03 methods for valuation of the transfer of the right to exploit intellectual property rights
In the transfer or assignment of the right to exploit intellectual property rights, one of the most important issues to be agreed by the parties is the valuation of transfer/assignment of the right to exploit intellectual property rights. In this article, Apolat Legal introduces the three current popular methods of valuing intellectual property rights.
1. Method 1: Income-based method
According to this method, the calculation of the value of intellectual property rights is based on the nature of the work/subject matter of intellectual property rights (collectively referred to as “intellectual property”), whereby the value of an intellectual property is assessed on the basis of the historical, current and expected future economic benefits of such property.
Basically, this method focuses on the estimated income that the intellectual property right holder expects to receive during the validity of the intellectual property right.
Under actual valuation of intellectual property as well as the International Valuation Standards on guidelines for the valuation of intangible assets published by the International Valuation Standards Council (IVSC) in 2009, it is recommended to apply the income-based method due to its more-reliable results than other methods.
2. Method 2: Cost-based method
This method is used to estimate the future benefits of intellectual property by calculating the amount/cost required to replace such intellectual property.
The advantage of the cost-based method is that the data for the calculation is relatively clear, easy to collect because it is often listed in the accounting books of the enterprise, with simple and easy-to-perform calculation method.
However, the biggest advantage of this method is that the determined value is the historical cost, not the market price. The value derived from the cost-based method does not yet reflect the growth potential, risks, and economic performance of intellectual property.
3. Method 3: Market-based method
This method relies on a third party’s willingness to pay for the purchase or lease of intellectual property. Thereby it analyzes and compares transactions for similar intellectual property to estimate the value.
In principle, the market-based method gives highly convincing results because of its ability to use market information, which is always the ultimate measure for all economic decisions. It is a simple method that does not require much technical knowledge as there is no fixed formula or model, but relies solely on the presence of similar transactions in the market to derive valuation proofs.
However, in fact, there is no transaction on a type of intellectual property that is completely similar to intellectual property, the intellectual property is a specific type of property. Furthermore, the information on similar transactions and the handling of the distinctive features of specific transactions are often not fully disclosed. Therefore, the market-based method is rarely used for valuation of intellectual property in practice.
Thus, it can be seen that there are currently many methods for valuation of intellectual property rights. Each method has its own advantages, disadvantages and bases of application. The right holders and related parties need to evaluate the specifics of the ongoing transaction in order to choose and implement the most suitable valuation method.
Disclaimers:
This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.
For issues related to the content or intellectual property rights of the article, please email cs@apolatlegal.vn.
Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to Intellectual Property Rights. Please refer to our services Intellectual Property Rights and contact our team of lawyers in Vietnam via email info@apolatlegal.com.
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