Valuing Trademarks: The Devil in the Details
1 April 2000
By Dr. Phillip Beutel
What are brands worth? Brand value derives from, among other things, your product's attributes, presentation, trademarks and consumer perceptions. Each component of brand value is associated with certain risks. For example, you may face the risk of costly tax litigation if you completed transactions in which your trademarks were improperly valued. Effective risk management requires that you value these potentially important assets and, in the process, identify, measure, and manage threats to your company's earnings. Fortunately, there are economically sound principles for valuing trademarks, which, if followed, will minimize this tax risk. Even if you do not face this particular risk, these principles provide a sound foundation for your negotiating position -- as either a buyer or a seller -- in future transactions involving your trademarks.
This paper from MMC's Viewpoint addresses three related concepts used to value your assets: replacement cost, value in use, and fair market value. Replacement cost is related to how trademark value is created, while value in use is based on what your ongoing business gets from investing in trademarks. Fair market value derives from these two concepts and is the proper measure of value to use to minimize your tax risk.
