Report on determining the market value of a trademark. Valuation of a trademark using the income approach. How to evaluate a trademark

Grade intellectual property(IS) is the least developed branch of professional assessment. Historically, its formation in Russian Federation occurred without the powerful support from Western specialists that was present in the assessment of real estate, machinery, equipment and business. The situation was complicated by significant opposition from economists who specialized in assessing the effectiveness of innovation even under the conditions of developed socialism. It should be admitted that some of them still manage to sell their services in our developing market. And this despite the fact that their methodology is absolutely incompatible with financial management procedures and does not withstand any criticism from the standpoint of modern assessment. Professional valuation is based on a dialectical view of the value of the property being valued. Cost analysis is based on the natural understanding that any object goes through a stage of its birth, accompanied by the necessary costs. Further, since the rights to any object can be the subject of turnover on the market, it is possible to evaluate it on the basis of market sales statistics. And finally, since any acquisition in a market economy is justified from the point of view of investment efficiency, the object of evaluation is considered as a source of benefits, the receipt of which it must provide to its owner. Accordingly, the three pillars on which the professional assessment methodology rests are called the cost, comparative (market) and income approaches. Within the framework of these approaches, which we now rightfully call standard (after the publication of Decree of the Government of the Russian Federation No. 519 of July 6, 2001), the appraiser applies the maximum number of methods (Fig. 1), the relevance of which is determined by the characteristics of a specific business situation.

COMPARATIVE APPROACH

sales comparison method

COST APPROACH

input cost method method replacement cost replacement cost method

INCOME APPROACH

Direct capitalization methods
express assessment methods
excess profit method Methods using the expanded discounted cash flow formula
methods for identifying the real economic effect
methods of artificially highlighting the economic effect (“exemption from royalties” and “25 percent rule”)

Rice. 1. Approaches to valuation and methods for determining the value of intellectual property

When assessing intellectual property, it is always possible to apply a cost approach and construct the market value of the object in terms of the costs of obtaining legal protection and other necessary expenses, however, in most cases the result of such an assessment turns out to be inadequate to the actual value of the object. Such an estimate only indicates the lower limit of the range within which the required value is determined. The upper limit of this range is determined exclusively through the use of the income approach. This state of affairs, characteristic primarily for the assessment of trademarks and brands, is fully consistent with the experience of leading experts in the assessment of intellectual property Gordon Smith and Russell Parr (Table 1).

Table 1. Recommended preference for using approaches to assessing intangible assets and property assets[Source: Gordon V. Smith, Russell L. Parr, Valuation of Intellectual Property and Intangible Assets, Second edition, John Willey & Sons, 1994. ].

Types of intangible assets and intellectual property	First of all	Secondly	Rarely applicable
Patents and technologies	Profitable	Market	Expensive
Trademarks	Profitable	Market	Expensive
Objects copyright	Profitable	Market	Expensive
Skilled workforce	Expensive	Profitable	Market
Informational software management	Expensive	Market	Profitable
Software products	Profitable	Market	Expensive
Distribution networks	Expensive	Profitable	Market
Core deposits	Profitable	Market	Expensive
Franchising rights	Profitable	Market	Expensive
Corporate Practices and Procedures	Expensive	Profitable	Market

