Intellectual Property Appraisal

Since patent ownership was first authorized in England by the Statute of Monopolies in 1624, a law which allowed English monarchs to bestow patents preferentially for fiscal reasons, the history of intellectual property ownership and valuation has been contentious, characterized by two competing arguments concerning legitimate ownership; one side favoring private rights and the other side favoring public rights, (Sell & May, 2001). Considering the contested nature of its history, issues dealing with the economies of intellectual property, IP, today reflect much the same attitudes as they did at that time, and with each new hurdle new legislative settlements arise. Sell and May go on to maintain that the struggle between private appropriation forces and dissemination forces including healthcare advocacy groups, consumer groups, scientists, activists, and librarians, all of whom fear privatization of knowledge. Alternatively, IP rights are predicated upon the ideal that accomplishments of the human mind should be rewarded and protected; as such appropriate value needs to be attributed to these accomplishments through the use of financial valuation methods. IP issues cover protection and identification of ownership of the creations of the human mind and are the essential core of many business enterprises, (Friedman, 2004). In addition to business acumen, IP protection primarily covers: 1. patents, typically technological inventions, 2. trademarks, terms or graphics that identify common origin, and 3. copyrights, works of textual or artistic authorship, (Friedman).

Today we recognize that IP has much in common with other forms of property in that it can be traded, licensed, or bought and sold, in much the same way as we deal with forms of tangible property. Although IP is intangible, it is valuable property and as such it must be protected. In order to protect IP, a discernable value must be attached to it through valuation methods. Recognizing that the demand for valuation services had significantly increased and that valuation services were inconsistent, the American Institute of Certified Public Accountants, AICPA, established a committee that began a development process to standardize valuation services in 2001. This committee released the Statement on Standards for Valuation Services No. 1, effective for engagements accepted on or after January 1st 2008, and applies to all AICPA members, regardless of discipline, who perform valuation services for accounting, taxation, financial planning, financing, litigation, and business transactions, (Fact Sheet, n.d.).

The AICPA was not the first organization to attempt to standardize valuation services; other organizations including the Institute of Business Appraisers, the International Society of Appraisers, the American Society of Appraisers, and the National Association of Certified Valuation Appraisers, (Gold, 2007). Gold goes on to note that several of these organizations are amending their standards in order to comply both with the AICPA and also recently released IRS regulations which provide clearer definitions of fair market value and qualified appraisers and appraisals, (2007). Although cost methods, market value methods, and income methods, or a combination of two or more of these three methods, are the current preferred and most common methods of valuing intellectual property, more reliable means of IP valuation are evolving as recognition of the intrinsic value of intangible assets increases throughout the business world. Acceptance by lenders of IP as collateral for bank loans and also by insurers willing to insure IP assets against loss have resulted in appraisal methods by these institutions that can bridge the gap between financial reporting and market value, and this method is becoming more and more common, (Foster, Fletcher, & Stout, 2003). The fact that lenders are willing to collateralize and insurers are willing to insure the risk of IP contingent upon appraisal, is external evidence of the value of appraisal to investors and creditors.

References:
Fact Sheet. (n.d.). AICPA Statement on Standards for Valuation Services No. 1, Retrieved from http://www.aicpa.org/InterestAreas/ForensicAndValuation/Resources/Standards/AICPAValuationStandardandImplementationToolkit/Pages/default.aspx

Foster, B., Fletcher, R. & Stout, W. (2003, October). Valuing intangible assets. The CPA Journal, 73(10), 50-54. Retrieve from ProQuest Accounting and Tax Database.

Friedman, B. (2004, Winter). Brief overview of intellectual property issues. Pennsylvania CPA Journal, 74(4), 30-32. Retrieved from ProQuest Accounting and Tax Periodicals.

Gold, L. (2007, June 4-17). Putting a value on valuation. Accounting Today, 21(10), 1-3. Retrieved from ProQuest Accounting and Tax Periodicals.

Sell, S. & May, C. (2001, Autumn). Moments in law: contestation and settlement in the history of intellectual property. Review of International Political Economy, 8(3), 467-500. Retrieved from EBSCOHost Business Source Complete.