Trademark Valuation

GORDON V. SMITH is Chairman Emeritus of AUS Inc., a multidiscipline consulting and market research firm, a member of the Board of Trustees of the University of New Hampshire School of Law, and Distinguished Professor of IP Management at the law school's Franklin Pierce Center for Intellectual Property. During his long consulting career, he has advised clients on the value of intellectual property and closely held stock and has consulted in support of transactions, litigation, and tax-related matters. He is the author and coauthor of several books on IP valuation and exploitation strategies. An active international lecturer, Smith is Chair of the Advisory Board of the Licensing Economics Review, as well as an Adjunct Professor at the National University of Singapore (Division of Engineering & Technology Management). Mr. Smith earned an A.B. degree from Harvard University in 1959. SUSAN M. RICHEY is a Professor of Law at The University of New Hampshire School of Law (formerly the Franklin Pierce Law Center) and a former Associate Dean of the law school. She recently completed an appointment as Visiting Distinguished Scholar with the International Economic and Commercial Law Group at the University of Limerick in Ireland. Richey has been involved in numerous programs teaching intellectual property concepts to nonlawyers, including workshops sponsored by the World Intellectual Property Organization and UNITRAD, the trainingarm of the United Nations. Active in the International Trademark Association (INTA), she served a three-year appointment as an editor of The Trademark Reporter, a scholarly publication of INTA, a two-year appointment as Chair of INTA's Panel of Neutrals, and she currently serves on INTA's Academic Committee.

• Preface xiAcknowledgments xiiiChapter 1 The Nature of a Trademark 1Trademark Defined 2The Legal Underpinnings of Trademarks 17Trademarks, Brands, and the Products and Services They Represent 20Summary 29Chapter 2 Valuation Basics 31The Business Enterprise 31Valuation Principles 46Property and Rights to Property 50Premise of Value 51Valuation Methods 57Summary 59Chapter 3 Using Financial Information 61Financial Reporting 62Financial Statements and Value: Disaggregating S&R’s Assets 65Tax Issues 77Summary 81Chapter 4 Trademark Valuation 83Cost Method 84Estimating Reproduction and Replacement Cost 87Using the Cost Method for Trademarks 90Market Method 94Using the Market Method for Trademarks 98Income Method 101Using the Income Method for Trademarks 106Summary 106Chapter 5 Trademark Economic Benefit 107Future Economic Benefit 107Quantifying Economic Benefit 116Direct Techniques 118Indirect Techniques 133Summary 137Chapter 6 Income Method: Economic Life and Risk 139Defining Economic Life 140Trademark Economic Life and Pattern 144Survivor Curves and Studies of Historical Life 154Forecasting Growth 157S-Curves in General 161Elements of Risk 164Summary 171Chapter 7 The Income Method: Putting It All Together 173Trademark Valuation by Residual 173Multiple Exploitation Scenarios 184Valuation Based on Income Allocation 186Summary 187Chapter 8 Trademark Licensing Economics 189Licensing Economics 189Some General Thoughts 193Royalty Quantification 195Quantification Techniques 197Scoring and Rating Techniques 201Discounted Cash Flow Model 205Dividing the Economic Benefit 208Another Analytical Technique 210Rules of Thumb 211Summary 212Chapter 9 Quantification of Harm in Trademark Enforcement Cases 213Civil Trademark Enforcement Actions 214Monetary Recovery in Civil Actions 217Enhancement of Monetary Recovery 227Valuing Counterfeits for Purposes of Criminal Sentencing 232Summary 234Chapter 10 Special Trademark Valuation Situations 235Trademarks in Finance 235Trademarks in Bankruptcy 238Valuation Directions 244Trademarks and Ad Valorem Taxes 248Summary 249Chapter 11 Global Trademark Issues 251Trademark Holding Companies 252The Scourge of Trademark Trolls 253International Valuation Standards 255Counterfeiting: A Worldwide Contagion 257Political/Investment Risk 259Summary 261Appendix ABasic Investment Principles 263A Certificate of Deposit Example 263The Arithmetical Foundation 266Appendix BTheoretical Foundations for the Determination of a Fair Rate of Return on Intellectual Property 269Appendix CInvestment Rate of Return Requirements 271Investment Risk 272Required Rate of Return Components 273Rate of Return Models 274Arbitrage Pricing Theory 278Venture Capital 279Weighted Average Cost of Capital 281References 284Appendix DPredicting Sales and Revenues for New Ventures with Diffusion Models 285New Product Sales Forecasting Models: Product Diffusion 286Types of Product Diffusion Models 288The Bass Model 290Caveats of the Bass Model 293Summary 294References 295Appendix EDealing with Uncertainty and Immeasurables in Trademark Asset Valuation 297Elements of Valuation Analysis 298Decision Analysis and Decision Trees 301Monte Carlo Techniques 309Obtaining Information from Indirect Observation 317Option Pricing Models 323Good Enough Decision Making 325Summary 332About the Authors 333Index 335