Patent valuation
What is a patent valuation? | Patent Valuation
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What are intangibles?
Intangible assets are those that do not have a physical form, but can generate future economic benefits. These assets play a crucial role in the valuation of companies and economic models. Patents, in particular, are a type of intangible asset that significantly influences a company's ability to market and reproduce its products and services, thus affecting its financial position.
At ANEPSA, we have highly trained personnel to perform appraisals of trademarks and other intellectual property intangibles, following IFRS standards and National Financial Reporting Standards. Intangible assets can be classified into four categories:
- Market assets
- Intellectual Property Assets
- Human Assets
- Infrastructure Assets
Among the most common intangible assets are:
- Software
- Brand
- Industrial Secrets
- Patents
- Other Intangibles
- Commercial Credit
What is a patent?
According to the World Intellectual Property Organization, a patent is an exclusive right over an invention. This right gives the patent holder the power to decide whether others can use the invention and, if so, how. In exchange for this right, the patent holder must make technical information about the invention public in published patent documents. When a company decides to acquire a patent, it must assess whether there is sufficient market interest to justify the purchase price, as well as the potential revenue it can generate from the invention.
How is the value of a patent composed?
The value of a patent is determined by various factors that meet the needs and requirements of the market it is aimed at. To compose the value of a patent, the following aspects must be considered:
- Your market: Identify the market size and demand for the invention.
- Validity: Evaluate the duration and geographical coverage of the patent.
- State of the art: Analyze the level of innovation and novelty of the invention compared to existing technologies.
- Relevance: Determine the importance of the invention to solve specific problems in the market.
What are the characteristics of patent appraisal?
Intangible assets, including patents and utility models, have gained great importance today. Patent valuation has become an area of interest for valuers, as the value of patents is largely determined by market and consumer expectations. Therefore, patent valuation will reflect the value of intangible assets based on the degree of innovation and commercialization achieved in the production process.
How is the value of a patent calculated?
It is critical to accurately determine which valuation method or methods are most appropriate when sufficient information is available to estimate the market value of the patent. As valuers, we must maximize the use of observable and relevant inputs. The objective is to estimate, under current market conditions, the fair value of an orderly transaction for the sale of assets between market participants at the time of the valuation. IFRS identifies three commonly used methods: the market approach, the cost method and the income method. It is crucial to assess whether the true value of the patent can be determined with sufficient certainty using each of these methods.
For example, the market approach can be applied if there is an observable market for buying and selling comparable patents. If information is scarce, the other two approaches should be considered. In the income approach, the company's financial statements are required to be calculated and the most reliable valuation method used.
What methods are used in brand valuation?
COST APPROACH
This method is based on the fact that the value of the patent is equal to the research and development costs incurred for its creation. However, this approach is not suitable if the valuation is carried out for financial transaction purposes.
MARKET FOCUS
This approach requires an analysis of competition in the patent market, which can be complicated as it is necessary to consider similar patents and compare their degree of innovation.
INCOME FOCUS
This approach considers the value of a patent to be directly proportional to the revenue stream that the owner expects to earn over the life of the patent. This method is commonly used to value patents and attract new investors interested in the potential profits that can be derived from them.
Why is a patent appraisal needed?
An owner may be interested in valuing a patent for a number of reasons, such as the intention to sell it, receive royalties for its use, or simply to know its market value. It may also be relevant to assess its market penetration.
Some important aspects that highlight the need for a patent appraisal include:
- It is the basis of a buying or selling process.
- Improves positioning within the sector.
- Facilitates negotiations with financial institutions.
- It can serve as collateral for loans.
- Increases recognition in financial statements, raising the company's capital.
- Allows tax benefits for deductions.
ANEPSA GLOBAL
With Anepsa Global it is possible for this and other types of appraisals to be carried out, contact us by leaving your information or sending a message through our social networks, we are here to provide you with advice and guide you so that you know what type of appraisal is best for you.
