What Is Intellectual Property (IP)?

By Kristi Waterworth – Updated Sep 6, 2025 at 3:58 AM

Key Points

Intellectual property (IP) includes patents, copyrights, and trademarks which are hard to value.
Valuation of IP often uses income, market, or cost methods focusing on generated revenues.
Investors should consider IP's impact on companies, as it can significantly affect their valuation.

When you're considering the assets of a company, the intangibles -- such as intellectual property -- matter just as much as the tangible assets. But what exactly qualifies as intellectual property, and more importantly, how is it valued?

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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How is intellectual property valued?

It can be incredibly difficult to value intellectual property, but that's not to say it's impossible. In fact, there are companies that are experts in putting a figure to these creative outputs. They use one of three methods:

Income method: The income method is the most common way to value intellectual property. It looks at how much money the intellectual property is generating and what it's expected to generate in the future, adjusted back to present-day values. This works best for intellectual property that already generates cash flows and should continue to provide revenue.

Market method: The market method is one of the most difficult ways to value intellectual property. When possible, it is often the most accurate. Because the market method looks at sales of other intellectual property that's similar and is used in a similar way, it is very reliable.

Cost method: If your intellectual property is easy to reproduce, but the economic benefit is unclear or unestablished, the cost method can be used to determine the value. It uses the cost of creating similar intellectual property, although it can't account for any special characteristics of the particular asset.

Examples of intellectual property

There are loads of different types of intellectual property, but these are the most common to find in the wild.

Patents: Patents grant an inventor exclusive rights to an invention, which can be anything from a physical object to a process or simple improvement on an existing design. You'll find lots of patents as intellectual property for biotechnology, pharmaceutical, and technology companies.

Copyrights: A copyright is similar to a patent but is used for creative works. Instead of a book, song, or piece of art being protected exclusively by a patent, it happens with a copyright. This allows owners to reproduce, sell, and use their own material and to grant others licensing agreements to do the same.

Trademarks: Trademarks are an integral part of branding that helps companies stand out from one another. You can trademark symbols, phrases, or insignia as long as they're recognizable and unique.

Trade secrets: Trade secrets can be anything from super-secret recipes to specific processes used to make a product better or different than the competition. They're expensive to develop at times and often funded directly from research and development budgets.

Digital assets: As companies increasingly add digital assets to their inventory, there has to be a way to classify them. Digital assets currently are considered to be intellectual property, even though they're sold like regular assets. Digital assets might include virtual objects like items used in metaverse platforms to equip an avatar or more familiar assets like software.

What Is Intellectual Property (IP)?

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What is intellectual property?

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Examples of intellectual property

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