The IP Valuation Practice in Indonesia Measuring the value of Intellectual Property (IP) as an effort to protect intellectual works is a challenging matter. Often, the calculations carried out only partially reflect the true potential of these intellectual assets. For example, is the amount of royalties received an absolute assessment factor? Is the originality factor more valuable than novelty? Or does the closer the protection period gets to the end, the less valuable the IP will be? Considering that this valuation is also essential in providing credit, where the Government is encouraging the provision of banking credit to Intellectual Property owners to drive the national economy, in December 2023, the National Research and Innovation Agency (BRIN) as a research institution that has a lot of contact with IPs has held a “Kick Off The Role of Intellectual Property Valuators in Utilizing Research and Innovation Results.” This activity was held in collaboration with the Ministry of Law and Human Rights and the World Intellectual Property Organization (WIPO). Benefits of Intellectual Property Valuation IP valuation is beneficial if you carry out the following activities: Merger and Acquisition Sale and/or Purchase Litigation/Seeking Damages in Settlement Balance Sheet Reporting (Financial Report) Price Purchase Allocation IP Financing: Taking IP as Collateral Licensing & Identifying Worth of IP Portfolio Franchising (Initial Franchising Fee/Royalty) SPI 320 – Basis Valuation for Intangible Assets In the previous article, we explained how the National Collective Management Organization (LKMN) can actively assist appraisals and intermediaries if there is a default on Copyright-based credit. However, for Copyrights and other IPs as identifiable intangible assets, Indonesia has Indonesian Valuation Standards (SPI), which must be used as a reference for all appraisers carrying out appraisal activities in Indonesia. This mandatory nature is regulated in the Indonesian Appraiser Code of Ethics (KEPI). SPI is determined by the Indonesian Appraisal Professional Organization, better known as the Indonesian Appraisal Professional Society (MAPPI), and is based on the 2013 version of the International Valuation Standards (IVS) issued by the IVS Council, which is headquartered in London, England. Classification of Intangible Assets Based on SPI 320 1. Marketing-Related Intangible Assets Intangible assets associated with marketing activities contribute to a company’s ability to attract customers, enhance brand recognition, and generate revenue. E.g., Trademarks, Industrial Designs, and Domain Names. 2. Customer-Related Intangible Assets Intangible assets that are associated with a company’s existing customer base and contribute to its ability to generate revenue and maintain customer loyalty. These assets are valuable because they represent the relationships and interactions a company has established with its customers over time. E.g., Customer Lists, Licensing Agreements, and Trade Secrets such as Customer Databases and Exclusive Customer Agreements. 3. Artistic-Related Intangible Assets Intangible assets that are associated with creative works and expressions, including copyrights for original literary and artistic creations, trademarks protecting unique brand identifiers, design patents for distinctive visual designs, and patents covering inventive artistic processes. These assets are vital for safeguarding and commercializing artistic endeavors. 4. Contract-Related Intangible Assets Non-physical assets arising from contractual agreements, embodying legal rights and obligations. These intangibles often derive from contracts like licensing agreements, franchise agreements, or customer contracts, holding considerable value for a business. Examples include licensing rights for a popular software product, a franchise agreement granting exclusive rights, or a customer contract securing ongoing revenue streams. 5. Technology-Related Intangible Assets Non-physical assets tied to technological innovations, provide businesses with a competitive edge. These assets often result from research and development efforts, patents, or proprietary technologies. Examples include patented inventions, software algorithms, or proprietary manufacturing processes. Effective management and protection of these assets are vital for companies operating in technology-driven industries, ensuring they maintain exclusivity and market leadership in their innovations. 6. In-Process Research and Development/IPR&D Intangible Assets Ongoing research and development projects that have yet to reach completion or commercialization. These assets are valuable for companies anticipating future innovations and technological advancements. IPR&D assets may include unreleased products, prototypes, or projects in various stages of development. Factors Considered by the Appraiser: 1. Rights, privileges, or conditions attached to Ownership Rights. Ownership rights can be expressed in various legal documents. In legal jurisdictions, this document is usually called a Patent, Trademark, Copyright, know-how, database, etc. Rights owners are bound by documents that record their rights to Intangible Assets. The rights and conditions are contained in the agreement or exchange of correspondence, and these rights may or may not be transferred to the new owner of the rights. 2. Remaining economic and/or legal life (validity period) of Intangible Assets. Suppose the Income Approach is used for Intangible Assets. In that case, the Prospective Financial Information period must be the same as the Remaining Useful Life of the Intangible Asset that is the object of the assessment. If the Market Approach is used, the comparison object period is comparable and similar to the Remaining Useful Life of the Intangible Asset, which is the object of assessment. If the cost approach is used, the Remaining Useful Life is used to calculate the obsolescence of the Intangible Asset, which is the object of assessment. The factors used in measuring the Remaining Useful Life of Intangible Assets are based on, among others: a. Legal Life; Derived from the life of a Patent, Trademark, or Copyright, which provides legal protection from competition. b. Contractual Life; Derived from the age of the agreement with the customer, franchise agreement, rental agreement, or other agreement between the assignor and a third party. c. Physical Determinants; The remaining useful life of intangible assets is calculated based on the physical condition of tangible assets, which are an inseparable part of intangible assets. d, Economic Life; Economic Life can be obtained through: 1. Multiperiod Excess Earnings Method (MEEM); In this method, the appraiser must first calculate the decay factor. The decay factor can be obtained using the exponential total life divided by the negative Remaining Useful Life. 2. Convention Method. In this method, the appraiser must reveal…
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