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Intellectual Property Business Strategy For The Independent and Small Business Innovator; Part III
by Andy Gibbs    Sunday, August 03, 1997

The Final Part in a III Part series.

Building Intellectual Property Value; Turning Ideas Into Cash

Introduction:

This three part series is in response to many of my readers' requests specifically asking for more information on the business elements of intellectual property. I agree with their conclusion; there is precious little reference material on the Net regarding Intellectual Property strategy, in general, and Patent Strategy, specifically.

Here is the run-down on this Strategy Series:

PART I: I.P. Strategy For The Independent / Small Business Innovator
PART II: Strategically Growing Your Intellectual Property Inventory - for Small To Medium Businesses
PART III: Methods of Valuing, and Increasing the Valuation, of Your I.P. Inventory.

Please look in the archives for Part I and Part II of this series.

Building Intellectual Property Value

Naturally, the fundamental drive of any innovator to invent, create and protect intellectual property is the future potential of making money from it (although there are those altruistic environmentalist-types who will invent just because it may benefit someone's grand kids, my outline which follows is meant to assist true-blue capitalists in maximizing the value of their creations). Although every "deal" differs from another, it is nevertheless fruitful for you to understand how the value is calculated on intellectual property, and how and when (and IF) you can realize the cash value of your ideas. Part II takes you through a few methods which have served me well over the years. I encourage you to find other calculation methods for comparison, ease of understanding or ease of implementing. Everyone has their own "best way" based on their own experiences.

There are two sides of the innovation commercialization process: Costs and Sales. Obviously, value (if it is a positive number) is the difference between the (sales price) minus (costs). This (< > Delta) difference is essentially your INTELLECTUAL PROPERTY VALUE, although there could be a number of lesser factors built into the price. This is the number you want to be the highest possible. It is also the number your "buyer" wants to be as low as possible. This is where a good negotiator is worth his weight, maybe literally, in gold.

  • Costs will consist of all investment you have made in engineering, tooling, prototypes, patent and trademark fees, and all associated miscellaneous expenses incurred to get your idea to a stage where it can be sold, licensed or otherwise converted into cash.
  • Sales, for our purposes here, is defined as sales of your tangible creation (ie; art, music, products), the sale or licensing of your intellectual property rights (ie; license a patent, sell rights to a song), or the sale of the company which owns the rights to the intellectual property (ie; you sell the stock which you own in your company at a price higher than what you bought it for which is largely as a result of the added value of your intellectual property).

The various accounting methods of arriving at a "valuation" of intellectual property can be daunting. When big dollars are at stake, leave this exercise to a CPA, investment banker or other professional - but make sure you understand what they are doing with the numbers. Also, don't assume that the simplified outline I am presenting here is all you need to "do-it-yourself" if you are not experienced in this area; have an accountant or professional take a look at the "deal" before you sign any sales or licensing agreements. Because of the limited time and space in this feature, we'll cut to the essentials. The following outlines address three different scenarios. They are:

  • the sale or license of your (patent)INTELLECTUAL PROPERTY
  • the sale of the
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