Trademark Valuation E-Book

Gordon V. Smith

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Series
• Sprache: Englisch

Seitenzahl: 691

Veröffentlichungsjahr: 2013

Beschreibung

A practical and useful resource for valuing trademarks The Second Edition of Trademark Valuation is a fresh presentation of basic valuation principles, together with important recent changes in worldwide financial reporting regulations and an update on the current worldwide legal conditions and litigation situation as they relate to trademarks. A new section discussing issues surrounding valuation of counterfeits and the economic effects of trademark counterfeiting is included in this informative Second Edition. * Considers methods to determine the real value of your trademark and exploit its full potential * Offers dozens of case studies that illustrate how to apply valuation methods and strategies to real-world situations * Communicates complex legal and financial concepts, terms, principles, and practices in plain English * Discusses GATT, NAFTA, emerging markets, and other international trademark considerations

Leseprobe

Contents

Cover

Series

Title Page

Copyright

Dedication

Preface

Acknowledgments

Chapter 1: The Nature of a Trademark

TRADEMARK DEFINED

THE LEGAL UNDERPINNINGS OF TRADEMARKS

TRADEMARKS, BRANDS, AND THE PRODUCTS AND SERVICES THEY REPRESENT

SUMMARY

Chapter 2: Valuation Basics

THE BUSINESS ENTERPRISE

VALUATION PRINCIPLES

PROPERTY AND RIGHTS TO PROPERTY

PREMISE OF VALUE

VALUATION METHODS

SUMMARY

Chapter 3: Using Financial Information

FINANCIAL REPORTING

FINANCIAL STATEMENTS AND VALUE: DISAGGREGATING S&R’s ASSETS

TAX ISSUES

SUMMARY

Chapter 4: Trademark Valuation

COST METHOD

ESTIMATING REPRODUCTION AND REPLACEMENT COST

USING THE COST METHOD FOR TRADEMARKS

MARKET METHOD

USING THE MARKET METHOD FOR TRADEMARKS

INCOME METHOD

USING THE INCOME METHOD FOR TRADEMARKS

SUMMARY

Chapter 5: Trademark Economic Benefit

FUTURE ECONOMIC BENEFIT

QUANTIFYING ECONOMIC BENEFIT

DIRECT TECHNIQUES

INDIRECT TECHNIQUES

SUMMARY

Chapter 6: Income Method

DEFINING ECONOMIC LIFE

TRADEMARK ECONOMIC LIFE AND PATTERN

SURVIVOR CURVES AND STUDIES OF HISTORICAL LIFE

FORECASTING GROWTH

S-CURVES IN GENERAL

ELEMENTS OF RISK

SUMMARY

Chapter 7: The Income Method

TRADEMARK VALUATION BY RESIDUAL

MULTIPLE EXPLOITATION SCENARIOS

VALUATION BASED ON INCOME ALLOCATION

SUMMARY

Chapter 8: Trademark Licensing Economics

LICENSING ECONOMICS

SOME GENERAL THOUGHTS

ROYALTY QUANTIFICATION

QUANTIFICATION TECHNIQUES

SCORING AND RATING TECHNIQUES

DISCOUNTED CASH FLOW MODEL

DIVIDING THE ECONOMIC BENEFIT

ANOTHER ANALYTICAL TECHNIQUE

RULES OF THUMB

SUMMARY

Chapter 9: Quantification of Harm in Trademark Enforcement Cases

CIVIL TRADEMARK ENFORCEMENT ACTIONS

MONETARY RECOVERY IN CIVIL ACTIONS

ENHANCEMENT OF MONETARY RECOVERY

VALUING COUNTERFEITS FOR PURPOSES OF CRIMINAL SENTENCING

SUMMARY

Chapter 10: Special Trademark Valuation Situations

TRADEMARKS IN FINANCE

TRADEMARKS IN BANKRUPTCY

VALUATION DIRECTIONS

TRADEMARKS AND AD VALOREM TAXES

SUMMARY

Chapter 11: Global Trademark Issues

TRADEMARK HOLDING COMPANIES1

THE SCOURGE OF TRADEMARK TROLLS

INTERNATIONAL VALUATION STANDARDS

COUNTERFEITING: A WORLDWIDE CONTAGION

POLITICAL/INVESTMENT RISK

SUMMARY

Appendix A: Basic Investment Principles

A CERTIFICATE OF DEPOSIT EXAMPLE

THE ARITHMETICAL FOUNDATION

Appendix B: Theoretical Foundations for the Determination of a Fair Rate of Return on Intellectual Property

