Measuring, Managing, and Communicating Intangible Asset Value  


POSTED BY Adam Bulakowski AT 3:00 P.M. JANUARY 18, 2010

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Can you quantify the value of your Intellectual Property?

Intellectual property (IP), such as a patent portfolio, is a critical intangible asset for innovative companies. However, IP presents management and communication challenges because few companies catalog their IP strategically or link its development to value creation, i.e. increased revenues or decreased costs. Patent benchmarking and patent valuation techniques can help companies to gauge the value of their IP and improve transparency of internal and external communication.

Over the past decade, accounting standards have attempted to clarify recognition and communication of intangible assets, including technology-based intellectual property like patents. For example, in a business combination, the International Financial Reporting Standard IFRS 3 and the US Financial Accounting Standards Board FASB 141/142 require managers to price intangibles separately, as opposed to lumping everything under "goodwill." This purchase price allocation provides shareholders and other constituents with more transparent information on the deal.

On the other hand, few standards exist for a company reporting on its organic development of intangible assets,. For technology-based IP, a company typically treats most of the intangible asset's cost as an expense. The company capitalizes (on its balance sheet) only the filing & legal costs associated with obtaining a patent. Without other measurements, neither company management nor shareholders have adequate information linking IP and value creation.

Companies can gauge the value of their IP with at least two systematic techniques.

Each of these techniques provides a company with information to enhance its communication internally and externally.

It's very difficult to manage an asset that isn't measured. Patent scoring and valuation provide systematic methods for measuring the strength and value of a company's technology-based IP. Armed with this quantitative information, a company can improve its management and communication of valuable assets.

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TAGS: Adam Bulakowski | Commercialization | Process | Valuation
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