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IP Valuations – Common Pitfalls

Intellectual Property (IP) Valuations are often necessary when determining the value of a Company’s assets both in contested proceedings and in restructures.

However, sometimes valuers and experts fall into the trap of making errors that can result in a dispute as to the true value of the assets. Based on our experience and the existing case law, we have identified a few common pitfalls for parties to avoid when seeking such valuation:
i. Expertise — if there is a challenge to the validity of a patent requiring technical or scientific expertise, it is vital that the valuation considers such technical expertise.

Valuation of intellectual property does not necessarily require a special expertise to the valuation of a business. This is because value of intellectual property is closely linked to the value of the business in exploiting that intellectual property. However, where the value may depend on whether an invention is patentable or not, technical expertise would be vital.

ii. Failing to consider existing agreements — intellectual property cannot be valued purely on the basis of the value of technology. The value that can be derived from that technology is dependant on any licensing agreements or other agreements placing any restrictions on the manner or the level to which that particular intellectual property can be exploited.

iii. Method of Valuation — Intellectual property valuation experts are generally well-versed in the varying methods that can be employed to provide an appropriate valuation. Often in case of insolvency, liquidation value is where the lowest price that the asset can be sold for is calculated given the distressed situation of a company in liquidation. However, this may not be the appropriate method to use even in case of insolvency, if the value obtained by such method does not reflect a true and fair view of the asset’s worth.

The method valuation should be determined on a case by case with due regard to the purpose of the valuation and the business context in which the intellectual property is utilised. Using the incorrect methodology can be subject to challenge in the event of litigation.

iv. Failing to provide reasons — as in the case of any expert report, an expert report valuing intellectual property must provide reasons for any conclusions reached to withstand any scrutiny. Where conclusions or assumptions made in a report are not backed up by evidence or reasons arising from such evidence, the credibility of such a report can easily be challenged.

If you require assistance with a related matter, please contact (02) 6215 9100. Our Advisory Team can provide you assistance with restructures and connect you with the right experts to provide valuations.

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