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Capturing the intangible

04-07-2014

Most businesses know that trademarks are valuable assets; the challenge comes in quantifying that value and using it as a springboard for growth. Trademark valuations supported by regular IP auditing could be the answer.

Brand recognition is now widely accepted as an important measure of company success and value. From boardroom directors to end consumers, we have come to understand that the ubiquity and success of a major brand – whether it be Apple or Google, Coca-Cola or Nespresso – go hand in hand with brand distinctiveness, goodwill and reputation. Often this is the case even if we do not always know what it is about that brand that makes it quite so special or successful – its design perhaps; its use of colour; the messaging in its slogans; the state of mind it seeks to epitomise; or a combination of all these and more.

Although brand value has risen on the agenda of company directors and their stakeholders, the legal system that supports the way in which a brand is built, captured, expanded and protected is less readily understood, recognised or appreciated. Yet without adequate trademark (and design) protection, there is arguably no brand value at all – or at least, no value that a company can truly capture and call its own.

Out of sight, out of mind
Trademarks and associated forms of intellectual property are the one constant in brand creation. A product’s name, the design and colour of its packaging and the corporate logo are not just marketing tools – they are legal rights which can bring great benefits and growth when nurtured and used properly.

Unfortunately, trademarks are not quite as exciting to the layperson as they are to IP professionals and are often just considered a box-ticking exercise before the real fun can begin. As such, trademarks are the unsung heroes of brand success, not least because many business heads only really notice their importance when they are not working as they should. It is little wonder, then, that even the more brand-focused companies can sometimes forget to consider intellectual property fully when expanding into new markets, product ranges or geographies.

Part of this is due to the difficulty of accurately capturing the value of a trademark or portfolio of trademarks to a business. After all, if you are unable to put a figure on the financial value that you derive from that asset, then how can you convince colleagues elsewhere in the company to prioritise intellectual property in their business or product strategies? It is the difficulty of truly capturing that added value that has led many organisations to consider trademarks to be a cost centre, rather than as an asset that drives value and profit to the bottom line. This is despite the fact that it is possible to turn the cost of IP acquisition into a profit by realising the value of the resultant intellectual property on the balance sheet.

The challenges of trademark valuation
However, unlike many forms of intangible assets, IP rights are generally worth more than the simple sum of their parts and the costs of acquisition and maintenance are rarely relevant during valuation exercises. Similarly, there are obvious benefits in deciding, for instance, that as brand value is so dependent on the trademark rights that protect it, the value of that trademark accounts for a percentage of each product’s revenue. Yet this too is only part of the story. When it comes to trademark value, it is not just the actual revenue that is important, but also the potential that the trademark offers in terms of brand expansion and reputation building.

Most brand valuation experts prefer to assess value from the perspective of relief from royalty. In other words, if I were to license this brand into my business, what might I expect to pay? The idea is that, because it owns the trademark, a company is relieved of the need to pay another party a royalty for its use. Thus, the value to its business is the amount that it is deemed to have saved.

Such IP-driven royalty payments are generally based on a percentage of product sales as negotiated between the two parties – although that percentage may vary depending on the trademark’s perceived strength and visibility, as well as the market opportunities that the company is targeting.

Nonetheless, this question of strength and visibility is often skipped over during valuation exercises. Value is taken to represent what that company would be willing to pay to use the brand name. But what if it later emerges that the assets on which that brand name is based are not quite as robust as the company assumed (eg, they are successfully challenged or overturned by another party)? Does this not make a mockery of the original estimates?

Do you own what you think you own?
As the first step towards any trademark valuation exercise, Novagraaf focuses on identifying possible weaknesses that may expose a company or undermine its brand value – which are of equal importance when it comes to capturing market worth and potential. [...]

Continue reading here (pdf).

This article was first published in the August/September issue of the World Trademark Review.

For more (media) information, questions or interview requests, please get in touch with Marloes Smit at m.smit@novagraaf.com or on +31 (0) 20 564 13 41.