RICS draft guidance note - Valuation of Intellectual Property Rights, Guidance Note, 2nd ed

RICS draft guidance note - Valuation of IP Rights, 2nd edition

Introduction

This guidance note is restricted to the valuation of intellectual property (IP), a subset of intangible assets. Its purpose is to expand on the International Valuation Standards (IVS) and RICS Valuation - Global Standards 2017 (Red Book Global Edition) in order to clarify the legal, functional and economic characteristics of IP that should be considered and reported on in an IP valuation.

This guidance note builds on, and should be read in conjunction with, the following sections from IVS and Red Book Global Edition:

IVS:

  • IVS Framework
    • General Standards (IVS 101 to IVS 105)
    • IVS 200 and
    • IVS 210.

Red Book Global Edition:

  • VPGA 6.

Paragraph 20.1 of IVS 210 defines an intangible asset as: 'a non-monetary asset that manifests itself by its economic properties. It does not have physical substance but grants rights and/or economic benefits to its owner'.

IP is a legal concept that refers to creations of the mind which are derived from intellectual or creative effort and for which exclusive rights are recognised at law. These rights enable the owner to prohibit others from using their property without permission. IP can be categorised as registered or unregistered, and includes:

trademarks

patents

copyright

design rights

plant breeders' rights and

trade secrets, which in this document mean confidential information that has commercial value.

IVS 210 refers to certain IP rights when describing categories of intangible assets, but does not provide detailed guidance about the characteristics of particular categories of IP that should be considered in a valuation.

Scope

The purpose of this guidance note is to describe how the legal, functional and economic characteristics of IP influence the definition of the IP that is the subject of the valuation (subject asset), the extent of investigation, the choice of valuation methodology and the valuation analysis. Limitations in the scope of this guidance note are:

The identified legal, functional and economic characteristics of different categories of IP are not intended to be exhaustive.

The legal rights attached to specific IP rights may vary by jurisdiction. This guidance note identifies general principles but does not cover variations in rights between jurisdictions.

As with other asset categories, the value of IP can vary significantly under different bases of value. Bases of valuation, as described in IVS 104 and Red Book Global Edition VPS 4, are beyond the scope of this guidance note.

There are a wide range of applications of IP valuation; it is beyond the scope of this guidance note to address matters specific to each application. Appendices have been used to draw attention to factors of specific relevance to IP financing and the determination of IP royalty rates.

Effective date

This guidance note is effective three months from publication.