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What is Intellectual Property?
An enterprise’s assets can be divided into two categories: tangible assets – including buildings, machinery, equipment, cash, and office supplies; and intangible assets – that lack physical existence and are fruits of a company’s creative and innovative talents, such as intellectual property (IP). Tangible assets are often easier to quantify and manage because they have a physical presence and can be directly measured.
However, businesses often value their physical assets but forget about valuing their IP. Intangible assets, like IP, can be more challenging to assess but are equally important. It’s crucial to recognise the value of these assets early and protect them for the future. The four types of IP, which are intangible assets, can be of significant value to your business. Properly managing and valuing your IP can provide a competitive edge, enhance your market position, and contribute significantly to your overall business success.
To be able to value an IP asset, the asset should meet the following conditions:
- It must be separately identifiable (subject to specific identification and with a recognizable description).
- There should be tangible evidence of the existence of the asset (e.g. a contract, a license, a registration document, record in financial statements, etc.).
- It should have been created at an identifiable point in time.
- It should be capable of being legally enforced and transferred.
- Its income stream should be separately identifiable and isolated from those of other business assets.
- It should be able to be sold independently of other business assets.
- It should be subject to destruction or termination at an identifiable point in time.
Four Intellectual Property Types
Copyrights
Copyrights, among the most widely used types of IP, are a form of protection granted to the authors of original works of authorship, both published and unpublished. A copyright protects a tangible form of expression (i.e. a book, work of art, or music), rather than the idea or subject matter itself. In Australia, copyright protection applies to any original work of authorship immediately from the time that it is created in a tangible form
Trademarks
Trademarks are another common type of IP. A trademark is any word, name, symbol, or device, or any combination, used, or intended to be used, in commerce to identify and distinguish the goods of one manufacturer or seller from goods manufactured or sold by others
Trademarks can provide significant commercial advantages and are protected under Australian law.
Patents
Patents are among the most valuable, costly, and difficult to obtain types of intellectual property. A patent is the grant of a property right to the inventor, providing the owner the right to exclude others from making, using, offering for sale, selling, or importing the invention
Patentable items may include objects or processes such as new technology or business methods. In Australia, patents are typically valid for 20 years from the date of application.
Trade Secrets
Any idea or fact that is not disclosed by a business comprises the fourth type of intellectual property: trade secrets. A trade secret is proprietary or business-related information that a company or individual uses or to which they possess exclusive rights. To be deemed a trade secret, the information must meet several requirements: it must be genuine and not obvious, provide the owner with competitive or economic advantage and thus have value, and be reasonably protected against disclosure. Examples of trade secrets include recipes, business methods, strategies, tactics, or any other piece of information that gives the business a competitive advantage.
More information on Intellectual Property can be found at IP Australia and Baxter IP.
For information on Business Valuations speak to our team of experts.
