Valuing IP
Produced in partnership with Anne Fairpo
Valuing IP

The following IP practice note produced in partnership with Anne Fairpo provides comprehensive and up to date legal information covering:

  • Valuing IP
  • Introduction
  • Comparison approach
  • Example (substantially simplified)
  • Limitations of the comparison approach
  • Income approach
  • Discounted cashflow
  • Royalty relief
  • Premium profits
  • Excess earnings
  • More...

Valuing IP

Introduction

Valuation is required at many points in the lifecycle of an intellectual property (IP) asset, and for many different purposes, including:

  1. sale and purchase of a business (including mergers), either on the sale of shares or on the sale of the trade and assets of a business

  2. sale and purchase of the IP (to establish an appropriate price and to deal with accounting matters)

  3. litigation settlements/awards (to establish appropriate compensation)

  4. insolvency (to establish the value of the assets of the insolvent business)

  5. financial reporting requirements (for example, to confirm the current value of IP on the balance sheet)

  6. for tax purposes, including:

    1. on transfer to a non-UK connected party—see Practice Note: Tax issues and incentives arising from assignment and licensing of IP

    2. on transfer between UK connected parties where the two parties are not both companies—see Practice Note: Tax issues and incentives arising from assignment and licensing of IP, and

    3. for transfer pricing purposes—see Practice Notes: UK tax aspects of cross-border IP structuring—development and acquisition of IP and UK tax aspects of cross-border IP structuring—exploitation of IP

    These all require that the market value (or arm’s length price) of the IP be established, or the arm’s length royalty rate where the transaction is a licence

In general, the principal aim of the valuation exercise will be to establish the market value of the IP by

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