Valuing IP / Patents in Manufacturing Business

by a searcher from London Business School

7 months ago

Hi Searchers, Does anyone have any approximate rules to apply when valuing patented IP in manufacturing? I realise this stuff is highly subjective, but any rules of thumb or benchmarks would be awesome. Thanks for your help, and happy holidays.

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searcher from Western Illinois University

I look at it the same as any other asset the business has which is how much cash does it produce. If i were looking at qualitative factors, i would want to know how long the IP/patent was protected and if there were any risks of competition from businesses in countries with minimal IP governance

7 months ago | like reply | 0 likes

professional from University of New Haven - College of Business

Okay here is the rule "The 25% Profitl Split Rule" where the goal is to estimate the level of profitabilty expressed as a %, and that is multiplied by 25% - the result is a royalty rate. This method is used mostly in litigation has servere limiations. The real question is what does the IP froma value perspective provide? What then is reasonable royalty rate associated with the rights granted by the IP holder, how long, over how many years and most important what protecitn do I have?

The basics of valuation are two variables - level of sustainable cash flow and requried rate of return from a very simplistic point of view. Without an understanding of either variable no one can provide a "benchmark" multiple without understanding the context the IP - there is no such thing as manufacturing IP. It is specific or more likely it would not exist.

Sorry if this appears ...but this is about the market not genrealized observations about the market - lets leave that to others!

7 months ago | like reply | 0 likes

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