Page 2 - Asset Valuation

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Monday, May 16, 2016 | Asset Valuation
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Value of Trademarks Takes On Increased Importance
Litigation: Issues related to the value of a trademark, or damages related to alleged trademark infringement, often arise in liti- gated matters. Such instances might involve the calculation of lost profits and/or lost enterprise value.
Bankruptcy/Restructuring: For many companies that file for bankruptcy, the brand name and the trademark are valuable assets of the bankruptcy estate. In many cases, an unrelated party subsequently buys the trade- mark and/or brand name and establishes a similar business utilizing these assets.
Financial Reporting: Following a merger or acquisition, the acquiring company typi- cally identifies and records the value of the assets it acquired. Trademarks are often con- sidered to be an acquired asset, and therefore would require a valuation. In many cases, trademarks that were owned by the seller that did not appear on the balance sheet prior to the transaction will appear on the balance sheet of the buyer after the transaction due to accounting rules.
Income Tax Reporting: Many transactions also require that acquired intangible assets such as trademarks be valued for income tax purposes.
Trademark Valuation Approaches, Methods
The valuation of trademarks utilizes the same three valuation approaches commonly considered in the valuation of businesses and other intangible assets: the cost approach, the market approach and the income approach. While a comprehensive description of these valuation approaches is beyond the scope of this article, a brief description of each of these valuation approaches follows.
The cost approach estimates the value of a trademark based on the cost to replicate the trademark in its current form as of the valuation date.
The market approach estimates the value of a trademark by reference to arm’s length transactions involving the sale or licensing of trademarks deemed to be sufficiently similar.
The income approach estimates the value of a trademark based on the future economic income expected to be derived from the use of the trademark, discounted to present value
Craig a. JaCobson is senior managing director at GlassRatner Advisory & Capital Group.
By Craig a. JaCoBson
It is well established that over time, the assets of a typical business have been increasingly comprised of intellectual property (IP) assets such as patents, trade- marks, trade names, software, and copyrights. In a world where information is more widely disseminated and product differentiation increasingly difficult, the value of trademarks, as well as related assets such as trade names and brand names, has taken on increased importance.
Description of Trademarks
Trademarks, trade names and brand names are similar but not identical assets. A trademark is a distinctive and recognizable insignia, phrase or other symbol that identi- fies a specific product or service and legally differentiates it from all other products. A trade name, on the other hand, is merely the name by which a product or service is known. While registration is not specifically required to obtain a trademark in the United States, registering a trademark provides legal protection in a way that registering a trade name does not provide (note that all legal aspects of these assets are beyond the scope of this article).
Any valuation and/or litigation assignment involving these assets should be very specific in identifying the asset that is being analyzed. For example, a business can have a well estab- lished brand name without having obtained or registered a trademark. If such a business does register a trademark, the trademark is in effect one component of the brand name, which suggests that the value of the brand name might be greater than the value of the trademark. Similarly, a trade name might be well known to a company’s customers, but if it has not been registered or does not otherwise qualify as a trademark, the trade name does
not carry the legal rights of a trademark, and might have little or no value from a valuation perspective.
Reasons to Conduct a Trademark Valuation
There are several reasons to value a trade- mark. These reasons, include, but are not limited to, the following:
Transactional: Trademarks are unique assets and are often important components of a transaction (including mergers, acquisi- tions, and divestitures). The values of the underlying trademarks are often a key com- ponent of a transaction. In other cases, one or more trademarks are transferred to another company, perhaps as part of the divestitures of a line of products.
S4
Valuing Investments In Companies
That Have Gone Dark By david Graff
Inside
S6 Legal Issues and Valuation Of Tangible Assets, Patents and Copyrights
By Steven L. HenninG
and Peter S. twoMBLy
S8 Building the Better Buy-Sell Agreement By CLyde tinnen
and PatriCia M. Lee
Cover IllUSTrATIon: rAFAl PYTel, ISToCK
Asset Valuation
Kris fischer, Editor-In-Chief angela turturro, Sections Editor rafal Pytel, Design
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