The application of the income approach is based on assessing the investment attractiveness of the property, from which in the future it is expected to receive well-defined benefits (corresponding to the probable sale price of the property). And since market value, according to its definition, is always expressed in monetary terms, these benefits should be understood as flows cash, sent directly to the owner of the property being assessed. This is a very significant point, since when it comes to the value of trademarks, we constantly have to deal with attempts to replace professional assessment procedures with various rating methods. There is no point in arguing about the adequacy of these methods to the tasks that are solved when constructing ratings. It is only necessary to recognize that an assessment based on the methodology of comparisons, with all its relevance within the framework of the comparative approach, is poorly applicable to the income approach. It should be noted that the comparative approach, the main working procedure of which is the sales comparison method, is practically not used in the assessment of intellectual property objects. The essence of this method is to determine market value property based on the sales prices of objects of comparable utility by making adjustments (amendments) to these prices, taking into account the existing significant differences between analogues and the property being assessed. To understand why this procedure is not used in practice, it is enough to familiarize yourself with three necessary conditions applicability of the sales comparison method. 1) the existence of facts of sale of objects of similar purpose and comparable utility; 2) availability of information on sales prices and actual conditions for such transactions; 3) the availability of analytical information on the degree of influence of the distinctive features and characteristics of such objects on their value. The absence of the necessary volumes of data to ensure the fulfillment of the second and third conditions leads to the fact that the information that becomes available on transactions with intellectual property is used in the assessment only as a signal (indicative), which does not affect the final value of the sought market value. Thus, the real assessment of the market value of trademarks and brands actively used in business comes down to the application of income approach methods. And, since the methodology of other approaches turns out to be poorly applicable here, the classification of procedures of the income approach in the assessment of intellectual property receives a development that it does not have in other disciplines of professional assessment. In this case, two groups of classification characteristics are used: firstly, these are methods for isolating cash flow (economic effect), and secondly, this is the mathematical apparatus used (Table 2).

Table 2. Income approach methods

CLASSIFICATION FEATURES		Mathematical apparatus used
Apparatus for highlighting economic effect		Methods using the discounted formula cash flows	Methods using the direct capitalization procedure
Methods based on taking into account the real economic effect	"Excessive profit"	Profit Advantage Methods	Excess Profit Method
	2. Real royalties		Approximate estimation methods (express estimation)
	3. Price advantage
	4. Gain in cost in terms of variable costs
	5. Gain in cost in terms of semi-fixed costs
	6. Advantage in the volume of product sales
Methods based on artificial construction of economic effect	"Royalty release" method
	Method of allocating the licensor's share of the licensee's profits (the "25 percent rule")

