A registered trademark is an intangible asset for any business. A registered trademark can be pledged, sold, franchised or can earn royalty income. Hence, in the case of a business spending money and effort on brand development, it is important to apply for trademark registration at the earliest and obtain a trademark registration certificate. After obtaining trademark registration, Entrepreneurs often wonder about the value of their registered trademark. In this article, we try to provide some of the basic methodologies used for trademark valuation.
Trademark Valuation Methodologies
In any commercial transaction involving sale of an asset, the most accurate valuation is the price at which a seller is ready to sell and the price a buyer is willing to pay to purchase the asset, in a reasonable amount of time. However, buyers are usually not readily available to quote a price and businesses cannot take efforts to find buyers without having an actual intention to sell the asset. Hence, valuation methodologies can be used to arrive at an approximate valuation. However, it is to be noted that these are just valuations, based on certain assumptions and data points.
Future Income Based Valuation
One of the popular methods for valuing a registered trademark is the future income method. In this method, the future income attributable from the trademark is discounted back to present value to arrive at a present day valuation. For instance, if a well know trademarked brand, earns franchise fee of Rs.1 crore every year, then all such future cash flows are discounted to arrive at a valuation for the trademark today.
Market Value Method
In this method, market data pertaining to selling, buying franchising or licensing is used to arrive at a valuation. 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. For instance, if a well two known brand in the same industry was sold at Rs.1 crore and Rs.1.25 crore recently, then that information can be used as a benchmark to arrive at a valuation for the registered trademark.
Historic Cost Method
In this method, the cost accrued in terms of advertising and brand building are factored to arrive at a valuation. Historic cost method of trademark valuation is one of the most conservative methods, as it does not factor in goodwill associated with the trademark. However, historic cost method can be a good method for valuing trademarks that are relatively new in the market.
Relief from Royalty Method
Under the relief from royalty method, a trademark’s value is determined based on the expected royalty savings due to ownership of the trademark. Data such as royalty earned from the same trademark or similar trademark and additional revenue on account of the trademark can be used to arrive at a trademark valuation under this method.