Process 7: Designing Valuation and Assessment Tools

To fully maximize value and leverage IP, tools are required for the business to assess and evalu­ate the IP assets in question. Valuation of single properties by professional accountants may be essential in cases of litigation, joint ventures, major licensing transactions, acquisitions, and IP donations. The cost of these valuations prohibits their use, however, in the normal course of man­aging IP. Methods to value and assess IP should be developed by every business to facilitate man­agement of IP in the operation of business in general. The following are suggestions as to how such valuation and assessment methods can be designed.

Assessment and Qualitative Measures. To create an assessment method, a number of factors should be identified to assess the value of the primary form of IP using qualitative measures (e.g., strength and scope). Each IP is then assessed according to these criteria and given a score from 1 to 5, for example. The various factors are then given different weights according to their impor­tance in determining the value of the IP in the final measure; for example, scope of coverage score can be weighted at 50 percent of the final result. The aggregate of the different scores, according to their respective weights, for each IP indicates its value to the business and thus guides decision making. The following are examples of the factors that should be included:

Scope of protection under the IP

•   For patents - examine the scope of the claims. A patent is as good as its claims. Com­pare to other patents covering the same area and classify as domineering or improve­ment patent.

•   For trademarks - assess brand values and promise and the sub-brands connected to it. Assess the number of market segments and product categories that the brand extends over

• For copyrights - assess the number of media that the same copyrighted work has been
produced in, the market segments it covers, and the various versions in which it has
been, or can be, reproduced.

• Strength of the IP

•   The number of patents covering the same technology

•   The level of brand awareness across various market segments, (i.e., level of penetra­tion), and the degree of uniqueness and distinctiveness of the mark

•   The number and quality of protectable versus nonprotectable elements in copyrighted works - assess whether the protectable elements form the core of the work and the degree to which they affect the success of the work

• Other factors

•   The expected business life cycle of the products covered by the IP

•   The potential for licensing the IP and the expected return

•   Protection in other countries

•   Use of the technology in manufacturing and any resultant cost savings

Valuation and Quantitative Measures. Various corporations have developed methods to value their IP in house, and hence provide guidance as to their management. There are a number of methods to quantitatively measure the value of certain IP assets. The feasibility of each method depends on the accounting system of the organization as well as its industry. Following are meth­ods that can be used to collect comparable data as to the value of the various IP assets to a certain business, and to the organization in general:

•   Collect data relating to the sales of patented, copyrighted, or branded products.

•   Collect data as to royalty streams from licensing agreements.

•   Determine the main IP that is at the basis of each business unit's competitive advantage and how the IP in question affects the profitability of each business unit.

• Compare and assess the growth rates of various business units and connect to the main IP that each business unit owns and manages.

The next chapter presents a guide for customizing the CICM model presented in Chapters 11 through 13, to fit the organization's needs.