Intellectual Property Valuation in Commercial Transactions

When the assets at the deal's core are intangible assets such as brands, know-how, and technology, extensive due diligence should be performed. Intellectual property is a significant component of the economic value of such deals; IP might include trademarks, patents, industrial designs, and copyright.

Importance of IP Valuation in Transaction:

As a result, intellectual property valuation is critical in the context of commercial transactions. Unfortunately, because many firms are not familiar with these sorts of transactions, this component is sometimes missed, resulting in agreements that are either over or underestimated, making them unprofitable or, in some cases, resulting in terrible scenarios that lead to bankruptcy. As a result, it is essential to examine and appraise the value of intellectual property throughout the negotiating process and before completing the commercial transaction.

Trademark protection is often granted to a company's brand. Technology may be entitled to a patent, industrial design, and copyright protection depending on its specific characteristics. Other categories of intellectual property may exist. For example, a patent would protect the functional/structural aspects of technology. Still, an industrial design would save the graphical format of technology, and copyright is primarily concerned with safeguarding software codes in a technological setting.

To exist and have full legal force, the vast majority of intellectual property rights must be formally registered with the appropriate government authorities. The registration procedure varies depending on the type of intellectual property right and the nation in which it is claimed to be written. As proof of intellectual property rights registration, a registration certificate is often issued by the appropriate body.

Intellectual property valuation rights, if they exist, have a specified duration and scope that must be committed to. The time and size of protection determine the parameters within which the owner has a monopoly on utilizing their intellectual property rights. Protective measures are usually divided into two categories: those that guard against territorial intrusion and those that protect against the competition. The nations in which the intellectual property rights are registered, valid, and enforced determine the geographical reach of the intellectual property rights. Finally, the competitive advantage and monopolistic size characterize the competitive range of intellectual property rights that these rights can achieve under the law.

Due Diligence:

When determining the value of a patent, it is critical to do due diligence to discover the following factors:

• Enforceability and validity of the patent rights
• the patent rights' geographical reach.
• By examining the extent of the awarded claims, we can determine the competitive reach of the patent rights.
• It is possible to determine whether or not there is a problem with the patent's ownership by looking at the patent's chain of title. 
• whether or not the patent rights are currently being litigated. 
• And whether or not the patent rights would rely on third parties' intellectual property rights to mature into commercially viable products.

When determining the value of a trademark, particular weight should be given to the goodwill associated with the property. The value of brands increases with time, unlike the value of patents which diminishes with age (after 20 years, a patent becomes part of the public domain). The value of a trademark grows in tandem with the brand's growth in customer familiarity and fame. Fame may increase the value of a trademark as long as the brand does not become generic and maintains its unique character, which is rare. To maintain originality, it is necessary to balance gaining renown and preventing a trademark from being used as a generic term. As part of the Intellectual Property valuation process, due diligence is done for brands that are less concerned with the technical characteristics of the asset and more concerned with market conditions, usage of the trademark, and consumer trends.