VALUATION OF TRADEMARKS

Saturday Brain Storming Thought (94) 02/01/2021-

COMPILED BY VR AVINASH KULKARNI

Valuation of Trademarks

Trademark is a type of intellectual property consisting of a recognizable sign, design, or expression which identifies products or services of a particular source from those of others

Trademarks used to identify services are usually called as service marks

Trademarks are protected by intellectual property rights

Protection of Trademark

At the national/regional level, trademark protection can be obtained through registration, by filing an application for registration with the national/regional trademark office and paying the required fees

At the international level, you have two options

1) file a trademark application with the trademark office of each country in which you are seeking protection

2) you can use WIPO’s Madrid system

Rights provided by trademark registration

Trademark registration will confer an exclusive right to the use of the registered trademark

Licensed to another party for use in return for payment

Registration provides legal certainty and reinforces the position of the right holder, in case of litigation

Trademark protection period

The term of trademark registration can vary, but is usually ten years

It can be renewed indefinitely on payment of additional fees

Trademark rights are private rights and protection is enforced through court orders

Kinds of trademark which can be registered

1) a word or combination of words

2) letters

3) numerals

4) drawings

5) symball

6) three dimensional features such as shape and packaging of goods

7) non-visoble signs such as fragrances

8) color shades

The possibilities are almost limitless

Types of Trademarks

1) generic mark

2) descriptive mark

3) suggestive mark

4) fanciful

5) arbitrary mark

TM without registering

The (TM) Symball actually had no legal meaning

You can use this symball or any mark that your company uses without registering it

TM indicates that company plans to register through the USPTO

Trademark applications are filed for registration of slogan

Slogans are protected as trademark

Advantages of Trademark registration

1) owner of registered trademark enjoys exclusive right

2) builds trust and goodwill

3) differentiates product

4) recognition of products quality

5) creation of asset

6) use of ® symball

7) protection against infringement

8) protection for ten years at low cost

Disadvantages of Descriptive Trademarks

1) not qualifying for registration on the principal register

2) descriptive trademarks are weak marks

3) trademark registration process may cost more

4) your marketing and advertising costs will increase

5) litigation can be risky, uncertain and expensive with a descriptive mark

6) consumers may not remember your brand

7) non-payment of renewal fees may cause the removal of the trademark from the register

Trademark valuation methods

1) future income based valuation

2) market value method

3) historic cost method

4) relief from royalty method

Trademark valuableness

Trademarks can appreciate in value over time

The more your business reputation grows, the more valuable your brand will be

Trademarks provide value beyond your core business

Your trademark can lead to the acquisition of your business by a larger corporation

1) Future income based trademark valuation

The future income attributable from the trademark is discounted back to present value to arrive at a present day valuation

For instance, if a well known trademark brand, earns franchise fee of Rs 1 crore every year, then all such future cash flows are discounted to arrive at a valuation for the trademark today

2) Market value method for trademark valuation

Market data pertaining to selling, buying, franchising or licensing is used to arrive at a valuation

The availability of relevant market data and the similarity of the transaction based on which valuation is arrived are key factors that influence trademark valuation

For instance, if a well known brand in the same industry was sold at Rs 1 crore and Rs 1.25 crore recently, then the information can be used as a benchmark to arrive at a valuation for the registered trademark

3) Historic cost method of trademark valuation

The cost accrued in terms of advertising and brand building are factored to arrive at a valuation

Historic cost method of trademark valuation is one of the most conservative methods

It does not factor in goodwill associated with the trademark

It can be a good method for valuing trademarks that are relatively new on the market

4) Relief from royalty method of trademark valuation

A trademarks value is determined based on the expected royalty savings due to trademark ownership

Data such as royalty earned from the same trademark or similar trademark and additional revenue on account of the trademark can be used to arrive at a trademark valuation

Steps of the royalty aproach

1) determine how the trademark will be used in the future, whether it will remain critical, and will be phased out over time, and how managements expectations in this regard may differ from those in the market

2) determine the projected profit to be generated by the trademark, including trademarks or product names for multiple services lines and products

This includes the length of time for which they will generate revenue, which may be for just a few years or for the foreseeable future

3) figure out the royalty rate for this profit stream, based on what it would cost for another company to license a similar trademark

Review market data for royalty rates in legal agreements, SEC filings, and the royalty source intellectual property database

4) estimate the discount rate, which indicates how much your company saves by avoiding royalty payments on the trademark it owns

Consider the risks associated with a trademark, whether branding and re-branding will occur, the strength of the brand, your company’s current position in the marketplace and historical financial performance

Trademark assignment

The term that’s used to describe a transfer of an owner’s title, interest and rights in a service mark or trademark to a different party is known as trademark assignment

With a trademark assignment, the assignor or transferring party, transfers their property rights with the trademark to the assignee or receiving party

Trademark law

It is intended to avoid consumer confusion and preventing companies from diluting the marks of other firms

Trademark law is important to enable the trademark proprietor to develop goodwill for the product or service and prevent other parties from exploiting the brand