How much is your software worth?

In the digital era, software is one of the most strategic assets for companies. It represents not just an operational tool, but also a valuable business asset. Determining its economic value is essential in cases of acquisition, investment, or licensing, and requires an analysis that goes beyond purely financial aspects.

The value of software is not limited to development costs or the revenue it generates; it is also significantly influenced by the legal protection it enjoys. Copyrights, patents, trademarks, and license agreements are key elements that determine its attractiveness to investors and buyers. Software with solid IP protection reduces legal risks and ensures a competitive advantage, while poorly protected assets can lose value and become a liability.

In this article, we will examine the main methodologies used to assess the economic value of software and the crucial role that intellectual property plays in its valuation and protection.

Methods for assessing the economic value of software

Evaluating the economic value of software is not a standardized process, as several factors come into play, including the business model, target market, and level of legal protection. However, four main approaches are commonly used.

1. The first method calculates a software’s value by summing all expenses incurred in its development, including personnel, tools and licenses used, maintenance, and updates.
   It’s useful for determining the minimum value, but does not consider market competitiveness or IP protection, both of which heavily impact actual value.
2. The value of the software is estimated based on expected future earnings, using models such as:
   • • discounted cash flow (DCF), which forecasts future revenue and discounts it to present value;
     • License or subscription models, which analyze income from selling licenses or offering subscription services (SaaS).

   The revenue-based approach is useful for software already on the market with predictable revenue streams, but less effective for products still in development or difficult to monetize.

3. The comparative approach is based on comparing the software with other similar products that have been sold or acquired recently. For example, if an application with similar features was sold for €10 million, a similar value can be assumed for the software being evaluated. This method is particularly used in mergers and acquisitions, but it can be difficult to apply if the software has unique characteristics or if reliable market data is lacking.
4. In addition to direct economic factors, the value of software also depends on intangible elements such as intellectual property rights related to the software (trademarks, patents, copyrights), brand reputation and user base, the ecosystem, and compatibility with other software. This is referred to as the intangible asset-based approach.

These elements cannot be overlooked: strong IP protection can significantly increase the value of the software, while legal issues can drastically reduce it.

The role of intellectual property in software valuation

Intellectual property plays a crucial role in determining the economic value of software. In addition to protecting developers and companies from unauthorized use, proper legal protection increases the market value of software, making it more appealing to investors, buyers, and users.

Here’s how various IP rights impact software valuation.

• Source code is automatically protected by copyright, with no registration needed. Software with original and well-documented code is more valuable, while using third-party code without authorization can significantly reduce its value. Open-source software may face economic limitations compared to proprietary solutions, although it can generate value through services and customizations.
• Patents can greatly enhance the value of software by protecting innovative algorithms, data processing methods, or unique features.
  A patented software product offers exclusive competitive advantages and can be licensed to third parties. If a company holds strategic patents, the software’s value increases not only due to its utility but also its licensing potential.
  However, not all software can be patented—especially in Europe, where software patents are only granted for technical solutions (not just code or algorithms). During acquisition processes, patents are closely evaluated for validity, applicability, and any potential legal disputes.
• A strong and recognizable registered trademark can significantly raise the value of the software asset. Well-known examples include Microsoft Office®, Adobe Photoshop®, or AutoCAD®: even if the technologies themselves aren’t patentable, the brand name alone strengthens the software’s economic value. A strong trademark protects against competitors, supports market dominance, and improves integration into business deals while increasing customer trust.
  Choosing the right trademark is essential. If the name is too generic or too similar to existing ones, legal disputes may arise, diminishing value.
  A branding strategy review is key to evaluating the software’s economic potential.
• The value of software also depends on its distribution and licensing model. Proprietary licenses generate value based on the number of licenses sold, while SaaS models produce recurring revenues, increasing long-term value.

Ultimately, intellectual property is one of the most important factors in software valuation. Original code, protected by copyright and clearly licensed, enhances the asset’s security and value. At the same time, patents, trademarks, and well-structured licensing strategies can turn software into a driver of competitive advantage and financial gain.

Due diligence in M&A and investment deals

When a company acquires software or invests in a tech business, IP due diligence is essential to evaluate the asset’s legal solidity and actual value.

Superficial IP analysis may result in significant risks, such as legal disputes, usage limitations, or even the loss of rights. For this reason, buyers and investors should conduct a thorough assessment focusing on three key aspects.

• One of the most critical aspects is establishing with certainty who holds the intellectual property rights to the software. This step is essential because, in cases of unclear or shared ownership, the buyer may end up with an unusable asset or only limited rights. If the software was developed by freelancers, external consultants, or third-party companies, it is crucial to verify the existence of contracts assigning IP rights.
  In the absence of a clear agreement, the original developer could claim copyright, preventing the buyer from using the software freely.
• Another important aspect to verify is whether the software is currently involved in legal disputes or could potentially infringe on third-party rights. If the software includes patented technology, it is necessary to ensure that the rights are valid and uncontested. Additionally, the duration of the patents should be checked, as some may be nearing expiration, reducing the competitive advantage.
  The buyer must confirm that the software does not infringe on patents held by third parties, to avoid legal actions for IP rights violations.
  If the software is derived from another program without authorization, it may be subject to copyright infringement claims. It is essential to verify that the code was entirely written by the owner, or, if not, that valid licenses exist for any third-party components.
• Many software products include open-source components, which offer advantages in terms of cost and development speed. However, failure to comply with the license terms can lead to serious legal and commercial consequences.

Legal protection and software value enhancement

To determine the economic value of software, one cannot rely solely on financial or commercial metrics. Intellectual property plays a key role, directly influencing the market price, competitiveness, and growth potential of a software product.

Software with clear protection – well-defined copyrights, solid patents, registered trademarks, and properly managed licenses – will be more attractive to investors and buyers, minimizing the risk of legal disputes and increasing its credibility in the market. On the other hand, the lack of adequate legal safeguards or the presence of ownership disputes can drastically reduce a software’s value, making it a less appealing and potentially risky asset.

For companies, startups, and investors, relying on a law firm specialized in intellectual property is essential to protect and enhance their digital assets, prevent legal issues, and maximize return on investment.

If your company owns, develops, or is acquiring software, a well-defined legal strategy can make the difference between a secure investment and a potential legal or financial issue. Considering IP protection from the earliest stages of the valuation process means safeguarding innovation and ensuring stable, sustainable growth over time.