Michael D. Moberly June 21, 2012
Let’s start by putting the much overused analogy regarding the guesstimated value and protection of the Coca-Cola formula aside insofar as this conversation is concerned.
When clients I serve, deem it necessary, either based on my recommendation or that of others, to have a valuation conducted, I emphasize the necessity that it address – reveal much more than merely an intangible assets’ standalone value. Instead, I prefer valuations be framed (conducted) relative to intangibles’ ‘contributory’ value…
- as individual or clusters of integrated (contributory) intangible assets
- to a particular project, product, and/or business unit.
My rationale for advocating intangible asset valuations be conducted in this manner are threefold…
- 65+% of most company’s value, sources of revenue and, what I call ‘building blocks’ for growth today, evolve directly from intangible assets. So, in an increasingly knowledge-based global economy, companies are becoming more intangible asset intensive, not less.
- this approach will provide a firms’ decision makers, strategists, and legal counsel with much needed, but often overlooked, perspectives, i.e., that intangible assets should be managed and safeguarded based on their contributory value and functionality cycles, not for the lifetime of a company, and
- conventional intangible asset valuations involve, at least in my view, some level of speculation and subjectivity. This ‘contributory value’ approach can mitigate those potential informational short-comings through better understanding and tracking of intangibles’ actual contributions.
When intangible asset valuations are applied specifically to intellectual property, i.e., patents, I wonder, particularly as auctions of standalone patents are becoming a global fixture, whether, by applying the ‘contributory value’ approach, it may lessen or perhaps even alleviate the need for conventional IP-only valuations, other than to establish a minimum bid. An example of a patent auction is the upcoming ICAP Patent Brokerage Auction to be held in San Francisco in late July.
Should this ‘contributory value’ approach be recognized as a useful methodology, it will provide business decision makers with more strategic insights about their company’s intangibles.
Ultimately, any credence that may or may not ever attach to this contributory value approach I am advocating here, admittedly, it has some drawbacks, but, all-in-all, I believe its worthy of more study and should not be summarily dismissed, particularly as management teams, c-suites, and boards find themselves increasingly subject to fiduciary responsibilities for the management, stewardship, and oversight of intangibles.
After all, it is my intent, and that of many of my colleagues, to not only elevate operational awareness of intangibles, but contribute to learning how to develop, utilize, and exploit intangibles in the most efficient and profitable manner as possible.
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