How Do I Handle IP Valuation When Selling Assets in the Indian Market?

As companies are appearing to be rapidly moving businesses of today, the IP has now become one aspect that decides what is the worth of the assets held by any company. With this aspect of selling assets within the Indian market, the valuing of intangible assets takes place, assuring the correct amount of value received in the right amount and proportion. A business owner, investor, or lawyer with a good sense of what is actually wrong about IP valuation in an asset sale avoids possible mistakes during the selling transactions. This is our expanded guide. We’ll discuss IP valuation in an asset sale through selling in the Indian market, key factors, common challenges, best practices, and what it will take to get the right price for intellectual property rights (IPR).

What Is An Intellectual Property (IP)?

Intellectual property is a term used for intangible creations of the human mind, which have legal protection. It encompasses inventions, trademarks, designs, and copyrights. They add value to businesses since they can create differences in products or services, provide a competitive advantage, and earn money through licensing or sales. IP can be a very influential factor for the overall value while patent selling in the Indian market. Given that the Indian market is gradually getting bigger and complex, companies are bound to consider IP more of an important asset that needs to be monetized. Valuing an asset, though, sounds simple, is not at all simple as these assets are intangible.

Why IP Valuation Is  Important in Selling Assets in India

Even if India has the majority of tangible goods and land that will actually be transferred for sale, this is, oftentimes, the high-value side of the deal, mostly in selling off intellectual properties. The valuations for IPs have enabled you to lock in the perfect price that’s going to put a sale number on the heads of those commodities at sale time.

Important reasons why IP valuation is required at the time of selling an asset in India are as under:

• Protects Fair Valuation: A good IP valuation protects you from under- or overvaluation of your assets, ensuring the satisfaction of buyers and sellers regarding the deal.
• Taxation: The Indian Government has special rules when it comes to IP. Any wrong valuation makes you attract taxation issues. Correct valuation, using whatever method one applies, is either selling or transferring your rights of IP with the help of the Indian Tax Laws.
• It would attract Investors: You can attract such investors interested in intangible assets while selling your company’s assets by giving an idea of a clear IP value.
• Legal Rights Protection: Patent Valuation of IP helps in understanding ownership and rights attached to each IP asset, which will not create any legal dispute at the time of the transaction.

Read Also: Patent Licensing vs. Selling: How to Choose the Right Strategy for Your Invention

What Are The Things to Keep in Mind While Valuing IP for the Indian Market?

Valuation of IP is a complicated process, keeping in mind all the different factors one after the other. Factors may vary slightly in the Indian market due to domestic regulation, but all core principles remain the same.

1. Type of IP

There are many types of IP, and different categories have distinct ways of valuation. All such categories include:

• Patents: This is protection for inventions and new technology. The valuation of patents tends to consider the life remaining in the patent, market potential, and patent licensing opportunities.
• Trademarks: These are protections for brands, logos, and company names. Trademark valuation depends on brand recognition, market share, and potential to generate income through licensing or sale.
• Copyrights: These protect the creative works, of which there are also books, songs, or applications. Valuations of copyright depend on income flows and licensing possibilities, coupled with current market demand
• Trade Secrets: This looks to guard specific business information within an enterprise as secret. Value considerations here assess the trade secret’s impact and exclusivity.

2. Demand and Competition of the Market

Market demand is of paramount importance to the Indian market. Valuation of an IP asset will, therefore, be governed by the same parameters: Income generation in that marketplace. All things remaining the same, more demand for the respective patent or trademark with less number of players involved, thereby enhancing its valuation.

Market research is important as it measures the demand for any product, service, or innovation related to IP. It could be influenced by client preferences, industry trends, and even competitive landscapes.

3. Opportunity for Income Release

Consider the income-generating potential when valuing an IP item. For example, patents and trademarks that have significant income-generating potential through licensing, royalties, or sales are worth more money than those with no explicit revenue streams. This could be derived in comparison with the financial performances of similar other IP assets in this industry. The Indian tech market presents the software firm’s IP so as to gauge its ability to raise recurring revenue by way of licensing.

