VALUATION Corp. Provides Intellectual Property Valuation Services in Moscow and Russian Regions
- Definition of Intellectual Property (IP) in Russia
- Legal Protection of IP in Russia
- Intellectual Property vs Intangible Assets
- IP as Valuation Subject
- Intellectual Property Valuation Services in Russia
In modern Russian economy, with an increasing introduction of products based on new technology and knowledge, intellectual property (IP) and intangible assets (IA) have arguably become one of the most important elements of business assets. There are many cases when the value of the company’s intangibles exceeds the value of all its tangible assets combined. This is especially true for the companies having sustainable business reputation on the market, owning popular brands or operating in high-tech sector.
The Civil Code of Russian Federation (Part IV, Article 1225) gives the following definition of intellectual property (IP):
"Intellectual property are the results of intellectual activity and their equivalents (means of individualization of legal entities, goods, works, services and enterprises) that are granted legal protection:
- works of science, literature and art;
- computer programs;
- artistic performances;
- broadcasting (cable, radio or television broadcasts);
- utility models;
- industrial designs;
- breeding achievements;
- topologies of integrated electronic circuits;
- industrial know-how;
- brand names;
- trademarks and service marks;
- appellations of origin;
- commercial designations.”
In accordance with the generally accepted classification, all intellectual property is divided into four main sections:
- industrial property - patents for inventions, patents for selection achievements, patents for industrial designs and utility models, certificates for trademarks, certificates for service marks;
- objects of copyright and related rights - works of science, literature, music, painting and other forms of art;
- computer programs, databases and electronic chips topologies;
- industrial know-how - closely held knowledge of technical, financial or administrative nature that brings or potentially can bring income or other benefits; the results of research and development works, engineering and technological documentation not protected by state patents.
According to the civil legislation of Russian Federation, the all intellectual property of legal entities and private individuals is under the legal protection of the state. The most common type of legal protection is obtaining a state patent or state certificate of registration. These forms of legal protection are provided for inventions, utility models, industrial designs, trademarks (service marks) and some other IP objects.
Legal protection of intellectual property in Russia is not limited to patenting. Objects such as industrial know-how, works of literature and science, and others, are not subject to mandatory state registration and they are not patentable either, but, nevertheless, they are protected by Russian law. Legal protection of not patentable IP is expressed in the relevant provisions of the Russian Civil Code and a number of other relevant laws, such as federal law N98-FZ "On trade secrets", as well as in numerous international agreements and conventions that Russia has acceded to.
Sometimes the concepts of intellectual property (IP) and intangible assets (IA) are used interchangeably, which is not entirely correct. Strictly speaking, any IP object is an intangible asset, but not every intangible asset can be classified as IP. Intangible assets are a much wider class of objects, which includes intellectual property. Intangible assets can be defined as a set of rights to the following objects:
- objects of intellectual property;
- deferred costs (for example, when conducting R&D works);
- licenses for the use of land and (or) natural resources;
- concluded agreements for obtaining certain preferences (opportunities) that bear potential economic benefits;
- goodwill of a company (firm).
So, intellectual property is, of course, an intangible asset, but at the same time, not all intangible assets can be classified as intellectual property.
Due to intangible nature of intellectual property, to “sell” an object of IP means to sell exclusive legal right to use it. Selling a non-exclusive right to use the object of IP is usually referred to as selling (granting) a license to use – in this case the exclusive right remains in possession of the licensor.
The Russian Civil Code (Part IV, Article 1229) interprets the exclusive right to an intellectual property as follows:
“An individual or legal entity that has the exclusive right to the object of intellectual property can use this object of IP at its discretion in any way that does not contradict the law. The owner may dispose of the exclusive right to the object of IP (Article 1233), unless otherwise provided by this Code. The owner of the exclusive right may, at his discretion, authorize or prohibit other persons from using the object of intellectual property. The absence of a prohibition is not considered a consent to use the object of intellectual property.
Other persons may not use the object of intellectual property without the consent of the exclusive right owner, with the exception of cases provided for by this Code.”
The exclusive right to an IP object is a property right, therefore it can be dealt with as it is with any other property - it can be sold, exchanged, donated, etc. Since the market value of any object is manifested in the exchange (sale) so in valuation of intellectual property the formal subject of valuation will be the exclusive right to this IP.
Note that personal non-property rights in relation to intellectual property - such as the right of authorship, the right to protect the reputation of the author, the right to disclosure, the right to a name - although protected by law, are not subject to valuation, since they are inseparable from the owner and therefore have no market value.
The value of the intellectual property is based on its ability to generate income for its owner. If an object of intellectual property has this ability, then it also has a market value that can be appraised.
Income from an IP object is generated in the process of its commercial use and from the whole variety of intellectual property the most widely represented (and, subsequently, most often appraised) IP objects in commercial circulation in Russia are:
- brands, trademarks and service marks;
- patented inventions, utility models, industrial designs;
- industrial know-how;
- computer programs, software;
- copyright and other author's rights.
Over the course of more than 20 years of doing business as an independent appraisal firm, our company has accumulated extensive knowledge in valuation of various types of intellectual property in Russia. From our experience, the most common situations when independent valuation of intellectual property is required or highly recommended are the following:
- price negotiations prior to purchasing/selling of IP;
- contribution of IP to the company’s charter fund (shareholder’s capital) in Russia;
- determination of royalty when granting license to use the intellectual property;
- notarization of inheritance which includes intellectual property;
- determination of initial book value of the IP object for accounting purposes;
- confirmation for change in the book value of the IP object for accounting purposes;
- pledging the exclusive right for IP object;
- correct calculation of taxes;
- determination of damages to the exclusive right owner from unauthorized use of his IP;
- independent confirmation of IP value to investors or business partners.
Should you have any queries regarding intellectual property valuation in Russia, please contact us.
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