Valuation is a process of determining value or worth
of an asset and the legal concept of property
Value of a thing in particular place, at a particular
time, in particular circumstances.

IP VALUATION

IP valuation depends on various factors

Use of the IP assets
Market share of company
Legal protection of IP

Enforcement cost

Economic growth

USE OF IP VALUATION/ SCENARIOS

WHERE IP VALUATION IS REQUIRED

For commercial transactions

For pricing product
For evaluating potential merger or acquisition candidates
For identifying and prioritizing assets that drive value
For strengthening positions in technology transfer
negotiations
For making informed financial decisions on IP
maintenance, commercialization and donation
For evaluating the commercial prospects for early stage
Research & Development (R&D)
For evaluating R&D efforts and prioritizing research
projects
For Financing through VC
For litigation and dispute resolution
For tax planning

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BENEFITS OF IP VALUATION
Can give a better idea of the overall value of the
business
Can provide a tool to measure and manage the
assets
Can provide security and backing for lenders
Can provide taxation benefits (taxation
deductions)
Business net worth attributed to goodwill
important when selling a business

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FACTORS CONSIDERED IN PATENT

VALUATION

Qualitative and quantitative characteristics of the

patent(s), including the specific patent claim
Earnings capacity and profitability relating to the
patent(s)
Any current or previous licensing of the patent
Legal rights and restrictions to the patent(s),
including foreign patent protection
Contracts associated with the patent(s)
Competition, barriers to entry and risks associated
with the patent(s)
Product life cycles and positioning
Historical growth and prospects for the future
Alternative uses for the patent(s)

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FACTORS CONSIDERED IN TRADE MARK

VALUATION

Qualitative and quantitative characteristics of the

trademark(s)
Earnings capacity and profitability relating to the
trademark(s)
Market share supported by, or as a result of the
trademark(s)
Market recognition analysis of the trademark(s)
Legal rights and restrictions to the trademark(s)
Contracts associated with the trademark(s)
Competition, barriers to entry and risks associated with
the trademark(s)
Product life cycles and positioning
Historical growth and prospects for the future
Exploitation opportunities of the trademark(s) into new
markets/products

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FACTORS CONSIDERED IN BRAND

VALUATION

Qualitative and quantitative characteristics of the brand

name(s)
Earnings capacity and profitability relating to the brand
name(s)
Market share supported by, or as a result of the brand
name(s)
Market recognition analysis of the brand name(s)
Legal rights and restrictions to the brand name(s)
Contracts associated with the brand name(s)
Competition, barriers to entry and risks associated with
the brand name(s)
Product life cycles and positioning
Historical growth and prospects for the future
Exploitation opportunities of the brand name(s) into new
markets/products

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VALUATION METHODOLOGIES
Cost based approach
Based on principle of substitution-- estimated on
the basis of cost to construct a similar assets
Based on economic factors supply and demand

Income approach
Future cash flows (Both amount and timing)
Economic life

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IP AUDIT
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IP AUDIT: WHAT IS IT?

A systematic review of the IP assets owned, used
or acquired by a business
IP Audit says

How the IP assets are being used or not used

Whether the IP assets used by it are owned by the
company or others
Whether these IP assets are infringing the rights of
others or others are infringing on those rights, and
determine, in the light of all this information
What actions are required to be taken w.r.t. each IP
asset, or portfolio of such assets to serve the relevant
business goals of the company

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IP AUDIT: WHAT IS IT?

Its purpose is to uncover under-utilized assets,
to identify any threats to a company's bottom
line, and to enable business strategists to devise
informed strategies that will maintain and
improve the company's market share and brand
equity.

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IP AUDIT: OBJECTIVE

To uncover under-utilized IP assets

To identify any threats to a companys bottom line
To enable business planners to devise informed
strategies that will maintain and improve the
companys market position
Overall purpose of an IP audit is to identify
and assess all of the companys intangible
assets in order to conduct a SWOT (Strengths,
Weaknesses, Opportunities, and Threats) analysis to
determine the valuable core assets and optimize
their usage through a systematic long-term
strategy
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IP AUDIT: OBJECTIVE
As your business grows it is essential that you
identify and keep an inventory of your
intellectual property (IP) assets.
This is called an IP audit and it will help when it
comes to seeking protection for your intellectual
property.

Understanding your IP assets is a vital part of

business planning.
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IDENTIFYING YOUR IP ASSETS

The first steps in an IP audit are:

Identify the products or services that are key to

your business
Identify your IP assets and the legal rights that
constitute them in relation to your goods or
services
Understand what market advantage these rights
give you (i.e. cost, performance, timeliness).

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STEPS ION IP AUDIT 1

First Step: Investigation

All things created, developed or used by the
organisation such as, inventions, formulas,
processes, devices or other technologies, creative
works, such as music, books or computer video
games, business information, including
advertising, promotional materials, customer
lists, prospect lists, pricing information, sales
figures, financial projections and other materials

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STEPS IN IP AUDIT 2
Second Step: Identification
Identify the readily identifiable IP

Trademarks
Copyrights
Designs
Patents
Product/process Know-how
Trade Secrets

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STEPS IN IP AUDIT- 3

Third Step: Categorisation

Owner
Licensee
Licensor
Domestic
Foreign

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STEPS IN IP AUDIT 4

Fourth Step: Itemize external or market

influences

company brand
product brands
Goodwill
product certification
export certifications
Regulatory approvals

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STEPS IN IP AUDIT - 5
Fifth Step: Examine Enforceability
Legal Provisions and Economics
Administrative Action
Legal Steps

Civil Procedures
Criminal Procedures

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AN INVENTORY OF IP AUDIT
Whether or not your IP rights are registered;
Whether you have any intellectual property
issues and what to do to address them;
Who owns the rights and, if you not, identify any
conditions that apply to their use;
An assessment of whether your IP is being used
effectively;
Whether your rights are being challenged or
threatened by others;
Whether you have an effective IP management
and maintenance plan in place; and
Records of your IP creation and ownership.

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WHEN TO DO AN IP AUDIT?

General Purpose Audit:

Can be conducted any time without any specific
purpose
Before establishing a new company
At a time of implementing new policies, standards
and procedures
When business is considering implementing a new
market approach or major reorganisation

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WHEN TO DO AN IP AUDIT?

Event Driven:

IP due diligence
When a business is being bought, or sold, Mergers &
Acquisition or JV
Financial transactions
Licensing of Intellectual property
Launching a new product or service

Event Driven:
Bankruptcy
Revaluating the assets

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PRINCIPAL REASONS FOR CONDUCTING AN

IP AUDIT

To identify opportunities to license or sell IP

To protect against theft or trade secrets
The increasing recognition of the value of IP as
business assets

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WHO SHOULD DO AUDIT

Team comprising of an IP lawyer, technical
member or anyone having sufficient knowledge of
the facts
External agency or consultants

Signing an NDA from Audit team

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