Management

The Market Approach

The Market Approach is a general way of determining a value indication of an asset using one or

more methods which compare the subject to similar assets which have been sold. Arm’s length,

open-market transactions can provide objective, empirical data for developing value measures.

The Market Approach is based on the principle of substitution: a notional purchaser would not

pay more for a business asset than for equally desirable opportunities with similar characteristics.

To the extent that empirical data on similar assets are available, this method can provide an

indication of value, as it is based on the behavior of knowledgeable and uncompelled buyers

and sellers in the marketplace, each of these parties attempting to maximize the respective

benefits.

This approach develops a value indication based on comparable market transactions or on market

license/royalty agreements for comparable intellectual property. The principal weakness of this

approach is that it is often difficult, if not impossible, to obtain information on actual transactions

or sales offers which can reasonably compare to the intellectual property being valued. As most

intellectual property is highly specialized, finding appropriate market-comparable assets is, at

best, difficult, particularly because details relating to licensing transactions (such as the level of

risk assumed by each party) are rarely disclosed and the only comparable is often found within

the company itself.

The Market Approach is mainly used in conjunction with the Income Approach (outlined below),

when comparable royalty rates are used in valuing intellectual property.

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Market Based Approach

Under this approach the value of intellectual property can determine by considering the market prices paid for similar properties as a part of third party transactions. It estimates the value of an intangible asset based on...