Businesses around the world have seen the importance of protecting their intellectual property and securing their brand through trademark protection. This step is necessary to make sure your unique brand isn’t exploited by competitors, both big and little. There also may come a time when you need to get a full valuation of your business for financial purposes such as attracting investors, securing necessary business loans, licensing out your trademark, or even selling your brand altogether.
Regardless of the reasoning behind your need to establish the value of your brand, it’s important to know what goes into the value of a brand and what a trademark is actually worth. Some businesses don’t even realize that a trademark is an actual tangible asset with monetary value. Failure to realize this important fact could leave you out of serious cash opportunities.
There are generally four approaches to determining the value of a trademark:
- the income approach
- the market approach
- the cost approach
- the relief from royalty approach
We’ll explore how each of these determines value.
The Income Approach
This approach is the most common in trademark valuations. Using this method calculates the present-day value of potential future earnings from the use of the trademark. This means taking a look at past earnings from the use of the mark and then estimating how recent trends will impact future earnings.
It’s important to note that only the useful life of the trademark can be considered, so if the trademark does not have an extensive remaining useful life then profits in perpetuity cannot be considered. Instead, you would calculate only the projected earnings over the remaining years.
The Market Approach
Trademark information is publicly available and that information lends itself to this approach in determining the value of a trademark. As the title suggests, this process involves taking a look at the market and examining what similarly-valued trademarks have recently been sold or been licensed for.
These values can be averaged to determine your value or can be used as a benchmark to either go up or come down from, depending on where your trademark stands on the market. This approach is one of the easier ways to determine the value though you may want to avoid it if recent trends aren’t favorable for your business.
The Cost Approach
In this scenario, the owner of the trademark will almost always lose out on the true value of a trademark. The cost approach simply assumes that the value of the trademark is the total cost that went into applying for, securing, and extending the trademark (give or take additional costs such as time and other factors).
This approach is rare but most commonly applies to situations where the trademark has either supplied little-to-no value to the business or has simply been left mostly unused. In those scenarios, potential buyers or licensees may argue the value of using this trademark won’t provide the income necessary for them to cover additional costs.
The Relief From Royalty Approach
This method encroaches upon both the income and market approach as it will involve certain similar factors. Ultimately, this value will be similar to the income method but with an added caveat: this method assumes that the royalties that the owner of a trademark avoids by owning the trademark should also be included in the value of the trademark.
To determine value in this method, you would take the income approach but then also take a look at the market to see what similar trademark owners charged in royalties for licensees. For instance, if you have Mark A and see that similar marks Mark B and Mark C are licensing out for $10,000 a year then you would assume that owning the market has an additional value of $10,000. This is because you don’t have to pay royalties on your own trademark.
Each of these approaches has its own use in determining the value of a trademark for your business. It’s important to use the right method to get the right value out of your hard work, but if your negotiations end up in mediation or litigation then you may have less control over the process. That’s why it’s important to be reasonable and know how to calculate the true value. The best way to do this is to hire an experienced attorney from the filing process all the way down. At Waserstein & Nunez, we have the experience to get your intellectual property done right. Contact us today.
Waserstein & Nunez, PLLC
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