Michael D. Moberly August 28, 2008
Valuation of intangible assets, ala trade secrets, proprietary information, and proprietary know how are, with all due respect to the business valuation profession, quite subjective. Valuations typically provide business decision makers with estimates or ranges of value for those particular assets!
Let’s digress. For intellectual property, the government issues the holder-owner a certificate that says ‘this is your patent, trademark, or copyright’. Deservedly and proudly those certificates are frequently hung on c-suite walls and then, often serve as the conventional (tangible) starting point, subjective as it may be, to commence valuation of those assets.
It’s important to recognize however, that, unlike patents, trademarks, and copyrights, there is no certificate issued by the government that says ‘these are your intangible assets, trade secrets, proprietary information, or proprietary know how’!
Thus, for decision makers, being informed of a subjective (or, range of) value for certain assets, standing alone, does not necessarily provide a sufficient horizonal outlook to make well grounded strategic decisions and ultimately can leave decision makers holding considerable uncertainty (risk). In other words, seldom do asset valuations provide decision makers with the necessary unvarnished (business transaction) realities to adequately alleviate – mitigate uncertainties (risks, vulnerabilities) which have become so endemic to intangible assets today. More specifically, valuations typically do not address – provide adequate insight and perspective regarding the…
1. fragility, stability, and/or sustainability of the assets’ value, or
2. criteria to assess the attractivity, demand, intensity, and/or frequency in which those assets are literally targeted by a global army of aggressive, predatorial, and winner-take-all data mining, business-competitor intelligence, and/or economic espionage operations, which can instantenously and adversely affect asset value and, equally important,
3. ‘trade secrecy’ status, i.e., are the six requisites of trade secrecy consistently being met for those assets? (First Restatement of Torts)
Collectively, or individually, each of the above affects the real value of a trade secret (as well as proprietary information and proprietary know how) and absent that special insight, a stand alone valuation may be almost irrelevant. For most knowledge-based assets, value today is fragile, volatile, and can certainly fluctuate, somewhat analogous to an ‘internal asset stock market’. For example, when a well meaning and experienced business valuation agent or accountant claims a particular trade secret (proprietary information, proprietary know, or bundle of like intangible assets) is worth ‘x’ dollars, while that may be true in an ‘economics 101’ context, it’s generally a snap-shot-in-time, and doesn’t provide decision makers with an objective, complete, or necessarily reliable strategic picture.
Still, the goal hasn’t changed, that is, to utilize – leverage those assets in the most efficient and effective manner possible and to maximize and extract as much value as possible while simultaneously sustaining (protecting, preserving) the assets’ control, use, ownership, and value! Decision makers just need more insight-perspective to make decisions about the utilization (stewardship, oversight, management) of those assets that align with and truely reflect their fiduciary responsibilities.