Valuation of IP

The criteria for recognising IP

In accordance with current Australian practices, to be able to separately recognise, value and record your IP you must be able to:

• Identify your IP as a separate, stand-alone asset.
  It is necessary to distinguish IP from other assets in the event of an acquisition, or to record IP in its own right as an internally developed asset. In order to separately recognise IP, the future economic benefits derived from the asset must be capable of reasonable estimation and separation from the value of the other assets that comprise the business. IP can be regarded as a stand-alone asset if it can be identified and sold separately from the business as a whole or licensed for use to others. Intangible assets classified under 'goodwill' cannot be separated from the whole business in this manner.
• Sell or transfer your IP.
  Many kinds of IP, such as brands and patents, can be sold separately or licensed. Franchising, for instance, is essentially the licencing of a brand. Good examples of brand licencing are Fosters Lager and Pierre Cardin, where third parties have been licensed to use these brand names.
  There are other circumstances where IP may be separated from a business and sold separately. For example, in January 2001 Cadbury Schweppes Plc paid $30 million to Bonlac Foods Ltd to acquire their Spring Valley drink brands, to increase its share of the Australian fruit juice market.
  Alternatively, the brand name may be sold to a third party with the company continuing to manufacture the product on a contract basis, as well as continuing to produce unbranded products. The brand name purchaser is responsible for marketing and distributing the branded product. The original company (the licensor) would then earn a royalty on the licence of the branded products as well as standard manufacturing profit.
• Protect your IP.
  The value of an identifiable asset will generally be higher if it is protected. The legal status of IP can underpin the asset's value by providing greater certainty for the owners to legally transfer their interest in that particular asset. The strength, duration and extent of protection are important determinants of whether IP can be given a fair market value and what amount of value that might be.
• Recognise your IP as enduring in nature.
  The IP in question should be regarded as a capital asset rather than the residual of some recent expenditure. The life of IP needs to be assessed, taking into consideration any technological developments that may reduce the value of the asset. When assessing a value for IP, that value should be assessed devoid of any supporting expenditure.