With the mathematical apparatus, everything is quite simple, and its use does not cause large discrepancies. In the first place is the discounted cash flow (DCF) formula, the use of which implies a fairly thorough forecast of future cash flows. The second place is occupied by the direct capitalization formula, which, as is known, is a special case of the DCF formula. It is used, as a rule, for a “short”, approximate assessment, since it involves the replacement of detailed forecasting by the adoption of simplifying assumptions about the future behavior of cash flows. The use of modern mathematical methods, which are becoming increasingly widespread in Western business valuation (real options, the Edwards-Bell-Olsen model, etc.), in the valuation of intellectual property does not yet seem justified. This is explained by the fact that such a fashionable apparatus gives reliable results only if large amounts of market information are used, in relation to which, as already mentioned, there is a huge deficit in IP assessment. Here, for the sake of fairness, it should be noted that when assessing corporate brands, in parallel with the DCF formula, the economic added value model is traditionally used, a simplified version of which is known as the excess profit method (tax administration formula). As for the second classification criterion - methods of allocating cash flow, here we must admit the presence of quite large problems. Methods of the income approach from this point of view are divided into methods for isolating the actually present economic effect and methods for its artificial construction. Isolating the real economic effect resulting directly from the use of a trademark in most practical situations is a rather complex and resource-intensive analytical problem. Therefore, often appraisers, not having the necessary resources of time or finance, without delving into the analysis of the economic use of a trademark, limit themselves to procedures for artificially constructing an economic effect. Such procedures (the "royalty waiver" method and the method of allocating the licensor's share of the licensee's profits) are based on a general initial assumption of what would happen if the intellectual property being valued did not belong to its current owner. In this case, the person using someone else's exclusive rights is obliged to make regular license payments in favor of the rights owner. The amount of these payments (royalties) is calculated in accordance with the established practice of licensing agreements. However, no such payments are made because the rights actually belong to the current IP owner and he is relieved of this responsibility. The savings resulting from such exemption are identified with the additional profit created by the object of assessment. In the "royalty waiver" method, for example, the amount of a hypothetical annual license fee is determined by multiplying the annual revenue from sales of products released using the IP by the average (standard) royalty rate. However, any sensible economist will immediately draw attention to the fact that by refusing to labor-intensively isolate the effect that is actually generated, the appraiser sharply reduces the credibility of the assessment performed. The value obtained on the basis of procedures alone for artificial construction (modeling) of the economic effect has no right to be called market value, which, by definition, must suit both parties to a potential transaction for the transfer of ownership. Well, for example, how can we talk about the adequacy of the valuation through “exemption from royalties” of the brands of monopolistic organizations, such as MOSENERGO or LENGAZ? After all, a brand, which is an instrument of competition, works (creates additional cash flows) only in a competitive environment. Thus, when solving the problem of determining the market value of a trademark, the appraiser has no right to pass over in silence the problem of identifying the actually generated economic effect. We usually recommend that our students begin performing this most important operation of assessing IP with a break-even analysis, which is one of the main procedures of financial management. Moreover, in some cases, for well-known (well-promoted) brands, it is possible to quickly obtain a fairly reliable assessment, relying, for example, only on the advantage in price of commercial products produced under the brand being assessed. Thus, in 1997 it was shown that the value of the trademark “Economy and Life” (Economic Gazeta Publishing House) as of 08/01/1997 was at least one million dollars, and in 1998 a “short contract” was carried out “evaluation of the corporate brand of the Moscow Plant “Kristall” OJSC (see example). The conclusions themselves, obtained in these two works and indicating only the lower limit of the area for determining the market value of trademarks, indicate that in both situations the assessment was incomplete. This corresponds to reality, since in both the first and second cases the content of the work was determined by the local problems of the owners of the brands being evaluated, and the work itself was of an almost non-commercial initiative nature. Quite naturally, the question arises here: “What then should a full-fledged qualitative assessment of a trademark look like?” The answer can be found in famous work previously cited author Gordon Smith, "Trademark Valuation". The content of the work and the sequence of operations are illustrated by him using a block diagram of the evaluation algorithm (Fig. 2). Upon careful examination of this diagram, it becomes clear that the qualitative assessment of a trademark as presented by Gordon Smith contains all the stages inherent in any type of our professional activity.

Rice. 2. Valuation of a trademark (TK) and construction of royalty rates (Gordon W. Smith and Russell L. Parr “Valuation of intellectual property and intangible assets")

This assessment consists of the following steps: - collection of data necessary for the application of the entire apparatus of professional assessment; - analysis collected information in order to identify comparison criteria and probable parameters of the process of economic use of the valuation object and related assets; - synthesis of the market value of a trademark using all procedures appropriate in a given assessment situation; - issuing a carefully substantiated conclusion on the value of the trademark and the royalty rate (if such a need is determined by the purpose of the assessment), corresponding to the terms of the planned license agreement. It is no coincidence that we call the operation of obtaining market value a synthesis of valuation. Indeed, the final value of value should be viewed as a kind of synthetic product - a generalization of the results of applying several models of value formation. At the same time, according to Gordon’s scheme, it is clear that the synthesis of the final value of a trademark contains at least the following procedures: - discounted cash flow method, which is based on taking into account the real economic effect obtained from the sale of products bearing trademark; - investment group technique based on determining the required return on funds invested in assets various types; - methodology of economic added value, based on a comparison of the specific results of an enterprise’s activities with similar industry averages; - “exemption from royalties (license payments)” calculated on the basis of royalty rates applied to trademarks that may fit the definition of an analogue of the object being valued. So far, those estimates of the market value of trademarks, which one occasionally manages to get acquainted with, do not contain anything similar. Of course, in each of them there is a “royalty exemption”. Sometimes there is something similar to the use of a comparative approach based on Interbrand ratings or purely rating assessment procedures. For investment value, such creativity is possible and applicable, but in no case for market value. The market value, convincing for a potential investor, must necessarily contain a calculation based on the allocation of actually received cash flows generated directly through the use of the valued trademark.

