The Benefits of an Intellectual Property Value Assessment

Every established company and start-up business should have an intellectual property value assessment performed by a patent attorney.  This assessment should be done by an attorney and firm that the company does not regularly use.  There are three primary reasons:

First, a company’s regular attorney must avoid offending anyone in management and must avoid being accused of wasting management’s time.

Second, a different pair of eyes will see property rights that could be overlooked without a fresh appraisal.

Third, it is not realistic to expect an attorney to find fault with his or her own work.

To be assured of a neutral appraisal, a company should consider a contract that prohibits the appraisal attorney from soliciting the company’s ongoing IP work.

Intellectual property is a higher percentage of the value of most companies today and with an IP assessment this value can become part of a private company’s pro forma balance sheet.  This increases the incentive for and value of an IP appraisal.

Invariably there are areas of IP that are overlooked.  For example, few companies regularly register copyrights in the copyrightable materials they produce or others produce for the company.   A company’s website is often not protected.  This is an asset of considerable value, which is vulnerable without a copyright registration. While copyrightable material can be protected after the fact of infringement, the remedies available are severely limited.   A company employee can be trained in a matter of hours to recognize copyrightable material, make sure contracts with third parties assign their copyrightable content to the company, and prepare and file copyright applications on all significant copyrightable property.  An electronically filed copyright application can be filed in minutes for a $30 filing fee.  Other examples of unprotected IP assets are legion.  An IP appraisal will expose many of these areas and propose solutions.

An IP appraisal that adds to a company’s pro forma balance sheet requires close cooperation with an existing or specialized CPA knowledgeable about intellectual property valuation.

An effective IP appraisal requires close cooperation by company personnel.  This is best obtained by giving a high-level employee authority to request research and records from the company’s departments.  That employee can also decide when the IP appraisal raises questions that require a strategic decision by the company’s management committee or a body with equivalent decision-making power.

The initial IP assessment requires a significant allocation of personnel time and attorney’s fees.  To avoid nasty surprises, the assessment should be done in two phases.  The first phase will identify existing protected assets and all areas where IP assets are not protected.  At that point it should be possible to ask the appraisal attorney to perform the assessment and deliver the complete report and recommendations for a fixed fee. Once the initial assessment report is complete it should be updated at least annually, but the incremental cost should be modest.  To the extent the appraisal recommends additional IP protection – as an example, for patent applications — the cost typically can be fixed in an advance retainer agreement. The company can then decide on a case-by-case basis whether the cost is justified by the value of the protected intellectual property.