Appendix C: Investment Rate of Return Requirements

INVESTMENT RISK

REQUIRED RATE OF RETURN COMPONENTS

RATE OF RETURN MODELS

ARBITRAGE PRICING THEORY

VENTURE CAPITAL

WEIGHTED AVERAGE COST OF CAPITAL

REFERENCES

Appendix D: Predicting Sales and Revenues for New Ventures with Diffusion Models

NEW PRODUCT SALES FORECASTING MODELS: PRODUCT DIFFUSION

TYPES OF PRODUCT DIFFUSION MODELS

THE BASS MODEL

CAVEATS OF THE BASS MODEL

SUMMARY

REFERENCES

Appendix E: Dealing with Uncertainty and Immeasurables in Trademark Asset Valuation

ELEMENTS OF VALUATION ANALYSIS

DECISION ANALYSIS AND DECISION TREES

MONTE CARLO TECHNIQUES29

OBTAINING INFORMATION FROM INDIRECT OBSERVATION

OPTION PRICING MODELS

GOOD ENOUGH DECISION MAKING

SUMMARY

About the Authors

Index

Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding.

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Cover image: © iStockphoto.com/Warchi Cover design: Wiley

Copyright © 2013 by Gordon V. Smith and Susan M. Richey. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

ISBN 978-1-118-24526-2 (cloth) ISBN 978-1-118-28627-2 (ePDF) ISBN 978-1-118-28318-9 (ePub)

In my 50 years as an appraiser, I have been blessed by the acquaintanceship of many colleagues and professionals around the globe. There are too many to mention by name, but I treasure their friendship and the opportunity to serve a myriad of clients together. What is written here is an attempt to distill my experiences enhanced by the contributions of this body of world class professionals.

—Gordon V Smith, Sanibel, Florida

I am indebted to my co-author for the opportunity to work on the second edition of his foundational book on the valuation of trademarks. Beyond Gordon Smith’s impressive professional accomplishments in the field of intellectual property valuation, he is a true gentleman and a good friend. I would also like to acknowledge the able editorial and research assistance of Ryan O’Rourke, who gave us every spare moment a third-year law student could spare.

—Susan M. Richey, Concord, New Hampshire

Preface

This book is about brands and the trademarks that carry their flag. Brands have been with us for as long as private enterprise. The first time a skillful baker of bread realized that he or she could bake more bread than the family needed, a business was born. It is not difficult to imagine a time, shortly after that, when a child was given some money and instructions—“go buy bread for today . . . make sure to buy it from the store on the corner.” Unbeknown to the proprietor of the corner shop, a brand was born.

Now we have come to understand the tremendous business power that brands have. When someone mentions “intellectual property, ” most of us think of patents. We are a technology savvy society. However, it may well be that brands are more influential in the success of a business enterprise than technology.

Managers cannot manage effectively unless they have some grasp of the value of the assets entrusted to them. So this book is written for the business community whose members are responsible for creating, recognizing, and exploiting their trademarks and brands; for the members of the legal community who wish to understand the principles of valuation; and for governments and regulators who must maintain an intellectual property environment for the good of everyone.

A valuation of intellectual property is, of necessity, a multidisciplinary task. It is necessary to have some understanding of the legal underpinnings that give intellectual property its meaning. We must also have some understanding of technology as well as the creative arts in order to appreciate how intellectual property comes into existence. We need to understand basic business concepts because it is through commercial exploitation that intellectual property achieves value. Lastly, we need to understand basic financial and investment principles in order to quantify the results of these efforts.

Superimposed over all of these essentials is the need for diligent, unbiased analysis, and just plain common sense.

So this book journeys through several landscapes that may seem at first to be unconnected. But we wanted to include them all so that those who may be familiar with one can move on to the next and benefit from a new experience.

Gordon V. Smith, Sanibel, Florida

Susan M. Richey, Concord, New Hampshire

October 2013

Acknowledgments

We wish to extend our special thanks to Mr. William J. Murphy who authored Appendix E, Dealing with Uncertainty and Immeasurables in Trademark Asset Valuation He also contributed to our discussion in Chapters 10 and 11. Mr. Murphy is a Professor of Law and Chair of the Commerce and Technology Law Graduate program at the University of New Hampshire School of Law.

We also express our appreciation to Dr. Richard A. Michelfelder of Rutgers University School of Business and Dr. Maureen Morrin of Temple University Fox School of Business for their study “Predicting Sales and Revenues for New Ventures with Diffusion Models” that is Appendix D.

We thank Dylan D’Ascendis for his contribution to Appendix C. He is a Principal of AUS Consultants and a Certified Rate of Return Analyst (CRRA).

We have excerpted and paraphrased material from Gordon V. Smith and Russell L. Parr, Intellectual Property: Valuation, Exploitation and Infringement Damages, 4th ed. (Hoboken, NJ: John Wiley & Sons, Inc., 2005) and these are not footnoted in every case.

CHAPTER 1

The Nature of a Trademark

It is September 21, 2012, and thousands of people are lined up outside Apple stores in San Francisco, New York, Hong Kong, Singapore, and many other places, waiting to purchase an “iPhone 5” smartphone. Three days later 5 million had been sold worldwide.

