When evaluating the worth of a company, it is important to recognize the value of all assets and liabilities in determining the company’s value. However, most overlooked are the intangibles – that is, assets that do not have a physical shape, but nonetheless contribute to the earning power of the company. The true value of a company is its ability to generate earnings and earnings are a function of the productive use of a company’s assets deployed to maximum advantage.
Intellectual property is the most overlooked asset of the company, which can include its name, its reputation, its identity to the market and customer base, and its ability to charge a fair price for its products or services based on special recognition afforded the company by its customers and business prospects. Intellectual property, therefore, is an attempt to monetize intangible business assets in a way that they are not confused with other vendors or suppliers, and give the company a special recognition not enjoyed by competitors or other vendors, to avoid commoditization pricing in its sales. A commodity treats every item of the same class, type and kind as identical, and therefore the only difference is price, while intellectual property affords the vendor special recognition, pricing and competitive advantage which avoids commoditization in the sale of its products.
Gerald C. Davis is a partner in our Livonia office where he concentrates his practice on corporate and business law, leveraged buy-outs, company reorganization and refinancing, analyzing investments for joint ventures, intellectual property, and drafting loan agreements. He may be reached at (734) 261-2400 or firstname.lastname@example.org.