New international standard for brand valuation introduced

International
Brands are undoubtedly one of the most valuable intangible assets. For many years, international accounting rules have required publicly listed companies to place the value of their brands and other legal intangible assets, such as patents, copyrights and trade secrets, on their balance sheets. However, putting a price on a brand has long been recognised as a complicated minefield.

The International Organisation for Standardisation, which is comprised of the National Standards Institutes of 163 countries, has now developed a new international standard for brand valuation. ISO 10668 was published on September 30 2010 after a consultation period of three years. The new standard will not only help trademark owners to measure and monitor the value of their brands as an important intangible asset, it is also likely to have a significant impact on the practice of trademark monetisation (eg, measuring the price of a licence or in IP transactions). In addition, the new standard also appears to be a useful instrument for calculating damages in trademark infringement proceedings.

The new international standard, entitled “ISO 10668:2010, Brand valuation – Requirements for monetary brand valuation”, was prepared by project committee ISO/PC 231, Brand valuation. It is available from ISO national institutes or directly from the ISO Central Secretariat in Geneva for Sfr74.

The new international standard provides a consistent, reliable approach to brand valuation, including financial, behavioural and legal aspects. It provides a framework for brand valuation, including objectives, bases of valuation, approaches to valuation, methods of valuation and sourcing of quality data and assumptions. It also specifies methods of reporting valuation results. ISO 10668 is a summary of existing brand valuation methods and intentionally avoids detailed methodological work steps and requirements. The standard can be applied to all existing brand valuation approaches, as long as they follow the fundamental requirements specified in this new meta standard. 

In essence, the new international standard sets the requirements of a legal, behavioural and financial analysis. The valuer must first determine what falls under the definition of ‘brand’ from a legal perspective. ISO 10668 does not limit the definition of ‘brand’ to registered and unregistered trademarks, but also includes other marketing related assets, such as designs and domain names. The legal analysis also requires an assessment of the legal protection of the brand on a worldwide basis. The behavioural analysis includes an assessment of the brand’s strength by measuring market volume, trends, customer loyalty and the perception of the brand in the market place. Finally, ISO 10668 specifies the principles of three existing approaches to brand valuation:
  • the income approach, which measures the value of the brand by reference to the present value of its economic benefits;
  • the market approach, which measures the value of the brand based on what other purchasers in the market have paid for similar assets; and
  • the cost approach, which measures the value of the brand based on the monies invested in it.
The main reason for standardising brand valuation is to provide a consistent framework to comply with Generally Accepted Accounting Principles or International Financial Reporting Standards, and to meet the standards set by national tax authorities. However, beyond the mainly financial implications of the new international standard, ISO 10668 may also have implications from a legal point of view. It may help a trademark proprietor to calculate its claim for damages in trademark infringement proceedings. This, of course, assumes that the new standard will be recognised by the courts.

Few trademark infringement cases proceed to a damages inquiry. Once liability is established at trial, the trademark owner must bring a separate action for assessing damages, which is often a costly exercise in terms of time and money. In essence, the trademark owner can choose between two remedies: an account of profits or damages. The damages claim is usually the preferred remedy, putting the trademark owner in the position it would have been had the infringement not occurred. However, there are two major difficulties in establishing a claim for damages:
  • the burden of proof is on the claimant; and
  • the damages must have been foreseeable and be caused by the infringement (General Tire v Firestone ([1976] RPC 197)).
The claimant will often seek damages for lost sales where the evidence confirms that the defendant’s sales of the infringing product caused the trademark owner to lose sales of the original product. Another claim for damages, where the claimant has licensed its trademark, can be awarded on the basis of a notional reasonable royalty. Other heads of damage seem to be rarely claimed or awarded, even where it is apparent that damage has been done to the claimant’s brand. To date, it may have been difficult to prove damage to the brand’s value, but the new ISO 10668 appears to provide a good basis for measuring any such loss. Regularly monitoring the brand’s value may put the brand owner in a better position to prove that the brand’s value has suffered because of the infringement. Provided that the loss in value is foreseeable and that the valuer can show that the brand’s value has diminished because of the defendant’s conduct, there appears to be no reason why damages in the amount of the diminished value should not be awarded. Furthermore, losses related to the trademark infringement, such as the cost of advertisements to counteract the negative effects on the claimant’s brand, may also be claimed.

Therefore, the new standard is not only an important tool in the cross section of marketing and finance, it also opens up the possibility of new heads of damage being awarded. 

Florian Traub, Hammonds LLP, London

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