The approaches of IP valuation are generally grouped into two main categories with a few subcategories:
- The quantitative (monetary) valuation – the intellectual property value is expressed in monetary terms and includes the following methods:
- Cost-based method – this method is used to measure the costs in developing the intellectual property, which could be the actual cost incurred in creating the IP or the estimated cost of replacing the IP or creating an equivalent asset;
- Market-based method – the value of the IP is determined by comparison with identical or similar IP for which price information is available;
- Income-based method – is broadly used to value the amount of economic income that the IP asset is expected to generate adjusted to its present day value;
- The qualitative valuation (non-monetary) – the intellectual property value is obtained through “value indicators”, such as the type of the legal protection of the intellectual property, the level of the research and development in a technology, the market of the products and/or services commercialised, etc.
In order to have accurate and usable results, it is important to select the most appropriate method or combination of methods for each individual case. Indeed some of those methods are more suitable for the valuation of certain IP assets. The cost-based method is commonly used in the valuation of software and databases, the market-based approach for the valuation of IP assets such as trade marks, patents, and related research and development activities. In practice, in most cases an effective valuation applies a combination of the methods listed above. Performing proper IP valuation is a complex issue and therefore requires using the services of qualified valuation experts specialised across the wide variety of industries and assets and who have the ability to critically analyse the multitude of valuation contexts.