Because IP varies by type, there are three basic methods a business can utilize to value intellectual property including:
Market Based Value – When using this intellectual property valuation methodology, one needs to find a market comparable, which can be difficult for some IP assets—but not all of them. A telephone number used in a business for, say, ten years can use the market-based value. For example, if a new buyer of a business wants to utilize the same telephone number everyone remembers, the seller of the business can look at the costs to obtain and maintain the number and multiply it by the number of years it’s been in use and thus, determine a set value—the same would hold true for a website.
Cost Based - As stated above, this method is best utilized for a patented, copyrighted or trademarked asset. A business or organization can place a market value on the cost to copyright the asset as well as the costs to develop the asset. An example here could be the Nike slogan—how much did it cost for an advertising company to come up with the slogan and how much did it cost Nike to trademark or copyright the slogan?
Past and Future Economic Growth – IP ideas or processes can be valued best by using this valuation methodology. Let’s take a car windshield wiper as our example. The intermittent windshield wiper was designed by Dr. Robert Kearns and portrayed in the film Flash of Genius; it is one example where we can use the economic growth methodology easily. The design was indeed that of Dr. Kearns (1964) and although the idea was improved upon from the original 1902 design by Mary Anderson who patented the idea, with the ability for the wiper to offer intermittent use, it was shown the idea can be improved upon. Using this method, one can determine the value based on popularity and consumer sales statistics before selling the design.