IP valuation is the activity that allows technology transfer and innovation professionals to determine a defensible monetary value for IP. Typically, this activity is carried out to support the commercialization of IP. The exact approach to take, and the data available, will vary significantly from one situation to another. In order to be applicable to all, this guide provides a basic framework for carrying out valuation methodologies, including a theoretical overview describing fundamental principles. In addition, it provides a framework for carrying out different methods of valuation, including case studies to further demonstrate how these methods work under a range of scenarios.
In using this guide, you should consider working closely with an IP valuation specialist, when implementing the approaches described, and when navigating the challenges of valuation in specific technical fields. There are several resources available, to suit both the novice and the professional seeking more nuanced treatment of IP valuation.
Users of this guide come from diverse regions and backgrounds. We therefore recommend that you make sure that the implementation of the methods described is aligned with your local context in terms of laws, accounting standards, and business culture. In particular, you should consider factors that affect IP value and the context in which valuation is being conducted. These factors are briefly introduced here, and are explored more comprehensively later in the guide.
Fundamental principles of intellectual property valuation
Valuing intangible assets like IP can be complex: value can be subjective and context-dependent, and may be impacted by multiple factors. For example, the value of a particular patent to one company may be vastly different from that of a competitor, depending on their market position or product portfolio.
For early-stage IP, it is difficult to predict with certainty what value it will bring to a specific buyer or licensee. Current and future value is determined by many factors, such as the risk of obsolescence, maturity of the IP, and expected development needs. In addition, other determining factors include the IP’s remaining economic lifetime and whether the buyer will gain access to other benefits such as know-how or technical assistance.
We will explore these factors and others in more detail later in this guide. For those seeking a more advanced understanding of valuation methods for a wider range of asset classes and situations, we recommend that you explore the International Valuation Standards (IVSC, 2024). We also recommend that, when using this guide, you should bear in mind your motivation for valuing IP, as described in the “Valuing intellectual property for technology transfer” section of this guide.
This guide will explore four approaches to IP valuation: the cost method, which is the simplest to use; the market (comparables) approach; the income (discounted cash flow) approach; and the real options method and Monte Carlo simulations, which allow for more complex valuation calculations and a unique treatment of the income approach.