The proper allocation of scarce resources is vital to meeting – or exceeding – the financial goals of any organization. To be successful in this endeavor requires that you have a thorough understanding of the resources available to you as well as how these assets can be most effectively utilized in whatever situation you face. A major component of this involves understanding the value of your assets when viewed in various contexts.
Increasingly, the assets that seem to be having the greatest impact on the decision-making process of top managers everywhere are the intangibles: patents, trademarks, copyrights, and the like. On the IPmetrics Blog, we explore the full scope of issues surrounding the valuation of these assets, ranging from general topics such as valuation techniques to specific areas such as the impact that a bankruptcy filing can have on the value of an intangible asset. In this post, I will discuss the various forms of intangible assets and the proper way to view them from a valuation perspective.
I already mentioned the more obvious intangibles. Patents, trademarks, and copyrights are registered with the government and are used to inform the world as to the rightful owner of the property indicated by the registration. While there are other aspects associated with the registration of these “top line” intangibles, such as the teaching requirement associated with patents and the source-of-goods issue associated with trademarks, from a valuation perspective, the most important feature of registration is to provide the asset owner with the ability to exclusively use the asset and exploit its value as the company sees fit. As you will see throughout this series, it is this aspect that provides the foundation for determining value in any context, whether from current operations or proposed activities.
While top-line intangibles are undoubtedly the most important intangibles in most situations, there are dozens of other intangibles that can also have a very real impact on your firm’s success. Among these are slogans, characters, packaging designs (trade dress), domain names, web page designs, non-compete clauses, proprietary sales methods, a well-trained staff (human capital), product warranties, customer lists, training programs, trade secrets, formulae, and targeted survey data. The list goes on.
It is imperative that your management team possesses a comprehensive view of your intangible asset portfolio in order to properly protect and most effectively utilize it. For example, suppose your products enjoy a leading position in their respective markets and this position is primarily due their superior quality which, in turn, is primarily due to the retention of a well-trained workforce. In this situation, it would be potentially harmful for you to terminate your training program in an effort to cut costs.
From a valuation perspective, some of your assets can be viewed independently; i.e., their value can be isolated from the value of the other assets in your portfolio of intangibles. In many cases, however, it makes more sense to view your assets in terms of their relation to one another. For example, all of the intangible assets utilized in the marketing process may be more effectively valued as a “bundle” rather than as stand-alone assets. This is an important concept since very few intangibles travel in a vacuum. They rely, to some extent, on the other assets that make up the bundle. A marketing bundle may consist of brand name, logo, and worldwide trademark registrations, secondary trademarks or logos, your marketing strategy, packaging concepts, trade dress, web sites, and any other assets that contribute to the promotion of your company as a whole, or any of your individual brands or products.
Bundling can apply to all forms of intellectual property, from technology such as patents, trade secrets, and formulae, to knowledge-and-skills assets such as proprietary training manuals, to operating procedures, to customer lists. The bundle may include all of these or consist only of a subset of the components included in any one of them. Whatever bundle you deem to be the most appropriate for the immediate context, the simple act of identifying related intangibles will provide you with a solid foundation for a focused valuation exercise.
For a list of intangible asset bundle categories and a PDF of the full article, please email us.