ARTICLE
17 October 2023
Mondaq Thought Leadership Award Winner

What Is The Value Of A Trademark?

BI
Barnard Inc.

Contributor

Barnard Inc is a full-service commercial law firm, with services covering corporate and compliance, intellectual property, construction, mining and engineering, property, fiduciary services commercial litigation, M&A, restructuring, insurance, and family law. Our attorneys advise listed and private companies, individuals, and local and foreign organisations across South Africa, Africa and internationally.
A trademark is not just a symbol or a name; it is a valuable asset that can significantly impact a business's worth. Limiting a trademark only to its ability to protect against infringement...
South Africa Intellectual Property

The value of a trademark considering Cash Flow, Growth and Future Risk.

A trademark is not just a symbol or a name; it is a valuable asset that can significantly impact a business's worth. Limiting a trademark only to its ability to protect against infringement does not fully convey nor effectively emphasise its true value.

In any discussion on value three key factors are considered:

  1. Cash Flow;
  2. Growth; and
  3. Future Risk.

In order to fully understand the value of a trademark, an understanding of how trademarks or the absence of trademarks can affect these three key factors is required.

Impact on Cash Flow

Trademarks are synonymous with a company's brand, encapsulating its reputation and quality. Over time, consumers associate a trademark with a specific level of quality and consistency, which directly translates into higher sales and premium pricing.

The luxury watch brands Rolex and Tudor provide a perfect example in understanding the effect of trademarks on pricing and sales. Rolex has remained the standard for luxury watches for many years, being founded by Hans Wilsdorf in 1905. The Tudor trademark was also registered at the request of Wilsdorf in 1926 and both companies remain sister companies, being owned by the Hans Wilsdorf Foundation.

The purpose of Tudor was to offer a more affordable watch than Rolex while maintaining Rolex-like quality. If this was the purpose behind the new mark, why not simply create a new range of Rolex watches at a more affordable price point?

The answer relates to understanding the true value of a trademark and the consumer trust that it possesses. The Rolex mark had gained an immense amount of consumer trust and the brand was associated with the Rolex standard of quality and luxury. Should Rolex have amended their price point and associated the brand with affordability first and luxury second, Rolex would have directly impacted its own ability to continue to charge at the premium price point.

Wilsdorf understood that ensuring that the Rolex mark was maintained at the highest standard solidified the certainty of Rolex's present and future cash flow.

Trademarks also provide the opportunity for businesses to license their marks to other companies, allowing them to use the brand in exchange for royalty payments. This is a common practice in various industries and such licensing agreements can provide a steady stream of income and enhance the overall worth of the business.

Impact on Growth

When businesses develop strong trademarks, they are also better positioned to enter new markets. A recognisable trademark can open doors to new opportunities and partnerships, helping a company expand its reach and generate significantly more revenue. A prominent example of the above is the energy drink PRIME, which due to its prominence was able to secure lucrative and successful deals with distribution partners in various markets without a significate output of resources.

Having a trademark that is recognisable eases the process of market entry and attracts key partners, providing companies with essential local resources and distribution channels.

Trademarks should not be overlooked for the purposes of growth as trademarks can be used in a variety of ways, of particular interest is the significate strategic value that trademarks provide in negotiating terms in mergers and acquisitions and/or contributing significantly to the asset valuation of a company, as highlighted by the graph below.

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Impact on Risk

The key point of discussion with regards to the value of trademarks is often its ability to protect against infringement. Having trademarks registered provides necessary protections to businesses to ensure that the risks related to competitors, fraudulent actors and/or unintended infringers are protected against through various legal processes and allows for damages against infringing parties.

The cost of legal battles to protect a trademark can be significant, but it is an investment in safeguarding the brand's value and ensuring that future revenue streams are protected.

Conclusion

Trademarks hold significant value for businesses. Trademarks play a crucial role in building a brand, enhancing market presence, and creating advantages. Beyond these immediate benefits, trademarks can also contribute to a company's overall worth. Protecting and nurturing trademarks should be a strategic priority for businesses looking to thrive in the marketplace. A trademark should not simply be seen as an expense but a required investment for a business's success.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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