Know what you own: Adding value to trademark audits

By Eric Siecker,

We all know brands are important and valuable to a business, but why seek to put an actual value on them? In today’s budget-focused boardrooms, trademark attorneys need to show that the legal rights that protect those brands aren’t unnecessary costs, but instead add value to the business.

Defining the what

In measuring value, we first need to define what we are seeking to place a value on. In this context, a brand is a marketing-related asset that may include names, terms and logos intended to identify goods, and create distinctive images and associations in the minds of stakeholders, thereby creating economic benefits for the owner.

How we measure that brand’s value depends on the purpose for the valuation. Purpose dictates the premise (or basis), and that, in turn, dictates the method – and different methods produce different results. For example, is the valuation driven by strategic planning, financial reporting, dispute resolution or due diligence? Each of these will result in a different valuation premise and methodology – for instance, the desire to capture market value, as opposed to investment value or liquidation value.

Legal protection through trademark (and other) registrations has touch-points throughout valuation calculations, no matter which methodology you use; the stronger and better managed that the trademark portfolio is, the higher the value of the brand may be.

The question of why

For trademark attorneys involved in valuing brands (as opposed to accountants), the ‘why should come before the ‘how’. Some the most common reasons for undertaking a valuation exercise include: portfolio disposal or acquisition, preparation for an initial public offering (IPO), transfer pricing, IP licensing and IP securitisation. Each of these will require a different valuation method, or combination of methods.

But brand valuation is important at any stage of a brand’s life cycle, not just when it comes to a restructuring or sale. Any company needs to see that it is getting a return on investments made, and investment in IP protection is no different to an investment in new plant or manufacturing capabilities. It’s just more difficult to articulate or quantify.

Of course, investment in protection is only one aspect of outlay in a brand, which could also include, for example, marketing and PR activities to increase awareness. Although a brand valuation will not necessarily prove that the investment in protection is the factor increasing or decreasing brand value, it will always be a factor.

There are instances where a strong brand protection policy has been undermined by bad publicity, which has a negative effect on brand value. Equally, a strong brand can be undermined by an inadequate trademark protection strategy that prevents the brand owner from, for example, expanding to new countries or new product ranges because someone else owns those rights. There are also the cases when the value of a company acquisition rested almost entirely with the IP assets being acquired.

Trademarks matter

As with many industries, the functional differences between products and services have been narrowed to the point of near invisibility. It is intangible assets, such as brands, that provide the basis for establishing meaningful differences between apparently similar offers. Of course, a brand is more than just a trademark but, without trademark protection, a brand is potentially worthless.

There are numerous methods of analysing the strength of a trademark portfolio. For valuation purposes, it is important that the method used can be replicated and that an awareness of competitor behaviour is incorporated into the methodology.

Novagraaf has developed a tried-and- tested methodology (the 4Ws: Who, What, What for, Where?) to undertake IP audits and measure trademark value, assessing the extent to which a company’s core brands are strategically protected by trademark registrations in key markets and territories, as well as the comparable strength of those registrations.

The approach also covers such factors as scope of coverage, effective use of trademark registration systems, ownership and portfolio consistency. The service has been specifically designed to provide businesses with greater insight and clarity into the brand and trademark valuation process, via a robust and transparent methodology, and clear advice on how to identify and remedy the issues that may be undermining asset value.

Trademarks – cost or investment?

Trademarks and associated forms of IP 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. Yet, they can often be overlooked in the rush to market, or simply considered a drain on resources – an outgoing cost to the business that seems to bring in little return.

That’s why it’s important for a business to be able to showcase the contribution made by trademark assets to brand strength. We all know that a strong, well-managed registration portfolio has a direct influence on brand value, and therefore business value. Valuation of that asset can also unlock its true worth, and show that the right trademark registration strategy is an investment, not just a cost. 

Find out more about auditing in our step-by-step guide. 

Eric Siecker is Managing Director of Novagraaf in the UK.

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