Example 1

Evaluation of the trademark "Bison"

Owner of the property being assessed: Moscow plant "Crystal"

Valuation date: 12/01/1998 (US dollar exchange rate - 17.88 rubles/USD).

Marketing research showed: as of the date of assessment, the selling price of a bottle (0.5 l) of ordinary vodka produced by Kristall OJSC was 5 rubles. exceeds the selling price of high-quality vodka from one of its ordinary competitors (CJSC Urozhay), which it corresponds to in its consumer properties.

After subtracting VAT and excise tax (the rates of which are the same for everyone), the price advantage is 83.33 rubles. on dal. From here, with the same cost, 54.17 rubles are formed. net profit per deciliter.

Since approximately the same price difference remains for other types of products, then, multiplying this additional net profit by the double physical sales volume achieved in the first half of the year, we obtain the annual cash flow created specifically by the Zubr trademark:
(1) 54.167x2x 1750 = 189,595 thousand rubles.

Often, a trademark is a key tool in the marketing policy of the copyright holder company, and its material equivalent can exceed the cost of production and material resources of the same company several times. A brand that has gained the trust of consumers is a powerful asset that contributes to the prosperity of its owners’ business.

As the company successfully advances in the market, the price of the trademark increases accordingly. It is for this reason that in the process of doing business it is so important to know the current market value of an intellectual property (IP), its role in the development of the company and prospects for further development.

Brand market price

Estimation of the value of IP objects is an important marker for determining efficiency marketing strategy and the success of the company's innovative developments. To make the most productive use of a trademark for commercial purposes, you need to have an idea of its market value.

As a rule, examination of a trademark in order to determine its price is required in the following cases:

Sale exclusive rights for a trademark;
Sale/restructuring/privatization of the owner company;
Introducing a trademark into authorized capital companies;
Partial/temporary transfer of rights (license agreements, franchising agreements);
Registration of insurance for the IP object;
Compensation for damage from illegal use of IP (determining the amount of damage and material compensation).

To obtain an adequate assessment of the value of a trademark, it is better to contact professionals working in the field of IP protection. Upon completion of the study, the trademark owner will be issued an evaluation report, which has legal force and can be used in commercial transactions, court appearances, or financial statements.

Valuation of a trademark

When installed cash equivalent An IP object, which is an intangible asset, has its own nuances. In this case, it is not enough to calculate the funds spent on the development of the mark and its registration. The figures obtained may vary greatly with the amount of profit received from using an already “promoted” brand. Besides, great value has the purpose for which this assessment is carried out and what business plans the owner of the trademark has for his IP.

Legally, the price of a trademark is the amount of exclusive rights protected by the certificate, multiplied by the popularity of the brand. To determine the value, the income method is most often used, which allows one to determine the amount of potential benefit that the owner of a trademark can receive from its use in the existing economic conditions.

The main evaluation criteria are the competitive advantages of the mark, consumer trust in it, the stability of the market position and positive development prospects. The influence of the trademark on the image of the company as a whole must be taken into account, as well as forecasts for the dynamics of future sales of goods or services sold under the evaluated trademark.

Information required for assessment

In order for professional appraisers to be able to establish a reasonable financial expression of the value of a trademark, they may require the following information:

Trademark certificate data;
Description of the IP object;
Information about the costs incurred in obtaining rights to the IP object;
Description of goods and/or services marked with the trademark under study;
Information on annual sales volumes;
Sources of profit from the use of the designation under study.

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Report on determining the market value of a trademark. Valuation of a trademark using the income approach. How to evaluate a trademark

Brand market price

Valuation of a trademark

Information required for assessment

Submitting your good work to the knowledge base is easy. Use the form below

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