How to Value Your Intellectual Property
Valuing intellectual property is no easy task. No matter what kind of intellectual property you own, there are certain bases you need to cover in order to assign a reasonable value to it. It cannot be done on a whim, based on what you feel your patent, trademark, or copyright is worth. As with anything else, your intellectual property is only worth what someone is willing to pay. Obviously, the key then becomes setting a value that is high and convincing. You want potential buyers to feel like the price you have set is commensurate with its true value. In this article, we will explain some of the most crucial steps in setting such a value.
The first step is to get the advice of an intellectual property attorney. The valuing and sale of intellectual property is not like holding a garage sale. There are thorny, complex laws and regulations governing how to assign a value to different kinds of intellectual property. It is not the kind of thing a beginner should try to jump into with no experience or research. Instead, take the time to find a respected intellectual property attorney and spend the money to acquire his services. He will advise you on key considerations, as well as offer advice on how to set a value effectively and legally. Beyond that, he will ensure that any transactions after the fact are documented in a professional, comprehensive way. The importance of this cannot be stressed enough. If your valuation becomes the subject of patent litigation, what will be more comforting: knowing that a licensed attorney stands behind the valuation, or that you concocted it with no professional help? The moral of the story: don’t cut corners on legal advice!
The next step is to assess your intellectual property from an outsider’s point of view. You might think your patent or trademark is the best thing since sliced bread, but you may be looking at it through rose colored glasses. This affects creative people in all fields, not just intellectual property. But before you set a value, you need to take those glasses off and see your IP like a complete stranger would. If someone tried selling you a patent, what are some of the questions you might ask?
– What is the market and market size?
– What are the competitive advantages the patent offers?
– How much will it cost to implement the underlying idea?
– How long before competitors start crowding in?
There is simply no way around these questions, and your valuation must take them into account if you hope to be taken seriously. The more appealing the answers are, the higher your valuation should be. A huge, untapped market with few competitors is more valuable than a marginal niche filled with established players. Again, these are market realities that you cannot ignore. Once you have a rough valuation in mind, it’s time to consult the professionals once more.
You need to research comparable transactions and see what similar intellectual property has sold for in the past. The best way to access this data is through an appraiser, or your intellectual property attorney. Together, you can discuss what you think the value of your IP should be as compared to comparable values. Try to settle somewhere between your own idea of the value and the values of the comparables you research. This is a time-tested formula for valuations that stand up and get taken seriously.
Finally, you need to heed the age-old warning against being greedy. You cannot ask for too much in valuing your intellectual property, or else you will scare off potential buyers. To prevent yourself from doing this, ask yourself some more hard, honest questions:
– How long would it take you to develop this idea yourself? Months? Years? And how much money would it cost on top of your time? Thousands, tens of thousands, even hundreds? Generally, he longer and more expensive this would be, the lower your valuation should be. The other party will still be doing most of the work, and they know it.
– What about unexpected problems or challenges that might come up? Businesspeople are familiar with the maxim that everything is harder than you think and takes longer than you think. Ask yourself whether holding out for a few extra thousand dollars is really worth committing yourself to years of headaches and problems that you can’t even anticipate right now.
The point is that whoever buys your intellectual property will be assuming all of these risks. You shouldn’t lower your value to the ground, but you shouldn’t be overly greedy, either.
If you keep these considerations in mind and execute them in order, you can accurately value your intellectual property. Good luck!
Jay Cross is a staff writer for Idea Buyer LLC which owns and operates http://www.IdeaBuyer.com – The Online Marketplace for Intellectual Property. The site gives inventors the opportunity to showcase their intellectual property to consumer product companies, entrepreneurs, retailers, and manufacturers. You can email him at JayCross@IdeaBuyer.com.