How to Determine the Value of a Trademark

    How to Determine the Value of a Trademark

    A trademark is not merely a form of intellectual property. Just like other types of intellectual property such as copyrights, patents, and trade secrets, trademarks serve as valuable business assets. Since every trademark has a different monetary value, it is in a business owner’s best interest to accurately determine the value of the business’s trademark.

    The process of trademark valuation is used to arrive at the financial value of this critical piece of intellectual property. Business owners need to know the value of their trademarks in order to convince investors and other business leaders to make investments.

    Knowledge of this value is also important because it enables the raising of capital. A trademark with a specific value can be used to finance debts or generate revenue.

    Factors Which Influence a Trademark’s Value

    There are several factors which have an impact on the value of any trademark. The most important of these is the trademark’s projected future earning power. The projected future earning power of any trademark is based on its income history.

    New brands without much income history or any at all can still receive a value for their trademarks. Owners of such brands may learn of this value through feedback. This feedback can be obtained from intellectual property experts, market surveys, and other research.

    Some of the other factors which influence the value of any trademark include the cost of its creation, royalty savings created by trademark ownership, and past profits. Goodwill also forms a significant portion of the value of a trademark. To estimate the value of goodwill, future opportunities for an increase in trademark value must be considered. Any competitive risks which may threaten the value of this intellectual property also ought to be taken into account.

    The Market Approach

    The market approach is a method which can be used to determine a trademark’s value. The trademark’s characteristics such as market, reputation, territory, and specific activity are key factors used in this approach. The market approach is based on market observation and valuations of comparable trademarks. To use it, specific market-related data linked to intellectual property must be used. Data and ratios are compared in order to allow the proper estimation of a trademark’s value.

    The market approach generates a potential value for which a brand and its trademark could be sold. Intellectual property experts mainly use this method to compare the values of trademarks operating in the same industries and markets. All reference samples must be precise and transposable so that intellectual property experts can provide a proper valuation. Transpositions are usually based on ratios linked to a business’s size and market of operation.

    The Cost Approach

    Some intellectual property experts choose to use the cost approach to determine a trademark’s value. This method of valuation is related to all costs related to investment in, replacement of, or propagation of a brand. Costs related to investment in a brand are those spent on building and protecting it until the brand’s valuation date.

    The cost of replacement of a brand is the same as that of creating an equivalent brand at the valuation date. Propagation costs, meanwhile, involve those related to building a similar brand. These costs must be adjusted to account for loss of brand awareness – a fate that will befall even the most well-protected intellectual property.

    The cost approach is almost always based on past data. It does not account for the earning potential of any intellectual property. Therefore, it is typically used when other valuation methods cannot be used but statistics which can be used by intellectual property specialists are available. Trademarks which are in their earliest stages of development typically have their value determined by way of the cost approach.

    Methods Based on Price or Volume Premiums

    It is also possible for intellectual property specialists to determine a trademark’s value according to price or volume premiums. By using such methods, the value of the intellectual property in question is determined through observation of price or volume differentials. These differentials refer to the business’s monetary gain from the products or services
    market under its trademark in comparison to similar generic products or services.

    According to the brand valuation standards as laid out in ISO 10668, price and volume premiums ought to be analyzed jointly. By doing so, additional costs or expenses associated with promoting or protecting intellectual property will be adequately taken into account. In addition, additional independent factors will be excluded from the calculations. Such factors include the products’ or services’ characteristics or quality.

    This article brought to you by Exy Intellectual Property Malaysia and Singapore.