Quantifying the Financial Value of Intellectual Property Assets
What is the value of your company’s trademarks? What about the patents or copyrights you hold? Is the value of those intangible assets reflected anywhere on the company balance sheets?
Trademarks, patents, and copyrights are often used as collateral for loans that companies obtain from banks. Merger and acquisition (M&A) agreements, if done correctly, include inventories of IP assets (both registered and unregistered) because those intangible assets bring value to the sale of the business.
Unfortunately, many companies do not do a good job of inventorying and valuing their IP assets. What should they be doing?
Last week I attended the International Trademark Associations (INTA) Annual Conference in Washington, DC. The INTA President for 2022, Zeeger Vink, spoke in the opening ceremonies about the value of intangible IP assets and how the value may not be reflected anywhere in company accounting.
Mr. Vink is also the Intellectual Property Director of MF Grands Group in Switzerland. So he has firsthand knowledge on the frustrations business owners experience when trying to place a financial value on intangible IP assets.
Combined, these things make him the perfect person from whom to get advice on this subject.
How Should Companies Reflect the Value of Their IP Assets on Paper?
In order to record the tangible value of trademarks, patents, and copyrights, IP lawyers encourage business owners to:
- Register all versions of the company trademarks with the USPTO
- Obtain patent registrations for new inventions
- Acquire copyright registrations for all original artworks, publications, and audiovisual works
Trademark registrations are considered prima facie evidence in a court of law that the trademark owner has the exclusive right to use the trademark in specific classes of goods in commerce.
Patent registrations grant patent owners the right to exclude others from making, using, selling, or offering for sale the patented invention.
Copyright registrations grant copyright owners the exclusive right to reproduce, distribute, modify, and publicly display or perform a work.
As you can imagine, these exclusive rights are extremely valuable to a company.
Do Employees of a Company Recognize the Value of IP Assets?
Often, brand value and the use of IP assets are included in strategic planning for the company. However, management will focus less on the IP assets if there is no financial value visibly attributed to them.
According to Mr. Vink:
“Current accounting rules are restrictive and don’t even allow for many IP assets to be counted as assets on the balance sheet. That’s a substantial handicap for companies.” INTA Daily News, page 8 (May 2, 2022).
How IP Departments Can Communicate the Economic Value of Company Assets to Management
To focus on developing effective reporting guidelines for IP departments, Mr. Vink launched the IP Reporting for Brands Presidential Task Force. The task force hopes to provide a framework for IP reporting that can be used by companies’ in-house and external counsel to improve the financial valuation of IP assets – which are currently left out of accounting approaches.
The financial value of IP assets should not only be considered when collateral for a loan is needed or a company is being sold. It should be considered across the board in strategic planning, financial planning, marketing, and all aspects of a company.
I look forward to learning about the guidelines the task force develops so that I can demonstrate to my own clients the financial value of their trademarks, patents, and copyrights.Share