4. Legal and Ownership Issues

In evaluating IP, the ownership and legal status of the IP to be sold must be clearly stated. Articles such as mortgages, assignments, or licensing agreements that burden the IP rights will lower the price. India is governed by the Indian Patents Act, Trade Marks Act, Copyright Act, and Designs Act related to the laws. The IP should have very clear legal protection so that ownership is not disputed.

5. Economic and Political Environment

The economic and political environment in India could very well have an impact on IP value. Changes in governmental policies or rules on taxes, changes in economic conditions, will affect future earning potential for an IP asset. Indian businesses, for example, must pay heed to the government’s IP policy. India currently has the National IPR Policy that might come to bear in the future commercialization of intellectual property assets.

Read Also: What Are Utility Models and How to Monetize Them Effectively

What Are The Methods of IP Valuation?

There are three main methods of intellectual property valuation. They can be applied based on the nature of the IP and the business context.

 1. Income Approach

Income Approach The Income approach is the most used technique to estimate IP. The valuation amount of the IP can be determined using its future probable income. For instance, in the case of the sale of a patent, it keeps under consideration if it can collect royalties or license income or sell its sales revenue in the open market directly.

2. Market Approach

The market approach compares the IP asset with other comparable assets found in the marketplace to derive the value. In this context, for example, in India, one would study recent patent or trademark sales and apply those values to his or her IP.

3. Cost Approach

The cost approach calculates the cost that goes into creating or purchasing the IP. It is the value one would have to pay to recreate or create similar IP. Though rarely applied to established IP, this method is commonly utilized for new and untested assets in the Indian market.

What Are The Common Issues in IP Valuation in the Indian Market?

IP valuation is quite complex at times and involves many issues in the process. Some of them are as follows:

• Lack of Transparency: The IP transactions in India are not as transparent as other assets. Thus, comparing and valuing the assets is pretty hard.
• Subjectivity: The IP valuation mostly depends on subjective factors such as market potential and income generation, which differ from case to case.
• Legal Complexity: Law in India with respect to IP is also not very straightforward. For an international business that wants to sell its IP, the legal aspect is a minefield of issues and a time-consuming exercise.
• Valuation without Revenue: Early-stage IP or an IP without revenue will call for more speculative valuation, hence making the process difficult for both buyers and sellers.

How Do I Deal with IP Valuation While Selling Assets in India? – Stepwise Procedure

1. Collect documents

This is the step in which all the documents related to the concerned IP are collected. It may involve patents, trademarks, copyrights, and licensing agreements. Information regarding market potential and income streams is also a part of this exercise.

2. Engage a specialist valuator

One requires specialized knowledge for IP valuation, and it is advisable to take a professional valuator or an IP attorney on board. They can provide an objective estimation of the asset’s value and avoid any complexities of the Indian legal environment.

3. Market Research

Determine the demand of the market and competition with market research. This will help you gauge the amount of value that can be assigned to the IP, given industry trends, consumer demand, and what others offer.

4. Choose an appropriate method

The method of valuation applied depends on the type of intellectual property rights and available data. For example, when the income from the IP is proven, its income approach may be preferable. If comparable IP assets exist in the market, some insight may come from the market approach.

5. Consider Tax Implications

India has given guidelines regarding the transfer of IP. All taxes that are payable on account of the sale of IP should be identified. Its determination will form part of the process of determining value. You may have to hire a tax consultant for this purpose.

6. Negotiation with the Buyer

Having agreed on the value, you shall negotiate the IP sale using your valuation. Synchronize both value and legal perspectives for the two parties.

Conclusion

In the case of the Indian market, there is an added complexity to be handled when it comes to selling assets – namely, the aspect of IP valuation. Proper planning, knowledge, and strategy can help ensure that the deal will be both fair and successful in terms of achieving a just price. Working with experts in the field will mean avoiding complications and maximizing the value of IP. IP is a part of your business, and the right valuation can be the difference-maker between success and failure in an asset sale in India. To put it in a nutshell, the above process of how to handle the process of the selling of assets on the Indian market concerning IP valuation requires utmost research and expertise consultation, as well as prudent consideration of legal, economic as well and market factors determining the value of the intellectual property.

Read Also: How to Maximize the Value of Your Patent Through Smart Licensing Strategies