The importance of an Intellectual Property (IP) Valuation for any business cannot be underestimated and should play an integral role when considering best business practice.

The two conceptually different and distinct components of IP
IP is constituted by two conceptually different and distinct components with the first being the property itself as tangible deliverables, for example, computer applications in their various material forms and aspects: software programs in executable form, source code, the look and feel of a given application, the server, network and platform applications in which they are housed and operated, and so on.

In addition, to the property component itself, marks and the artwork in which they are represented, which in actual representation of the word-mark or its graphic logo form, distinguish in the marketplace a given trader’s products or services; inventions or designs, in actual operation producing, or as utilized in producing, commercially viable products or services; and proprietary know-how in the form of documented and often live, data populated user processes and systems, which in the literal sense of the phrase, turn-on the revenue generating taps, and turn-off wasteful activity.

The second component is “rights” in respect of such tangible embodiments of IP, namely “rights” in respect of property of the kind described in the first component.

Typically, these “rights” are effectively only secondary in that they only protect limited aspects of the actual tangible intellectual property from replication. Moreover, these rights are not transferred by actual delivery of tangible embodiments of the intellectual property, but separately by way of formal cession and assignment of rights.

This conceptual difference is frequently conflated in everyday use of the term intellectual property, and these two distinct manifestations of intellectual property are indeed often conflated in contractual documents; and even where they are not conflated, the implications of the distinction between the two categories, are often not fully appreciated – and thus tend not adequately to be identified and regulated in transactional documents.

When reality and the law contradict each other
Where, for example, a trade mark is concerned, rights in the goodwill and reputation under a licensed trade mark vest as a matter of law in the trade mark owner-licensor.

However, it often transpires in practice that goodwill in the sense of the actual customer connection (and often also the supply chain connection), unless housed and operated in a central server and database controlled by the licensor, will factually be possessed by the licensee not the licensor – and the more extensive and detailed this marketing and procurement information is (particularly when live, and housed in sophisticated CRM and procurement systems), the greater in actual practice will be the licensee’s possession, and to a material extent its actual ownership also, of the customer and supply chain connection.

In the result, where the customer and supply chain connection is factually in the possession of the licensee, the licensee is often in a position, on termination of the licence, readily to divert its existing business under the licence, to competing products or services – leaving the trade mark owner with the ghost of a brand.

In the further result, when the actual operating competencies of a business unit using any given intellectual property, are scrutinised, it transpires that the value of the “rights” component of that IP is more often than not, a value that is derived from a consideration of the separately identified and assessed value of the tangibly embodied IP in actual commercial operation.

Written by Derek Momberg, Director KISCH IP