Valuation of Trademarks
Significance of Trademarks for Product Sales
Trademarks enable a prominent position of one’s own products compared to similar products from competitors.
A trademark recognized and valued by customers not only facilitates the sale of products. Moreover, it regularly leads to the possibility of demanding a higher price for the goods. The customer is willing to pay a higher price for goods sold under a well-known trademark. This can increase profits.
To achieve such appreciation, however, companies need to make efforts in terms of advertising and promotion, as well as enabling an increased appreciation of the company.
Sale of Trademarks
Since product sales are promoted through the use of trademarks, it is obvious that trademarks are increasingly being traded. This is partly done in the form of acquiring entire companies or parts of companies in order to gain possession of the associated trademarks.
However, there is also the possibility of acquiring a trademark as such without other parts of the company or a trademark along with the associated invention or product idea.
In these cases, the problem regularly arises of how to arrive at an appropriate price for the trademark to be acquired.
Supply and demand regularly determine the price. However, this general principle rarely allows for the determination of a truly appropriate price calculated according to economic principles.
Valuation of Trademarks
Before acquiring a trademark, it is therefore of particular importance to have comprehensible criteria for assessing its value.
Regarding the measurement of value, there are many different approaches, including (according to Fezer, Trademark Law Commentary):
- One can measure the valuation based on how the profit changes due to the specific trademark (excess profit determination method).
- One determines the additional result that a company achieves through the use of the trademark (result contribution method).
- One determines the comparable price that would be achieved for the product if the trademark were not used (comparative price method).
- One tries to determine a so-called market value (market value method).
- Various other methods that set different priorities are conceivable.
In our experience, there is no single correct method. Depending on the valuation occasion, one must rather choose the appropriate approach.
It always depends on several of the following questions:
- How old is the trademark?
- How intensively is the trademark used?
- Is there recognizable/determinable goodwill among customers?
- What is the competitive situation?
Legally relevant aspects that significantly determine the value include:
- How has the trademark been maintained in the past?
- What legal measures were taken to achieve the most extensive trademark protection possible?
- Are they word marks or figurative marks?
- Is there a trademark family?
Integration of Legal and Economic Factors
Particularly important for the valuation is the integration of economic and legal insights into an overall assessment that provides a reliable basis for decision-making.
Opportunities and risks should always be determined in advance with regard to the desired goal – valuation in general or before an acquisition or a sale.
Ultimately, applying a template does not help here, but only a tailor-made evaluation adapted to the specific situation. This way, especially in decision-making processes that often have to be made in the shortest time windows, particularly during sales, standards can be set in advance that then help to avoid uncertainty and especially unfortunately recurring blatant misvaluations and wrong decisions.
There is no ultimately single correct valuation, as independent studies repeatedly demonstrate vividly, which come to deviations of sometimes several hundred percentage points. It is all the more helpful to evaluate a trademark or trademark family, possibly including the company name, potential domain registrations, and other registered or unregistered legal positions in a timely manner.
Experience shows that significant misjudgments frequently occur in this area. Sensible acquisitions or sales do not materialize, a reasonable and good offer is not recognized; one of the two contracting parties feels taken advantage of during a follow-up.
Even an evaluation cannot protect you from mistakes. However, it is often possible to avoid blatant wrong decisions from the outset.