UNDERSTANDING THE VALUE OF YOUR INTANGIBLE ASSETS (Part 2)
[Read Part 1: What Constitutes An Intangible Business Asset?]
COMMON FINANCIAL BENEFITS OF OWNING INTANGIBLE ASSETS
Intellectual property can add value to a company in many ways. Some of the most common benefits of properly protected intellectual property include goodwill, license and franchise fees, royalties and financial capital.
The most obvious value of having superior rights to a trademark or service mark includes an increase in goodwill. The uniqueness of a product or service name will help attract customers to your products and services as opposed to those of your competition. But if these rights are not protected by appropriate registrations, you may be leaving yourself open for others to adopt similar marks that could confuse the consumer and create a loss of goodwill or marketing momentum. In this situation, you also risk getting a lower purchase price for your business when you choose to sell.
License Fees and Franchise Fees
If you have a product that lends itself to distributorship arrangements or franchise opportunities, a unique product name or an enforceable patent can increase the profitability of those arrangements. Quality products that are easily distinguishable from those of the competition, or which cannot be duplicated because of a valid patent, will lend themselves to agreements that generate trademark license fees, franchise fees, royalties or other types of residual income.
Royalties are frequently available for distributorship arrangements based on the sale of specific products. Copyrighted works also lend themselves to the generation of royalties through publishing deals (e.g., books and songs), use as or in television programs or motion pictures, public performances or other contract arrangements.
Bank Loans and Venture Capital
If you approach a bank, venture capitalist or other investor to acquire working capital, fund expansion or cover other business needs, the potential financial backer will evaluate the nature of the collateral you have to offer. What business owners often forget, however, is that properly protected intellectual property can often serve as collateral for these types of transactions. In appropriate cases, banks will to take a security interest in patents, trademarks and/or copyrights. Of course, to take advantage of this possibility, you must be able to demonstrate the proprietary nature of your rights and the value of those proprietary rights.
VALUING YOUR INTELLECTUAL PROPERTY
Placing a dollar value on your intellectual property can be a difficult task. The actual value of any intangible asset must be evaluated carefully and often involves the review of multi-faceted data. Obviously, sales figures will be important in any such evaluation, as will the potential income stream from a particular product or service (as with royalty-bearing works or ongoing license fee or franchise fee arrangements). But, another important aspect of this evaluation will center on whether the business owner has exclusive or limited rights to a particular intangible asset.
The easiest way to demonstrate exclusive rights is to have state and federal trademark registrations where appropriate, copyright registrations, issued patents or demonstrable protection of trade secrets. Once you are clear about the types of intellectual property you have and the extent of your protection rights in that property, you can consult with a valuation expert to determine the potential dollar value of those intangible assets. If you are not certain what intellectual property you have or whether you have instituted the proper protection for your intellectual property, you should consult with an attorney or IP asset manager with expertise in copyrights, patents and/or trademarks (as applicable). Failure to do so may jeopardize important financial assets.
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