The value of registered trademarks to a business
January 2020 | SPECIAL REPORT: INTELLECTUAL PROPERTY
Financier Worldwide Magazine
January 2020 Issue
On 1 January 1876, the first UK registered trademark was entered onto the trademark register with reference number ‘1’. The mark was the Bass Brewery logo. The logo has remained on the register ever since and is still in force to this day as the mark has been renewed by the proprietor. At present, registered trademarks are renewable indefinitely in 10-year periods.
The purpose of this article is to explain the value that registered trademarks can offer a business both in the present and in the future in protecting revenue streams, allowing time for a business to grow and to develop its expansion plans in a managed, timely fashion. It will also explain the value that registered trademarks, and other intellectual property (IP) rights, can bring to a business when it is being valued and sold.
A registered trademark is a valuable asset for a business to own. It offers security and value. It ties directly into what drives revenue and value to a business. Every business will supply goods or services to customers to drive revenue and hopefully customer loyalty. The goods or services supplied might encompass a clever invention, be an innovative service, something that people will want to wear or be seen with, or it may be a purely functional item which people use in their everyday lives to make things easier.
A business will engage with its customers under a distinctive name, typically a brand, so the customers can recognise the goods or services on the market, be confident they will be getting what they desire and to repeat that experience. Being able to protect the revenue stream by preventing competitors from trespassing within your market space not only helps to maintain market share but can also help the business grow. Registered trademarks are typically granted territorially and are available in practically every country as individual registrations.
In the UK, registered trademarks are property rights granted by statute upon application in respect of certain indicia in respect of certain goods or services. Their purpose is to distinguish the goods or services of one business from another. The right that is granted is not a positive right to use that trademark on the market, but a negative right to prevent others from trespassing within the scope of that registration.
Various rights are granted through the registration to help stop third parties trespassing into a company’s market space with the same or similar name for their products or services. This allows a business to keep sensible and reasonable limits around what is distinctive about its business and which attracts and retains customers. A business can use the ‘registered’ symbol next to the trademark in everyday use to communicate that it is registered.
Registered trademarks are inexpensive to obtain. The cost of filing in the UK, including representatives fees, is typically £1000-£2000. If the mark proceeds to grant without any objection from the Intellectual Property Office (IPO), or third parties, the mark will be registered and the trademark rights valid from the date the mark was applied for. It will last for 10 years, at which point it can be renewed for another 10-year period, and so on. In that scenario, the cost per year of the investment is minimal, but the benefits large.
That is not to say a business without a registered trademark has no protection against competitors. A business that has been trading for some time will have likely generated and benefitted from ‘goodwill’ through, as noted, the provision of its goods or services under a particular name or get-up. In the 1901 Stamp Duty case, Lord McNaughton described goodwill as “the benefit and advantage of the good name, reputation, and connection of a business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old-established business from a new business at its first start”. That goodwill can form the basis of an action in ‘passing off’ against third parties moving into a business’ market with the same or similar name and protects against misrepresentation, whether intentional or not, by third parties which could damage that goodwill.
So, what advantages does a business obtain by having a registered trademark rather than simply relying on its goodwill and passing off rights? There are plenty. Using a UK registered trademark as an example, the mark provides a piece of real property which forms part of a business’s assets. It can be used to ‘licence’ others. Many businesses allow third parties to use their registered trademarks to sell goods or provide services in return for royalty or licence fees. This can be useful for a business that wants to expand its presence elsewhere in the UK.
A trademark also covers the full territorial scope of the relevant territory without the need to show the mark has been used prior to application. The owner is given five years to put the mark to use after registration and even if not done so within that five year period, can still be enforced against third parties where the court will assume the registered trademark has been used across the scope of the registration. Goodwill, however, might be limited in its geographical scope. A business might be new to the market or might have only traded in limited areas of the country or a limited product range. In that scenario, the goodwill might either be minimal, narrowly defined or geographically limited. A business might have desires in the future to expand further around the country, but another business entering the market under the same or similar name elsewhere in the country where the goodwill does not extend to, might derail those plans.
A trademark can also be registered for goods or services which the business presently does not offer but plans to offer soon. The registered trademark will protect the mark for those goods or services and there is no need for the business to be trading those goods or services for the first five years after registration. Therefore, it allows time for business expansion and growth safe in the knowledge third parties cannot arrive in the market and cause issues which are hard to resolve.
Once a registered mark has been used for a period of time, it can gain a ‘reputation’ which can provide even wider rights to the business to prevent others, including where the third party is providing dissimilar goods or services to the trademark owner.
Evidence in passing off cases can be quite onerous and costly. A business will have to lead evidence of goodwill and often evidence that there has been a misrepresentation. This can increase the costs of pursuing litigation.
A business which trades internationally, or has plans to do so, should consider its trademark portfolio as early as possible. Marks can be obtained throughout the world. A registered trademark is therefore a useful asset to protect and expand global trade and enter new markets through licensing with local business in different territories. For example, the European Union (EU) trademark is a cost-effective way of obtaining protection throughout the EU with one application. Early registrations elsewhere in the world also help guard against unscrupulous third parties noticing the success elsewhere and copying the brand in another territory or applying for a registration in a different territory. Both circumstances can prove costly, and sometimes impossible, to rectify.
In addition to protecting key revenue drivers and providing the opportunity for business expansion, a healthy and well-managed portfolio of registered trademarks and other IP rights can be of further benefit. Registered IP rights are classified as pieces of property. They can be licensed, mortgaged or sold. The more complete a business’ portfolio, typically the higher its value. This can be particularly important if a business is looking to raise finance or the owners are looking for the best price as part of an exit strategy. Indeed, one or the main areas of focus in corporate sale and purchase due diligence is the IP portfolio. In the same way an individual can increase their wealth and spending power by obtaining a portfolio of assets, such as properties or fine art, a business can do likewise through registered trademarks and other IP rights.
Andy Lee is a partner at Brandsmiths. He can be contacted on +44 (0)20 3709 9001 or by email: andy@brandsmiths.co.uk.
© Financier Worldwide
BY
Andy Lee
Brandsmiths