For the purpose of safeguarding of patents and trademarks and in order to be able to justify the costs incurred in developing or acquiring these assets, it is a normal practice to register or license patents or trademarks with a competent authority. For this purpose, it is necessary to value patents.
Often while fighting infringements of patent or trademark rights, it becomes essential to establish a value of these intangibles.
Patents are often sold for a value and such transactions always require a valuation of patents.
Mergers and acquisitions often involve a lumpsum transfer of assets including technical know-how and trademarks. A professional valuation of these intangibles can assist negotiations of acquisition price.
Joint ventures are often entered into for utilizing mutual synergies. This often involves sharing of technical know-how, brand goodwill, marketing information and network. In such cases negotiations are facilitated by a valuation of patent.
Valuation of patents can be of immense use for studying the profitability or otherwise of a cost or profit center. Decisions like remaining life of patent, residual value, if any, amount of amortization etcetera; require as the basis an accurate valuation of the patent or trademark. Even for the purpose of Management Information Systems, for preparing intra-enterprise balance sheets and allocation of overheads, valuation of patents is required.
Patent donations refer to donating registered patents to deserving enterprises and claiming tax benefit on the donation by the donor. Though such provisions are not yet introduced in India, certain nations like US recognises such donations as tax deductible.
The Income Tax Act, 1961 has with effect from 1.4.1998 allowed enterprises to claim depreciation on intangible assets like patents and technical know-how. For this purpose, enterprises are required to create a block of assets for these and other like intangibles. For claiming correct amount of depreciation, it would be essential to value assets and thereafter book them in the accounts at that value.
.The standard framework for valuation methods is based on the cost to create or recreate the asset (cost approach), methods based on sales of comparable intellectual property (market approach), and methods based on the future economic benefits produced by the intellectual property (income approach).3
Unfortunately, the technology aspect of the intellectual asset is often overlooked. An invention could have relatively low development costs, but have relatively high value due to its technical superiority. Conversely, a technology that costs millions to develop may have little or no practical use.