Value of Intellectual Property
Intellectual Property Auctions
Auctions have been around for centuries. But now, some entrepreneurs are using auctions as a vehicle for selling intellectual property. We'll tell you why an auction may be the best way to dispose of your company's stockpiles of intellectual capital.
Intellectual property sales are challenging for both buyers and sellers.
Too often, intellectual property transactions don't occur until it's time to sell the company and even then, the assets may be lumped into the purchase price in a way that doesn't recognize the property's true value as a standalone business asset.
One of the major roadblocks in an intellectual property sale is valuation. Ideally, IP should be valued based on its ability to either earn revenue or secure a competitive advantage in the marketplace. Unfortunately, that makes valuation a constantly moving target. Despite the fact that there are accepted standards for valuing IP, valuation is always a sticky issue.
Complicating the issue even more is the difficulty sellers have in locating buyers for their IP assets. Intellectual property isn't something you can sell through a print ad or on eBay. These types of transactions involve delicate assets that need to be marketed to a targeted group of buyers rather than to a general buyer base.
Intellectual property auctions mediate many of these concerns and provide sellers with a ready-made channel for marketing their assets to the right buyers. Buyers, on the other hand, are assured that the sellers are serious about letting go of their assets and aren't testing the waters in the marketplace. Here are some of the other benefits IP auctions offer both buyers and sellers.
- Accurate valuation. Auctions are generally pure representations of the marketplace. If appraised value is limited to the amount someone is willing to pay for an asset, then an auction can be an efficient way to establish an accurate valuation for IP. In fact, IP auctions tend to result in higher prices than other sales channels. Although there is a risk that the sales price can fall below true market value, it can be mitigated by establishing a reserve price for any IP you put on the block.
- More buyers. An intellectual property auction has the potential to attract a much larger pool of buyers than you could locate through your own efforts. If the auction has been adequately promoted, your asset will be seen by dozens of senior IP buyers - but only to the extent that the auction includes a large enough quantity of patents to attract top-tier buyers.
- Reduced risk. Auctions reduce the risk of owning an asset and trying to sell it on the private market. Confidentiality issues introduce a level of awkwardness into private sales and buyers feel less threatened in auction environments. Combined with the elimination of patent management costs, an auction can reduce your company's exposure to negative consequences.
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