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Valuation of a Trade Mark

Steven Brown
Steven Brown

In Australia, a trade mark is defined in section 17 of the Trade Marks Act 1995 (Cth) as being: "a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by any other person."

Section 6 of the Trade Marks Act 1995 (Cth) defines "sign" as including the following or any combination of the following, namely, any letter, word, name, signature, numeral, device, brand, heading, label, ticket, aspect of packaging, shape, colour, sound or scent.

A trade mark is a badge of recognition distinguishing your products or services from your competitors. In this sense it is an economic tool to help consumers to decide what to buy based on the reputation of the business.

Your trade mark could be as valuable. It could even be your most valuable asset. In 2015 Forbes magazine listed Google's trade mark to be worth (valued) at US$44 billion.

Not all trade marks are valuable. Unless a trade mark helps to create, maintain or increase cash flow they "may" have no financial value.

Value is a question of perception. What is value for one person may not be value for another. Value depends:

  • on the what is the subject of the valuation;
  • when the valuation takes place; and
  • the method chosen.

The classic statement in Australia by the Courts on the nature and character of "value" is by Griffith C.J. in Spencer v The Commonwealth (1907) 5 CLR 418 at page 432:

"In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given date, i.e., whether there was in fact on that day a willing buyer, but by inquiring "What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?" It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural. The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together."

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While the asset in the case was a parcel of land, Australian courts use this test for all manner of assets.

In finance theory, purchases and sales in "efficient markets" are zero sum transactions. If you pay $850 for a bond with a promised yield of 8 per cent, you expect to receive over the life of the bond cash inflows whose present value is exactly $850. Your investment outlay ($850) equals the discounted cash inflows ($850). The buyer does not gain value; the seller does not lose value. The sum of the sale value minus the purchase price is zero.

Valuing a trade mark is not an easy task. How much is a trade mark worth after years of marketing? Does your trade mark protect an existing product or service; or is it redundant?

Intellectual property rights change in value for a variety of reasons.

Successfully marketing a product or service can ensure that a trade mark has value. Trade marks generally gain value as they become better known.

In general, the valuation of trade marks is a function of earning power. Where little or no income history is available:

  • imagination;
  • common sense; and
  • experience;

maybe the best guide.

In addition to studies of the industry in which the trade mark will be used or the products or services marketed, market surveys of probable sale prices and expected profits, and opinions of industry experts.

There are many ways to value trade marks. They all have their limitations, and no method is appropriate in every case. The stage of development of a trade mark, the availability of information and the aim of the valuation all have a bearing on the method used. Irrespective of the method used the theoretical position is that the value of a trade mark is the sum of the value of its expected earnings.

The short take-home message of all this is:

If you have used your trade mark to generate income; then valuing the trade mark based upon the use the trade mark has had in earning income is (relatively) straightforward.
If you have not used your trade mark to generate income yet then valuing the trade mark is difficult. Without any historical basis to justify assumptions of earnings potential when all is said and done all you have to go on are assumptions (guesses). Most likely your opinions in your mind will be favourable. A purchaser is more likely to hold less optimistic views. Negotiating a price (value) will be all the more troublesome.

Where a trade mark has:

  • been used for a short time;
  • you have historical figures establishing a proven pattern of continuous growth;
  • relying on this in negotiating the price (value) will be useful: But not determinative of the amount arrived at.

It all comes down to what Griffith CJ said in 1907: Value is what a person desiring to acquire the trade mark would have to pay for it on a day to you are willing to sell it for a fair price but not desirous to sell.

If you have trade mark valuation matters, Etienne Lawyers can help you.

(I spoke at the FICPI conference in Venice in 2017 on this topic and if you wish to have a full copy or my paper contact me.)

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