Lambert Shortell & Connaughton Blog
IP Asset Valuation – Have More Than Competitors
Patents, trademarks, and copyrights are all different types of intangible assets known as intellectual property (“IP”). These assets provide their owners with legal rights that prevent others from performing some action. For example, in the case of patents, a patent owner has the right to prevent others from making, using, or selling an invention described in the patent. In the case of trademarks, a trademark holder has the right to prevent others from using a particular business name or phrase in commerce.
Perhaps unsurprisingly, it is important for growing and established businesses alike to invest in the development of IP. However, unlike the tangible assets a business might invest in (e.g., property, inventory, etc.), it can often be hard to place a value on IP assets. Like tangible assets, IP assets can be expensive, so it is important to be able to value them accurately.
Intuitively, one might think that an IP asset is worth at least its acquisition cost, or alternatively, whatever someone would be willing to pay the IP holder to purchase or license the asset. While there is certainly truth behind these intuitive statements, a recent study evaluating the market valuation variance for over one thousand publicly listed multi-national corporations based on their IP holdings determined that IP assets really only increase a company’s market valuation when the company holds more IP assets than its direct competitors (https://doi.org/10.1080/13662716.2019.1685374).
The authors determined that each incremental addition to an IP asset portfolio does not necessarily impact a company’s market valuation. However, when a company holds comparatively more IP assets than its direct competitors, the results show a statistically significant increase in market valuation. In short, companies that hold more patents than their direct competitors are, on average, 12% more valuable, and companies that hold more trademarks than their direct competitors are, on average, 16% more valuable.
Therefore, at least with IP assets, the goal seems to be to have more than your competitors, not more in general.
Gary Lambert Speaks About Trademark and Patent Law at the National Hunting Retailer Show in Nashville, Tennessee
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