Dernière modification le 01/07/2022 à 15:27 par Back Office Update - test
INTANGIBLE CAPITAL VALUE
by Erwan COATNOAN DE KERDU
Your copilot in creating a successful company
Valuation of intellectual property rights
The valuation of intangible assets makes it possible to identify and control the various financial aspects of the industrial property strategy. Thus, it is essential to know the value of the assets whether it is in the context of a negotiation assistance, a transfer, damages and interest, the valuation of a patent or trademark portfolio, in the context of a tax issue or even an optimization of the management of the assets.
Financial valuation of intangible assets
Rigorous methods are used to conduct the financial valuation of intangible assets. Generally, the most commonly used methods are those based on the analysis of discounted future royalties weighted by the various risk factors, those based on historical cost or those based on market approaches.
A real negotiation aid
Knowing the value of intangible assets provides an accurate view of the value of the items under discussion in a negotiation. The value determined by the financial evaluation of a brand or a patent differs from the value after negotiation on this brand or this patent with a view to an application linked to the exploitation capacities of a partner.
Clearly, the different parties in the negotiation try to find a real balance between the obligations and the rights resulting from the final contract by avoiding to base themselves on an imprecise evaluation. An external intervention allows for better contract negotiations.
A financial analysis of investment transactions
The valuation of intangible assets thus makes it possible to determine the value of industrial property, which is a key point in capitalization operations. Ignoring the specific value of industrial property rights during these transactions is no longer possible. The valuation of intangible assets is an important starting point in profitable and fair management.
IPRs (Industrial Property Rights) such as trademarks, patents, designs, software and copyrights represent today a fundamental asset for start-ups and companies.
As a rule, valuation operations are relatively technical from a legal, economic, technological and financial point of view. Underestimating the value of industrial property rights (or on the contrary, overestimating them) can lead to imbalances. In the same way, if the risks are badly estimated, the corrective measures will not or can not be adapted and the funds to be mobilized will not have been planned. And in this universe, unpleasant surprises have serious consequences.
There are several reasons for evaluation:
- To provide a basis for negotiation with funders;
- To measure the importance of IPR within the result;
- To reach a certain tax objective;
- For companies, to reassure investors and prove their ownership of IPR;
- To financially evaluate the contributions of each party in order to establish the rules for sharing the results in the framework of a research and development consortium.
- Ensure that there are no disputes, infringement situations, contractual breaches or fraud on IPR.
Valuing intangible assets – techniques
There are several techniques for valuing IPRs (or IP rights). Each method focuses on certain aspects of the rights being valued. It is therefore normal to find significant differences depending on the methods used.
The implementation of the valuation
The financial valuation of IP rights is based on several phases:
- The definition of the context of the mission, and its understanding;
- The description of the titles, their origins and their administrative situation;
- The grouping in various clusters: markets or techniques;
- The definition of the legal risks and their possible implications;
- The analysis of the operating conditions implemented or the potential markets;
- The implementation of at least three evaluation techniques;
- Measurement and evaluation of differences and their factors;
- Conclusions about value,
- Creating robust appendices.
This work is relatively tedious, but it carries a lot of weight in negotiations and financing arrangements. It is important to have it done by an independent specialist who will be able to assess the value of the industrial property rights portfolio, while taking into consideration the financial and economic dimensions.
Assessing the risks
Taking into account the legal risks that may affect the economic potential of an IPR is essential in all valuation methods. Quantifying the risks allows for a relevant and objective weighting of the result in financial approaches.
If the valuation of a patent does not include the legal-technical dimensions allowing to appreciate the intrinsic content of the right, it can lead to errors with potentially very heavy consequences. This is also true for the evaluation of software that does not take into account the risks related to its protection and its origins.
It is not uncommon for software not to be the creation of the entities that wish to market it. It is then necessary to ensure that the entity financed for the commercialization owns it in its entirety and has the commercialization rights.
Finally, the evaluation of the brand must include the legal risks. Otherwise, the project may end up with no return on investment: the economic results and data depend on the security and validity of the industrial protection rights.
The valuation of intangible assets must be preceded by a legal and technical evaluation (or simply a legal one, if not) in order to be relevant or else it will be contradicted by the facts. For the investor, these lessons are indispensable.