Valuation of intellectual property rights in the Indian pharmaceutical industry in the context of the new patent regime

Abstract

We shall first outline the difference between three very commonly used terms: Intellectual assets, Intellectual property, and Intangible assets. Intellectual Property: It is a legal term referring to very specific property rights viz. patents, copyrights, and trademarks. • Patent is the exclusive right to prevent another from making, using or selling an invention. A Patent is the most difficult of the three Intellectual Properties to obtain. • Copyright is the right in the particular expression of the idea and one doesn’t have exclusive control on the idea itself. One can actually restate established ideas in a novel way and claim copyright on that new form of expression of the idea. E.g. music, photography, cinema, etc. The only caveat is that the copyright must be in a fixed or tangible medium. • Trademark gives the owner rights over images or words that identify a particular product or service to his customers. Both patents and trademarks are valid only within the territory under which they have been obtained. Intangible asset: As per IAS 38 Intangible assets are identifiable non-monetary assets without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. E.g. unique organizational design, human resource practices, etc. As per Jon Low & Cap Gemini E&Y the following can be classified as intangibles1: Leadership, Brand equity, Customers, Innovation, Environment and social responsibility, Human capital, Networks & Alliances, Technology, and Quality. Key Observations: • In the present era intangibles far outweigh tangible assets leading to the market value for companies being many times the book value. This happens as the AS specifies the expensing of the capital spent in developing these intangibles. Assigning values to particular trademark can be difficult in situations when the trademark may be gaining additional mileage due to its pedigree. E.g. a P&G brand can be difficult to value; Valuing MS Office brand alone may be difficult as it gains advantage from being a Microsoft product.