INTRODUCTION

Intellectual property (IP) now is the critical asset class that largely influences both valuation in corporate valuations and how stock behaves in a modern economy. Companies have more and more realized their patents, trademarks, copyrights, and trade secrets to represent legal protection and highly value trading assets to reinforce positions at the marketplace. This blog discusses how patents and trademarks influence the pricing of equities, means of estimating such intangibles, and the effect on firms seeking to monetize their IP.

INTELLECTUAL PROPPERTRY: A TRADING ASSET TO UNDERSTAND

Intellectual property is those intangible assets of firms that give them a competitive advantage. Among them, patents and trademarks are of significant attention:

• Patents protect inventions and innovations by allowing the inventor to have rights to his or her products for a specific period.

• Trademarks use protection offered by logos, names, and slogans to help protect the identity of brands while creating products and services in the marketplace.

Both forms of IP can significantly impact the bottom line and marketplace perception of a firm. For example, portfolios of patents can lead to additional revenue in licensing arrangements or greater market share due to proprietary products. Strong trademarks can similarly add consumer loyalty and brand value directly to sales and profitability.

THE ROLE OF IP IN STOCK VALUATION

Increased numbers of investors use IP assets as part of their evaluation of overall worth of a company. Companies attract investors with good patents and trademarks due to the presence of potential future revenue streams. Here are how IP actually goes to affect the stock valuation process:

1. Potential revenue generation: A firm that owns worthwhile patents can generate revenue from the contract through licensing or royalties. For instance, technology companies license their patented technologies to other firms while thus opening further avenues to revenues that would enhance total valuation.

2. Market Exclusivity: Patents provide an advantage to a firm since others are restricted in manufacturing similar products. This exclusivity shall thus facilitate higher profit margins and increases in market share, which improve the stock prices.

3. Brand Loyalty and Market Perception: Trademarks basically set up brand image and instill customer confidence. High trademark value will imply greater sales because of customer assurance of purchasing the products of well-known brands. This leads to further valuation of stocks since the investors would expect that this will continuously generate revenue for ever.

4. Mergers and Acquisitions: The IP valuation of an entity becomes a point for discussion in M&A negotiations so that the price can be defined. A company with good IP portfolios will attract high valuations in acquisitions, as future economic benefits are assumed high.

5. Venture Capital Attraction: Growth prospects of the start-ups and early-stage companies with strong IP may attract venture capital funding based on the potential of the developed IP, to be supported in future.

METHODS FOR VALUATION OF INTELLECTUAL PROPERTY

IP valuation involves multiple factors such as market conditions, economic benefits, and the legal frameworks governing IP. Here are some of the methods applied in determining patents and trademarks value:

1. Value method: This value method calculates the IP value taking into account future anticipated cash inflows both about and around it during its useful life. Income method appears valid particularly when patents carry identifiable direct income implications.

2. Market method: The market method generally refers to one in which the values are based on recent arms' length exchanges of comparable to gauge the intrinsic value of assets. Using the sales and licensing or service contracts comparable for the involved asset as benchmark, inferences about market value emerge.

3. Cost Approach: This method is applied by estimating the value of an IP asset on the basis of the cost which would be incurred in its building or replacement. This method is very simple but the estimate is not really reflecting the market value of innovative patents or trademarks.

4. Real Options Method: It considers investment in an IP asset as an option available to the owner, which allows the owner discretion not to invest further and exploit future market conditions.

5. Hybrid methods: Sometimes combining these results in a holistic approach to valuation that might both reflect market conditions at present and potentially future results.

REAL-LIFE EXAMPLES OF IPAFFECTING STOCK PRICE

Many significant cases demonstrate how patents and trademarks affect stock performance:

• Apple Inc.: Apple has been quite strategic in accumulating such an immense portfolio of patents and thus sustained its edge in the technological world. Its inventions have, therefore, ensured more income through the sales of its products and licensing agreements.

• Coca-Cola: The Coca-Cola brand is one of the best-known brands globally and is largely responsible for its high market value. Strong brand loyalty provides the company with an ability to command premium pricing for its products, which will in turn affect the performance of the stock.

• Pfizer's COVID-19 Vaccine Patent: Since Pfizer took efforts to develop the COVID-19 vaccine, it showed that one patent can differ in a huge stock valuation. After the announcement of testing as successful, Pfizer's stock price increased manifold because investors had high hopes of generating vast revenues following the sale of the vaccines.

CHALLENGES IN VALUING INTELLECTUAL PROPERTY

Although IP has significant value, its valuing comes with some challenges.

1. Market Dynamics: The value of IP is very susceptible to changes brought about by technological advancement, competition, and the change in preference for consumers. For example, new technologies can render old patents useless due to the emergence of other good alternatives.

2. Data Availability: There are limited data on comparable transactions; where the asset is unique or innovative and the market does not provide standard benchmarks.

3. Law Complexity: IP rights disputes affect heavily valuations and litigation process which create uncertainty in the value of an asset.

4. The method of valuation is subjective: Because different methods could give different results under varying assumptions of future cash flows or market conditions.

CONCLUSION

Intellectual property is a fully integral component of corporate strategy and financial performance in the present-day economy. Right valuation methods, as well as a broader perspective on their intellectual property portfolios, can ensure smart decisions to maximize their market value in light of IP management challenges. Intellectual property is just growing with this more knowledge-based economy.

Author : SUGAM, in case of any query, contact us at Global Patent Filing or write back us via email at support@globalpatentfiling.com.

REFERENCE

https://ttconsultants.com/decoding-the-worth-the-world-of-ip-valuation/

https://www.livelaw.in/law-firms/law-firm-articles-/intellectual-property-rights-investor-patents-trademarks-copyrights-trade-secrets-y-j-trivedi-co-254672

https://www.wipo.int/export/sites/www/sme/en/documents/pdf/ip_panorama_11_learning_points.pdf

https://www.resurgentindia.com/intellectual-property-valuation-understanding-the-value-of-your-business-intellectual-property

https://www.investopedia.com/terms/i/intellectualproperty.asp