Selling My Intellectual Property
Selling my intellectual property (IP) allows business owners and inventors to capitalize on their creations and the IP assets they own.3 min read
Selling my intellectual property (IP) allows business owners and inventors to capitalize on their creations and the IP assets they own. Like real estate and other types of property, IP can be licensed, bought, sold, and transferred.
The Importance of Intellectual Property
The category of IP includes trade secrets, patents, brands, trademarks, databases, and copyrighted material. Various methods are used to determine the value of IP when it is offered for sale or licensing.
Having IP protection prevents others from profiting from products that are similar to yours, infringing on your ownership and diluting your market share. When you have a unique product that isn't available from competitors, you are able to command a higher price. This also boosts your business's reputation for innovation.
Many businesses simply create intellectual property, then sell the licenses to other entities that make and sell the products. This provides the primary income stream, which can be quite valuable. Having a valuable IP portfolio increases your business revenue and reduces costs.
The Cost Method of Valuation
The cost method of valuing IP considers the money you spent to develop the asset in question and the cost of recreating this type of asset or developing a similar product. Factors taken into account include:
- Research and development
- Labor costs
- Prototype creation
- Regulatory approval
- Product testing
- IP registration
- Administrative and staff overhead
This method is based on the idea that a person buying the IP asset would not have these expenses again or take the risk of developing their own invention and protecting it. However, the cost method does not consider future profits and eventual marketplace success.
The Income Method of Valuation
Also called the economic benefit method, this strategy considers the future profit-generating potential of the IP asset in question and the costs associated with realizing that potential. This calculation also accounts for risk to arrive at a final number called the net present value (NPV). This can help the buyer decide whether the IP asset is a smart buy. Factors included in this calculation include:
- Cost of registering the IP and shielding it from infringement
- Market share
- Overall economic indicators
The Market Value Method
This method hinges on how well the product and similar products have performed in the market. This is a reliable methodology that relies on supply and demand. This can be challenging if the invention in question is unique or if data about similar inventions is unavailable or vague. Because it accounts for consumer behavior, the market value method is considered fair if it uses reliable data.
Selling a Patent
Patent rights, which last for 20 years, indicate that no one but the patent owner can sell, manufacture, use, import, or distribute the protected invention without authorization. While the patent alone does not create income, many inventors opt to sell or license the patent rights to a third party. This does not guarantee prosperity, however.
If you sell your patent, you will receive a lump sum for its value but will not have rights over any future income generated by the invention. You may also postpone the sale until your technology is better established in the market so that the value increases.