The iPhone 5 had been announced just two weeks prior to when the lines were forming. Philip Schiller, Apple’s senior vice president commented, “iPhone 5 is the most beautiful consumer device that we’ve ever created.”1

The iPhone 5 was the latest in a series of upgrades to the original iPhone, a revolutionary smartphone product that was introduced in 2007. Seventy-four days after its introduction, the late Steve Jobs, and Apple’s former CEO, commented, “1 million iPhones in 74 days—it took almost 2 years to achieve this milestone with the iPod®.

“Three days, ” “two years, ” “74 days”—what has driven this phenomenal success story?

Yes, the mobile telephone market has expanded dramatically in the past 10 years to the point where there are over 6 billion subscribers worldwide. Apple, however, does not have a dominant market share in the mobile phone marketplace by any means. And the iPhone is one of the more expensive units on the market. In spite of this, we observed the intense market interest in the iPhone 5, which is essentially an upgrade of an existing product.

So what drove buyers to queue up outside stores in September? Was it the iPhone 5’s new display, its new high-performance chip, extended battery life, or faster wireless technology? Or was it the redesign of the unit with a new, thinner, lighter, aluminum body? Or was it the jewelry-like fit and finish? Possibly it was because Apple stores are conveniently located or because store personnel are helpful and knowledgeable. Or was it the confident expectation of high quality performance that prospective buyers felt, based on the past performance of the products and services delivered by Apple under its family of i-prefaced trademarks and service marks?

Or was it all of the above?

We suggest to you that the answer to this question is “yes.” Those folks were standing in line because they were influenced in varying degrees by all the factors that we just noted and likely other influences that we did not list.

This is a book about trademark valuation. Certainly the sale of 5 million iPhone 5 smartphones in three days (together with the sales of millions more previously) had a significant positive economic impact on Apple Corporation. If our task was to opine on the value of the iPhone trademark, one of our tasks would be to estimate the portion of that economic impact that could be ascribed to the trademark. Clearly, iPhone 5 sales are also driven by the product’s design features and the many elements of its built-in technology that deliver the performance smartphone buyers are seeking.

This is not a simple task. But there are tools and methods of analysis available to us and that is what this book is about. Our first step is to examine what a trademark is, not just in the legal sense, but also in the economic/business context.

Trademarks are images with many levels of meaning. They can be nostalgic reminders of times and products past, examples of outstanding graphic design, or the symbols of powerful institutions that influence our lives. As pleasant as it might be to contemplate their nostalgic or artistic aspects, however, we must focus on the role of trademarks in commerce. Trademarks are business assets and must be viewed primarily in the context of a commercial enterprise. Their task is to contribute to the profitability of the parent enterprise. Commerce is driven by return on investment (ROI) principles, and trademarks are not exempted from that requirement. Even trademarks that are associated with nonprofit, governmental, or institutional organizations are used for a purpose and promoted with an objective in mind. They must be judged by how well they meet those objectives.

TRADEMARK DEFINED

A trademark generally identifies the source of a product or service and distinguishes that product or service from those coming from other sources.2 As defined in the U.S. Trademark Act of 1946 (the Lanham Act), a trademark is “any word, name, symbol or device or any combination thereof [used by someone to] identify and distinguish his goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods[.]”3 A trademark also serves as an assurance of quality—the consumer comes to associate a level of quality with the goods or services bearing a given trademark. Trademarks have also been described as the embodiment of goodwill.

In the United States, the federal law and the courts have addressed these aspects of trademarks in various ways:

Trademarks help consumers to select goods. By identifying the source of the goods, they convey valuable information to consumers at lower costs. Easily identified trademarks reduce the costs consumers incur in searching for what they desire, and the lower costs of search the more competitive the market. […]4

A trademark also may induce the supplier of goods to make higher quality products and to adhere to a consistent level of quality. The trademark is a valuable asset, part of the “goodwill” of the business. If the seller provides an inconsistent level of quality, or reduces quality below what consumers expect from earlier experience, that reduces the value of the trademark. The value of a trademark is in a sense a “hostage” of consumers; if the seller disappoints the consumers, they respond by devaluing the trademark.

—Scandia Down Corp. v. Euroquilt, Inc.5

The protection of trade-marks is the law’s recognition of the psychological function of symbols. If it is true that we live by symbols, it is no less true that we purchase goods by them. A trade-mark is a merchandising short-cut which induces a purchaser to select what he wants, of what he has been led to believe he wants. The owner of a mark exploits this human propensity by making every effort to impregnate the atmosphere of the market with the drawing power of a congenial symbol . . . to convey, through the mark, in the minds of potential customers, the desirability of the commodity upon which it appears. Once this is attained, the trade-mark owner has something of value.