1. What is IP to a business/company?
- Essentially, ‘IP’ refers to unique, value-adding creations of the human intellect that results from human creativity and inventiveness.
- A company’s assets could be broadly categorized as tangible assets (e.g.: buildings, machineries) and intangible assets (e.g.: human capital, brands, designs and innovative capacity), thus the latter would include IP rights.
- In a technology driven and enhanced world, companies are realising that intangible assets are becoming more significant and valuable in determining the competitiveness of a business in the market trade, instead of the traditional physical assets.
- For instance, large factories are increasingly being overhauled by powerful and sophisticated software, traditional production techniques are being enhanced and modernised by endless innovation and creative ideas.
- As such, companies should seek to make best use of their intangible assets, specifically IP assets, by legally protecting them.
2. What are the examples of such intangible assets?
- Generally, IP rights is the subset of intangible assets of a business.
- Some of such intangible IP rights/assets may be acquired in:
- Innovative products and processes (through patentsand utility models);
- Cultural, artistic and literary works, including computer software and compilation of data (through copyrightand related rights protection);
- Creative designs, including textile designs (through industrial designrights);
- Microchips (through protection of layout-designs or topographies of integrated circuits); and
- Trade secrets(through protection of undisclosed information of commercial value).
3. How do these IP rights affect the market value of a company?
- As mentioned, IP can become a valuable business asset.
- Markets will value a company on the basis of its assets, its current business operations and expectations of future profits.
- IP may generate an income for a business through the licensing, sale, or commercialization of the IP-protected products or services that may significantly improve the company’s market share or raise its profit margins.
- IP rights can enhance the value or worth of a company in the eyes of investors and financing institutions.
- In the event of a sale, merger or acquisition, IP assets may significantly raise the value of a company, and at times may be the primary or only true assets of value.
- In a nutshell, the strategic utilization of IP assets can substantially enhance the competitiveness of a company.
- Innovation is one method by which a company may increase market share. IP plays a major role in enhancing competitiveness of technology-based companies, whether such businesses are commercializing new or improved products or providing service on the basis of a new or improved technology.
- The basis of inventions is innovation, and such inventions can be protected through patents.
- For most technology-based companies, a successful invention results in a more efficient way of doing things or in a new commercially viable product. Such added value would underpin a bigger stream of revenue or higher productivity, resulting in improved profitability of the company, thus increasing its market share and value.
- As a result, it would also attract increased public perception and belief that the company has earning potentials, hence increasing the company’s Price-to-Earnings Ratio (“P/E ratio”) and thus its valuation.
- This would then indicate an increased demand of the company as investors would anticipate earnings growth in the future.
- For instance, such companies would be perceived as an impressive corporation and would always be on the look-out by astute executives for a possible good acquisition deal when their businesses are in a growth mode.
|Procter & Gamble|
|Johnson & Johnson|
5. How do you manage your IP assets?
- This could be done by conducting an IP valuation of a company.
- IP valuation is a process to determine the monetary value of the subject IP right(s) of such company.
- In other words, such valuation is an essential audit for a company.
- There are various reasons for conducting an IP valuation, and some of the triggers would point to the purpose of increasing market shares/value of the company.
- For instance:
|Merger & Acquisition (M&A)|
|Strategic Financing and/or Raising Equity/Capital|
6. How is an IP valuation performed?
- Generally, there are 2 broad approaches, namely, the quantitative and qualitative valuation.
- Quantitative approach relies on numerical and measurable data with the purpose to calculate the IP’s economic value, whereas qualitative approach focused on the analysis of the characteristics and uses of the IP.
- This approach is performed through the analysis of different indicators with the purpose of rating the IP right, i.e. to determine its importance.
- Such indicators would cover all aspects affecting the value of the IP, for example:
- Legal aspect
- Technology level of the innovation
- Market details
- Company organization
7.How do we choose the right approach?
- Primarily, there is no hard and fast rule to determine outrightly the right and wrong approaches. In fact, selecting the appropriate valuation method in a given circumstances is complex.
- Several factors should be considered, for instance:
- Type of IP at stake
- Level of development of the technology
- Purpose of the valuation
- Weighted pros and cons of each method
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