Valuation Key to Managing IP

This article summarizes procedures to measure, control and exploit a company’s intellectual property. The author, a certified public accountant accredited in business valuation, says that in-house counsel are in a unique position to recommend and implement these procedures. CPA/ABVs apply generally accepted approaches and procedures to conclude on the value, inter-company transfer price, license royalty rate or economic damages related to IP.

An IP valuation helps centralize control of intellectual property assigned to different company operating units. Centralization allows management to effectively perform its internal control duties. While there are currently no requirements for CEOs or CFOs to vouch for IP valuations, the Sarbanes-Oxley Act as well as federal and state securities laws require that management be responsible for the internal control of all company assets.

An IP valuation allows management to identify and pursue commercialization opportunities. It can be used by a corporate property owner to identify intangible assets that are excluded from state and local ad valorem property taxation. It also may be used to defend against third party infringement allegations. Valuations indicate reasonable royalty rates and enable damages measures that legal counsel may use to negotiate a settlement agreement.

For most purposes, however, company management is not the primary audience for IP analysis. To achieve corporate objectives, management may have to make its case about IP value to a banker, auditor, taxing agency, regulatory authority, investor, judicial finder of fact or other third party.