Elon Musk, chief executive of Tesla, has recently taken on Warren Buffet, chief executive officer of Berkshire Hathaway, regarding Buffet’s view that he values companies with a “moat,” which includes brand strength the company has relative to its peers.
Musk expressly values the pace of innovation in a company, innovation that must receive some form of protection to allow that company to continue to benefit from such innovation. The goal of this article is not to argue who is most correct, but to recognize that both brand recognition through trademarks and innovation that is protected through either patents or as a trade secret both add value to a company.
As discussed in a previous article, a brand name allows a business to associate and continuously use this name in association with the products and/or services the business offers. A business in the hospitality industry, in particular, may establish a positive experience associated with their adopted brand, allowing that brand name to become recognized as the place to go to obtain a positive service or a product in demand. Clearly, such an adopted name provides a significant benefit to the business through the brand name recognition that becomes established.
Innovation – for example, in the hospitality industry – may include novel or unique approaches to doing something within the business that may be protected, either through a patent or as a trade secret. Other innovations in the hospitality industry that may add value include: food and drink recipes; designs that are non-functional in nature; sales and distribution methods; customer lists and their profiles; advertising strategies; and preferred suppliers.
Some of these innovations are more amenable to trade secret protection, while others may be patentable, providing a monopoly of use for 14 to 20 years, depending upon the innovation.
Intellectual property due diligence is always part of the valuation analysis of companies being bought, sold, offered in an initial public offering and other transactions in which company value is of importance. Of course, if the company has no brand names or innovation, then no value is assigned to this intangible class of assets in the valuation of the business.
If the company does have intellectual property, the scope of the intellectual property included in the disclosure listing, the status of receiving protection on the intellectual property, the level of protection that intellectual property has received and the extent of use of the listed intellectual property each have an impact on the value that is placed upon the intellectual property portfolio.
Intellectual property value would also be influenced by any transactional matters that have been entered into by a business that influences the business’s ability to use intellectual property owned by another or perhaps to receive royalties from intellectual property the business owns. Such intellectual property transactions are commonly found in license agreements but may be part of a supply or purchase agreement, as well.
Furthermore, any development agreements should clearly define who owns any intellectual property arising out of a joint development or any developed matter that may be simply provided through a contractor providing services to the business.
If your business has taken the time and expended the resources to establish recognition of a brand or develop and consistently use an innovation, and your business has not taken the appropriate steps to protect that brand or innovation, then that brand or innovation is subject to becoming stolen or even lost altogether.
Todd Hess is a member attorney of Barnwell Whaley law firm, licensed to practice law in North Carolina, South Carolina and Georgia, and before the USPTO. As effective business counsel, Todd’s law practice focuses on general business law as he has advised clients in license, joint development and co-existence agreements, transactional matters, regulatory representation and merger and acquisition due diligence. As a registered patent attorney, his intellectual property experience includes drafting and prosecuting hundreds of patent and trademark applications in the USPTO and foreign patent offices as well as intellectual property litigation. Additionally, he is a registered Professional Engineer and a Certified Financial Planner™.
This article originally appeared in the Wilmington Business Journal.
Trademark word cloud from Thinkstock.
