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?<\/span><\/p>\n <\/p>\n 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 <\/span>National Research and Innovation Agency (BRIN)<\/b> 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 <\/span>World Intellectual Property Organization (WIPO)<\/b>.<\/span><\/p>\n <\/p>\n IP valuation is beneficial if you carry out the following activities:<\/span><\/p>\n <\/p>\n In the previous article, we explained how the <\/span>National Collective Management Organization (LKMN)<\/b> 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 <\/span>Indonesian Valuation Standards (SPI)<\/b>, which must be used as a reference for all appraisers carrying out appraisal activities in Indonesia. This mandatory nature is regulated in the <\/span>Indonesian Appraiser Code of Ethics (KEPI)<\/b>. SPI is determined by the Indonesian Appraisal Professional Organization, better known as the <\/span>Indonesian Appraisal Professional Society (MAPPI)<\/b>, and is based on the 2013 version of the <\/span>International Valuation Standards (IVS)<\/b> issued by the<\/span> IVS Council<\/b>, which is headquartered in London, England.<\/span><\/p>\n <\/p>\n 1. Marketing-Related Intangible Assets<\/b><\/p>\n 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.<\/span><\/p>\n <\/p>\n 2. Customer-Related Intangible Assets<\/b><\/p>\n 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.<\/span><\/p>\n <\/p>\n 3. Artistic-Related Intangible Assets<\/b><\/p>\n 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.<\/span><\/p>\n <\/p>\n 4. Contract-Related Intangible Assets<\/b><\/b><\/p>\n 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.<\/span><\/p>\n <\/p>\n 5. Technology-Related Intangible Assets<\/b><\/b><\/p>\n 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.<\/span><\/p>\n <\/p>\n 6. In-Process Research and Development\/IPR&D Intangible Assets<\/b><\/p>\n 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.\u00a0<\/span><\/p>\n <\/p>\n 1. Rights, privileges, or conditions attached to Ownership Rights.<\/b><\/p>\n 2. Remaining economic and\/or legal life (validity period) of Intangible Assets.<\/b><\/p>\n a. Legal Life;<\/b><\/p>\n Derived from the life of a Patent, Trademark, or Copyright, which provides legal protection from competition.<\/span><\/p>\n <\/p>\n b. Contractual Life;<\/b><\/p>\n Derived from the age of the agreement with the customer, franchise agreement, rental agreement, or other agreement between the assignor and a third party.<\/span><\/p>\n <\/p>\n c. Physical Determinants;<\/b><\/p>\n 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.<\/span><\/p>\n <\/p>\n d, Economic Life;<\/b><\/p>\n Economic Life can be obtained through:<\/span> 1. Multiperiod Excess Earnings Method (MEEM);<\/b> 2. Convention Method.<\/b><\/p>\n In this method, the appraiser must reveal the basis of consideration for producing a convention value, including historical and industry data.<\/span><\/p>\n <\/p>\n e. Functional or Technological Obsolescence;<\/b><\/p>\n Using life cycle analysis by considering technological developments and market demand historically and in the future.<\/span><\/p>\n <\/p>\n f. Analytical.<\/b><\/p>\n Appraisers can use quantitative analysis to calculate the Remaining Useful Life of Intangible Assets based on a study of historical deterioration patterns associated with comparable Intangible Assets based on the following data:<\/span> <\/p>\n 1. Market Approach<\/b> With the Market Approach, the value of Intangible Assets is determined by referring to market activity. For example, it offers transactions involving identical or similar assets. The heterogeneous nature of Intangible Assets means finding market data from transactions involving identical assets is difficult.<\/span><\/p>\n If there are, these usually relate to similar, but not identical, assets. As an alternative, or in addition, comparing prices in relevant transactions involving identical or similar assets through sales transaction analysis may provide comparable data in valuation. For example, it is possible to determine the price-to-earnings ratio or rate of return for a group of similar Intangible Assets.<\/span><\/p>\n When price data or multiple valuations are available, adjustments are often necessary to reflect differences between the subject asset being valued and the market data of a transaction. This adjustment is needed to reflect differences in the characteristics of the Intangible Asset subject and the assets involved in a transaction. Such adjustments may only be determined qualitatively and not quantitatively. Things that may result in the need for qualitative adjustments include the following examples:<\/span><\/p>\n <\/p>\n 2. Income Approach<\/b><\/p>\n In the event that the Appraiser uses the Income Approach, the following provisions apply:<\/span><\/p>\n a. Analyze historical financial statements of Intangible Asset owners;<\/span><\/p>\n b. Pay attention to conditions that occur after the Valuation Date, which may affect Prospective Financial Information; And<\/span><\/p>\n c. Considering the prospective growth of Intangible Assets, which are the object of the assessment;<\/span><\/p>\n d. The Prospective Financial Information Period must be carried out within at least the next 5 (five) years or adjusted to the Remaining Useful Life of the Intangible Asset, which is the object of the assessment.<\/span><\/p>\n e. Suppose the Remaining Useful Life of the Intangible Asset, which is the object of the assessment, cannot be determined (indefinite). In that case, it must cover a certain period (definite) plus capitalization of Prospective Financial Information after the 5th (fifth) year. Capitalization uses the Intangible Asset discount rate plus the retirement ratio percentage.<\/span><\/p>\n f. Based on market evidence in the appraisal report, the appraiser must disclose the reasons for determining the remaining useful life as indefinite.<\/span><\/p>\n g. Appraisers are prohibited from basing Prospective Financial Information solely on historical data trends but need to consider other factors as follows:<\/span><\/p>\n h. The methods that can be used in the Income Approach are as follows:<\/span><\/p>\n i. The appraiser must use a discount rate that meets the following:<\/span><\/p>\n <\/p>\n 3. Cost Approach<\/b><\/p>\n In the event that the Appraiser uses the Cost Approach, the following provisions apply:<\/span> <\/p>\n The Cost Approach can only be used if the following requirements are met at least:<\/span><\/p>\n <\/p>\n The procedures that must be carried out in assessing Intangible Assets using the Cost Approach are:<\/span><\/p>\n a. Determine the estimated costs that will be used, namely:<\/span><\/p>\n 1. New Reproduction Cost<\/b>Benefits of Intellectual Property Valuation<\/b><\/h4>\n
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SPI 320 – Basis Valuation for Intangible Assets<\/b><\/h4>\n
Classification of Intangible Assets Based on SPI 320<\/b><\/h4>\n
Factors Considered by the Appraiser:<\/b><\/b><\/h4>\n
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\n<\/b>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.<\/span><\/p>\n
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3 Intangible Asset Valuation Approaches<\/b><\/h4>\n
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\n<\/span>Provided that it must meet the following criteria:<\/span><\/p>\n\n
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