Valuing Intellectual Property
The late 1990s saw the rise of corporate valuations arising from ownership of various forms of intellectual property, rather than the traditional value arising from production and sale of goods or services. In fact, many industries and organizations with biggest influence in the contemporary business world are being led by highly influential people with great innovation in the area of intellectual property. Some of the most established industries on the grounds of intellectual property are ones with upper hand in the market share in terms of innovation, organization and operation.
Intellectual property refers to the outstanding varieties of the creation of mind whose ownership and rights must be recognized and protected by established laws in the corresponding field (Raysman, 2008). In the business world, this creation of mind is termed as knowledge, which is the most essential capital needed by any business organization. Thus, the creativity demonstrated to the business world is an intellectual capital which manifest in various forms; it can manifest as human capital, intellectual asset, intellectual property and structural capital.
In the same line of intellectual capital, human capital entails a compilation of expertise, academic ability and understanding/experience of employees of a given business organization (Raysman, 2008). While structural capital refers to the helpful infrastructure such as procedure certification, the simple impetus will catalyze one to be more productive. Intellectual infrastructure, on the other hand, is what constitutes intellectual property once accepted and protected by the law Intellectual property takes five forms, such as copyrights, patents, know-how, trade secrets and trademarks (Smartpros 2000). A single business unit can own over 100 intellectual property rights coined in their trademarks, logo, and production formula among many.
Any transactions involving intellectual property must be valued. Valuation of intellectual property is a complicated process, which consists of many steps (Smartpros 2000). This is as a result of the difficulties encountered in determining the market loyalty rates. However, the rates are somehow negotiable via traditional tools that are based on judicial opinions, the professional surveyor from clients’ own agreements. During the process, of negotiating for these rates, the person who is making valuation has to combine these traditional tools using a public search for the agreements for licensing; there are over 1800 listed transaction with terms and rates used by companies.
Intellectual property is an essential ingredient in the value of all business. This implies that the future position of all companies will be pegged on the management of this intellectual property. Thus, the management of companies will position themselves in several ways subsuming management of the registration process globally and being sure of compliance with a set of agreements. They will also ensure utilization of third-party licensing, converting their intellectual capital to intellectual property, recognizing intellectual property to be available, quantifying the worth of the components of intellectual capital, managing the cash flows and distribution channels of their intellectual property and being able to structure the means of release and potential influence with other intellectual property within the same organization (Smartpros, 2000).
Due to the emphasis being pegged on the intellectual capital, there is a likelihood of tying intangible asset with intellectual property. However, this ought not to be the case, since intangible asset and intellectual property differ from one another though they have similarities too. It ought to be put clear that intellectual property is a detachment of intangible asset and that the intellectual properties such as patents & trademarks gratify the definitional requirements of intangible assets. Intangible assets, on the other hand, are drawn out assets used in the creation of goods and services that are devoid of tangible assets. According to the financial consulting group, intangible assets differ in their characteristics and span of life, which they are deemed valid; they are classified based on the statement number 72 of the Financial Accounting Standards Board (Smartpros, 2000). These classifications are based on the ability to be transferred, which is the go head in patenting or copywriting, based on the ability to be identified thus possessing descriptive documentation as in the case of copyrights, based on the definite or indefinite lifespan as prescribed by the law, and finally they are classified based on the ways, in which they are acquired such that we have them that can be bought or be developed internally.
Identifiable intangible assets have a number of attributes that enables it to exist when viewed from an economic perspective (Smartpros, 2000). They include: subjection to the rights of private ownership that can be passed on through the law, ability to support their existence with the help of legal documents, such as a registration document, being in a position to be identified or recognized with specific identities, being in existence for a definite period of time and the attribute of being legally binding laws. Furthermore, these identifiable intangible assets should be able to yield a beneficial economic gain to the business or to the owner.
There are some economic phenomena that cannot be identified or touched, but they are rather descriptive in nature. Although, at times, they explain circumstances that through in to the survival identifiable intangible assets, they lack the requisite elements for them to be described as intangible assets (Smartpros, 2000). They include: high profitability, monopolistic position, market potentiality, large market share and general positive reputation. These unidentifiable intangible assets are indicators of identifiable intangible assets that lack considerable economic value and are commonly referred to as goodwill.
Intellectual property is a vital ingredient in the business world of this millennium. Even if bureaucracies are employed in the valuation of the same business and individuals will strive to achieve its valuation and reap the benefits associated with it. In fact, if any country would want to compete in the global economy then it should have to review then harmonize the laws governing its intellectual property.