What is IP, and Why Does IP Valuation Matter?
IP valuation is the process of determining the market value of “intellectual assets”. It’s important because “IP intensive industries contributed $5 trillion, or 35% of our Gross Domestic Product”, as reported in the 2012 Intellectual Property and U.S. Economy-Industries in Focus report. IP companies, also, were responsible for the creation – or the maintenance – of “27 million jobs” locally, and another 13 million within the “supply chains” that serve these companies. The report also states, IP-holding industries exported products they developed to the tune of nearly $775 billion, or 61% of all U.S. merchandise sent overseas.
American workers’ propensity to innovate is a major component of 75 significant industries. But, just what is “intellectual property” (IP)?
IP encompasses one-of-a-kind ideas that often become part of the technology, chemicals, medications, and designs which make our lives easier, more efficient, healthy and safe. And, these offshoots of creative minds save us millions! Our government, since it’s inception, has recognized the right of inventors – and of artists – to maintain legal control over the concepts they’ve “created”.
According to Article 1, Section 8, Clause 8 of our Constitution, Congress is “empowered” to “promote the Progress of Science…by securing for limited Times to…inventors the exclusive Right to their respective…Discoveries.”
There are 3 types of IP:
1) PATENT – a “limited monopoly” (Remember our Constitution’s phrase, “limited Times”) which gives the patent “holder“–and only he, or she–the ability to “make, use and sell” their discovery for a predetermined period. This “exclusive right” urges an inventor to make the most the years granted to further research and develop his invention. In order to qualify for a patent, a creative idea or unique product must be “patentable, useable, novel (unique), non-obvious and producible”.
2) TRADEMARK – “a word, symbol or phrase” connected to a certain manufacturer, or marketer, by which we identify that manufacturer/marketer in particular. In the U.S., a trademark is “registered” with the Patent and Trademark Office (USPTO), and must be responsive to state and federal guidelines. A trademark, also, is “distinctive”, and this quality is determined by its “relationship with the underlying product”, which can be: “a) arbitrary of fanciful, b) suggestive, c) descriptive, or d) generic.” How much legal protection a trademark merits depends on which category (1 of 4) it aligns with most.
A business, or an individual, can claim a trademark by being the first to register it with the USPTO, or by being the first to employ it in sales, marketing, design, etc.
3) COPYRIGHT – protects a business, an author, architect or artist – who fashions in software, software code, writing, paint, clay, mixed-media, inks, cloth, etc., which are “tangible mediums of expression.” This protection covers “original works” in computer software, music, drama, fiction, non-fiction, poetry, watercolor, clothing, building design, sculpture, etc. so that they may not be legally duplicated for profit by others.
4) TRADE SECRET – protects confidential business information which provides a company or an individual with a competitive advantage. Unauthorized use of the confidential information is regarded as an unfair practice and a violation of the trade secret. A trade secret only holds it’s advantage, and therefore it’s value, if it remains a secret. An example of a famous trade secret is Coca-Cola®’s formula.
Placing a value and a “legal hold” on these “intellectual properties” doesn’t only spur the innovation that creates valuable commodities and good-paying jobs. It helps businesses (and individuals) better understand their own assets so they can make wise decisions regarding licensing, research and development, and sales and mergers. At Rogers DVS we specialize in IP and Patent Damages and Valuation Services.