Intellectual Property Market Value – Does It Add Market Value?

Many enterprises, including small business ones, have begun to undertake regular technology and IP audits. In a number of cases, some have been surprised that their IP assets are in fact worth more than their physical assets. This is often the case for companies operating in knowledge-intensive and highly innovative sectors, or companies with a well-known brand name.

The value of intellectual property (IP) is often not adequately appreciated and its potential for providing opportunities for future profit is widely underestimated by small business. However, when IP is legally protected and there is demand for the IP-protected products and/or services in the marketplace, IP can become a valuable business asset.

 How is It Valuable?

  • IP may generate an income for your small business through the licensing, sale, or commercialization of the IP-protected products or services that may significantly improve an enterprise’s market share or raise its profit margins.
  • IP rights can enhance the value or worth of your small business in the eyes of investors and financing institutions.
  • Especially in the event of a sale, merger or acquisition, IP assets may significantly raise the value of your small business, and at times may be the primary or only true assets of value.

The strategic utilization of IP assets can, therefore, substantially enhance the competitiveness of your small business. Small businesses should make sure that they are ready to face the challenge and take measures to exploit their IP and protect it wherever possible. Like physical assets, IP assets must be acquired and maintained, accounted for, valued, monitored closely, and managed carefully in order to extract their full value But before this can be done, small businesses must first acknowledge the value of IP and begin to see it as a valuable business asset.

But Is It Really a Business Asset?

An enterprise’s assets may be broadly divided into two categories: physical assets - including buildings, machinery, financial assets and infrastructure - and intangible assets - ranging from human capital and know-how to ideas, brands, designs and other intangible fruits of a company’s creative and innovative capacity. Traditionally, physical assets have been responsible for the bulk of the value of a company, and were considered to be largely responsible for determining the competitiveness of an enterprise in the market place. In recent years, the situation has changed significantly. Increasingly, and largely as a result of the information technologies revolution and the growth of the service economy, companies are realizing that intangible assets are often becoming more valuable than their physical assets.

Especially in smaller businesses large warehouses and factories are increasingly being replaced by powerful software and innovative ideas as the main source of income for a large and growing proportion of enterprises worldwide. And even in sectors where traditional production techniques remain dominant, continuous innovation and endless creativity are becoming the keys to greater competitiveness in fiercely competitive markets, be it domestic or international. Intangible assets are therefore taking center stage and small businesses should seek how to make best use of their intangible assets.

What Are Some Examples of IP Assets?

  • Innovative products and processes (through patents and utility models);
  • Cultural, artistic and literary works;
  • Computer software and compilation of data (through copyright and related rights protection);
  • Creative designs, including textile designs (through industrial design rights);
  • Distinctive signs (mostly through protection of trademarks including collective and certification marks;  
  • Microchips (through protection of layout-designs or topographies of integrated circuits);
  • Denominations for goods of a given quality or reputation attributable to the geographical origin;
  • Trade secrets (through protection of undisclosed information of commercial value).

Intellectual Property as an Investment

Making the right investments is crucial for enhancing the market value of your small business. Investing in equipment, property, product development, marketing and research can strongly enhance your company’s financial situation by expanding its asset base and increasing future productivity. Acquiring intellectual property may have a similar effect. Markets will value your company on the basis of its assets, its current business operations and expectations of future profits. Expectations for future profit may be considerably affected by the acquisition of key patents. There are numerous examples of small businesses that have seen their market value increase overnight as a result of their acquisition of important patents in key technologies. 

Similarly, a good trademark with a good reputation among consumers may also enhance your company’s current value and may decisively contribute to making your company’s products and services more attractive to consumers. Investment in developing a good IP portfolio is, therefore, much more than a defensive act against potential competitors. It is a way of increasing your company’s market value and improving future profitability.

The Value of Intellectual Property Assets

A crucial point about legal protection of intellectual property is that it turns intangible assets into exclusive property rights, albeit for a limited period of time. It enables your small business to claim ownership over its intangible assets and exploit them to their maximum potential. In short, IP protection makes intangible assets “a bit more tangible” by turning them into valuable exclusive assets that can often be traded in the market place.

If the innovative ideas, creative designs and powerful brands of your small business are not legally protected by IP rights, then these may be freely and legally used by any other enterprise without limitation. However, when they are protected by IP rights, they acquire concrete value for your enterprise as they become property rights which cannot be commercialized or used without your authorization.

Increasingly, investors, stock market brokers and financial advisors are becoming aware of this reality and have begun to value IP assets highly. Enterprises worldwide are also more and more acknowledging the value of their IP assets, and, on occasions, have included them in their balance sheets. Many enterprises, including small businesses, have begun to undertake regular technology and IP audits. In a number of cases, enterprises have realized that their IP assets are in fact worth more than their physical assets. This is often the case for companies operating in knowledge-intensive and highly innovative sectors, or companies with a well-known brand name.

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