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Methods for Trademark Valuations
Unlike other branches of intellectual property law, where the rights lapse after a span of time, trademark registrations are valuable because they can last indefinitely, so long as they continue to be used in commerce as a distinctive brand to distinguish a client's goods and services. A federal trademark registration is required to take down social media infringers, combat counterfeiters and sell a client's wares in an Amazon seller store. A registration can be helpful when seeking an investment for any start-up or new business, writing cease and desist letters or suing infringers. It significantly increases the value of any license agreement and initial public stock offering, or when it's time to securitize a portfolio or sell the business.
Valuations of trademarks, such as those in the entertainment industry, are most commonly performed in relation to a sale or licensing transaction or for lending and collateral purposes. Buyers and sellers may request a valuation assessment as part of a sale negotiation to ensure they are both getting fair market value for the trademark. Additionally, banks and financial institutions will often require a valuation of a trademark if it is to be used as collateral in a loan or line of credit. Lastly, a purchase price allocation is performed after most business transactions to allocate value to all identifiable IP acquired when businesses combine. In the context of a transaction, the existence of a registered trademark will typically yield a higher sale or licensing price than for a hypothetical identical transaction without the existence of a trademark.
There are three generally accepted valuation approaches utilized to determine the value of a trademark: 1) Cost (or Asset) Approach; 2) Income Approach; and 3) Market Approach. Under the Cost Approach, value is determined by examining the various direct and indirect costs associated with developing the trademark, including the legal fees and U.S. Patent and Trademark Office (USPTO) fees involved in seeing the trademark through to registration. Determining a trademark's value based strictly on the Cost Approach may not be the most accurate reflection of the brand, as it could under- or over-value the trademark. Typically, most companies are not able to allocate labor and research and development costs specifically to one particular trademark, which could make using the Cost Approach difficult. Brands with high research and development costs, as an example, could be overvalued under this approach. This approach may be best for a start up with no sales or profits or with only one product where the costs are easily identifiable, but even under those circumstances, other valuation methods will likely yield a more accurate representation of the trademark's value.
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