Financial value

Reasons for IP valuation

Companies are becoming increasingly dependent on their intellectual property rights (IP). As a result, strategic decisions are increasingly dependent on understanding the economics affecting the value of these properties. The value of an asset is normally determined by the market, for example by comparing the asset to other assets having been transferred between two unrelated entities dealing at arm’s length. Unfortunately, intangible assets and IP seldom benefit from open market conditions. In consideration of the growing investments required to develop and market products and services, there is a clear need for assessing the economic value of such IP.

Time for IP valuation

Important corporate events, such as Mergers & Acquisitions, financing and to a lesser degree dissolutions, may lead to evaluate the financial value of IP. IP can also be valued at other stages of the product’s or service’s life.

Valuation, depending on the extent of its scope, can represent a unique opportunity to make a broad assessment of all factors, inputs and other data related to IP for one product, service or company.

Benefits of value assessment

Office Freylinger’s valuation of IP can generate significant awareness by helping companies to:

  • select market opportunities;
  • more effectively protect and leverage the IP rights necessary to today and future growth;
  • develop a strategy for IP development and protection;
  • identify revenue opportunities;
  • better use the IP rights (for example through licensing, joint ventures, divestiture, transfer to suppliers, set-up of subsidiaries, spin-offs);
  • justify a return on investment for technology and patents;
  • reflect overall company value more accurately on financial statements.

Royalty rates

Transfer of intangible goods between related parties usually proceeds in three different ways:  contribution to capital, sale or license.  Probably the most common, yet the most challenging to transfer pricing issue is licensing.

Transfer pricing is the process encouraged by tax authorities of setting appropriate and market-based values and royalty rates for use and acquisition of intangible assets. Most major governments have stated fairly similar regulations for appropriate transfer pricing, consistently referring to market-based methods to establish the royalty rate or transfer price.

When intangible assets are transferred and used within a group of related entities, determining “arm’s length” royalty rates for tax purpose therefore requires a search for comparable royalty rates. 

OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations also touch upon a question of transfer of intangible goods between related parties recognising, at the same time, serious difficulties with determining arm’s length pricing of such properties.

Our experts can conduct benchmark analysis to determine a range of applicable royalty rates for a specific transaction, or for a specific sector of activity.

We conduct this type of assessment in published data and in patent and trademark databases to obtain a range of transactions in your territory of interest.

Our search methodology is as follows: 

  • Identify trademark or patent or technology license agreements for the same field of activity
  • Identify the data of the different contracts to be analysed
  • Determine contracts similar to our need
  • Compare all the data collected
  • Determine the usual royalty rate for the determined area

Office Freylinger’s expertise

Based on extensive experience in the IP field and in IP valuation and support to our clients, we can provide you with simplified or in-depth assessment of IP value, regarding one specific IP right or every rights of one company or group of companies.