Company owners and consumers, alike, know that a recognizable and trusted brand name is a powerful asset with clear value when it comes to customer recognition, loyalty, goodwill, reputation, and market share. Trademark rights enable companies to protect and enforce the brand (and product) names, logos, and associated signifiers, including source-indicating colors, sounds, and even product configurations that they use on or in connection with their goods and services. While rights can be relatively easy to amass (subject to exceptions, of course), part of the challenge often lies in quantifying and communicating the return on such brand-building effort and investment, as well as the role that intangible assets, such as trademarks and designs, play in a company’s success.
Intellectual property (“IP”) has risen rapidly up the corporate agenda in the last few decades, with finance heads, board members, and shareholders all looking to their legal departments for strategic insight into the value of these assets. Measuring the contribution made by intangible assets to brand strength, customer loyalty, and a company’s bottom line is no easy feat, however, with many unsure about how best to approach their valuation efforts.
If a company is unable to put a figure on the financial value that it derives from its trademark portfolio, how can its leadership convince colleagues elsewhere in the company to prioritize IP in their business or product strategies (or budgets)? The difficulty here lies, at least in part, in truly capturing that added value that has led many organizations to consider trademarks to be a cost center, rather than 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 realizing the value of the resultant IP on the balance sheet.
Capturing the intangible
When it comes to reporting on value, it does not help that the legal system that supports the ways in which a brand is built, captured, expanded, and protected is not always understood or appreciated outside of IP departments. While the value of a company’s brand assets is far more than the sum of their its parts, without adequate trademark (and design) rights and corresponding protections, there is arguably no brand value at all – or at least, no value that a company can truly capture and call its own. Here, it is not just actual brand-related revenue that is important, but also the potential that a trademark offers in terms of brand expansion and reputation building. For that reason, most brand valuation experts prefer to assess value from the perspective of relief from royalty. In other words, if a company were to license a brand for use in connection with its business, what might it 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.
However, the question of trademark strength (and validity) 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 (e.g., if 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, it is, therefore, recommended that companies focus on identifying possible weaknesses that may expose a company or undermine its brand value, such as incorrectly maintained rights, for example. Typically, such weaknesses arise where a company’s IP strategy has not kept up with its wider business or product strategies. However, it is often just a result of the way in which businesses evolve naturally; after all, trademarks can conceivably go on forever (or at least for as long as they are properly renewed and maintained).
At the same time, companies, employees, and brand management strategies ebb and flow, new management styles come in, and companies change the ways in which they capture, acquire, manage, and prioritize IP. A typical global company, for instance, may have switched back and forth between centralized and localized approaches to IP registration and management – or it might have merged or acquired new portfolios, sold off unwanted brand portfolios or sacrificed rights to cut costs or avoid disputes. The importance of updating (and maintaining) records and registering new assets or existing assets in new iterations or geographies can frequently be overlooked in the rush of change. But what if a right that is important today was not looked after properly yesterday?
It may sound obvious, but trademark rights need to be consistently used and maintained if they are to have a real, rather than perceived, theoretical value. Thus, the first step in any valuation exercise should be to look in detail at what it is that a company actually owns, the strength of that registration and what it offers the business in terms of market share and future expansion.
Trademarks: the building blocks of brand value
A detailed portfolio audit gives companies greater certainty over the value of their assets and enables them to increase and secure that value – for example, by shoring up holes in protection, correcting errors in records or using unwanted or unused assets to drive additional revenue through licensing or sales.
Companies should expect the unexpected when undertaking any audit exercise. When you dig back through a portfolio, it is not unusual to come across a few hidden gems, as well as the odd problem or two. However, an IP audit should not be considered a legal burden, but instead, a means of using IP as a building block and facilitator for growth.
Valuation of IP as an asset can unlock its true worth and show that the right registration and protection strategy is a valuable investment, not just a cost. Our process has been specifically designed to provide businesses with greater insight and clarity into the trademark valuation process, via a robust and transparent methodology, as well as clear advice on how to identify and remedy the issues that may be undermining asset value. Often, simple changes to a company’s IP strategy can significantly improve the robustness of its IP portfolio.
Novagraaf is an international patent and trademark consultancy that advises clients on intellectual property strategy and management.