Trademarks are an essential commercial and economic tool, and are, usually, heavily endorsed with the intention to build the brand value of the business. In the era of stiff competition amongst businesses, the competitive advantage attributes to the development, integration and reconfiguration of trademark and other intangible assets. Therefore, after obtaining trademark registration, the next obvious question that needs to be answered is about the value of your registered trademark and the tax liability of the trademark. Trademark valuation can help you determine the true value of your business and capitalize on assets that you may not have been aware of possessing. Yet, very few companies have the knowledge of potential of value contribution of their trademark assets.
Valuation of trademarks is a practice having great importance especially since sometimes the value of intangible assets like trademarks is considered higher than that of the tangible assets of the company. Trademarks are, therefore, valued for primarily three reasons:
a) Transaction purposes.
b) Financial accounting purposes.
c) Taxation purposes.
Methods of Trademark Valuation
There are several methods for the valuation of trademarks, the generally accepted approaches of which are as follows:
1. Cost Approach: This approach involves an assessment of the cost incurred during the creation and development of the trademark and, therefore, reflects the minimum value of the trademark. The cost accrued in terms of advertising and brand building are factored to arrive at a valuation. This method of trademark valuation is one of the most conservative methods, as it does not factor in goodwill associated with the trademark and is not always effective because the wide range of economic benefits accruing from trademarks is not successfully represented herein.
2. Market Value Approach: This approach seeks to compare and analyse the value of similarly situated trademarks, which have been licensed or sold, to derive the value of the trademark being valuated. The availability of relevant market data and the similarity of the transaction based on which valuation is arrived are key factors that influence trademark valuation in this method.
3. Future Income Based Approach: This method is usually considered the most effective for valuating a trademark. It seeks to arrive at an estimated value by calculating the present value of the future income that the trademark is predicted to generate over the course of its remaining useful life. The availability of relevant market data and the similarity of the transaction based on which valuation is arrived are key factors that influence trademark valuation in this method.
The importance of valuation of trademarks is on the rise. Globalization and rapid technological development have led to vast unpredictability making it increasingly tedious to accurately valuate intangible assets such as trademarks. Companies need to be mindful of such developments and must implement sufficient measures to safeguard their interests.
Thus, the biggest takeaway from this discussion is that you need to be hyper-vigilant while valuating your trademark and seek help of a professional in order to avoid under-valuing your trademark.
Another important thing to keep in mind is that you approach your legal counsel before starting negotiation for licensing, sale or any other transaction with respect to your trademark. This way you will be able to ensure that such agreements are made which would help you in getting the maximum value out of your trademark.