Are Trade Marks Intangible Fixed Assets?
Many business owners are surprised to know that their registered trade marks can be one of the most valuable assets within a business. A registered trade mark is a type of intellectual property that protects the features of a brand. Unlike a tangible fixed asset such as your business’ machinery, registered trade marks are intangible fixed assets. This is because they are often developed internally within a business without any measurable value that can be immediately capitalised.
To explain further, this article outlines:
- what are intangible fixed assets;
- instances where valuing your registered trade mark might be necessary; and
- some common methods practitioners use to value registered trade marks.
What Are Intangible Fixed Assets?
Put simply, intangible assets are assets that do not have a physical substance. Whilst your business’ registered trade mark might protect a material object like your product packaging, the intellectual property itself is intangible. That is to say, intellectual property law recognises your rights to ‘creations of the mind’ rather than your ownership of material goods. In doing so, it protects this intangible property from unauthorised use and others benefitting from it to your detriment.
Additionally, the law may consider a registered trade mark a fixed intangible asset since it is a long-term asset. Trade marks are not ‘current assets,’ which include tangible goods like vehicles or equipment that could be sold or consumed within a year of acquisition.
You cannot easily liquidate a trade mark in this way. Since trade marks protect the features of your brand that make it distinguishable from others, they are very valuable. and are protected as such.
Why Value Your Registered Trade Mark?
You might have to value your trade mark for a variety of reasons. More broadly, intellectual property valuation can be important when assessing your business’ assets for accounting and taxation purposes. Additionally, you might have to determine the value of your intangible fixed asset if you wish to:
- use your trade mark as collateral for obtaining business finance;
- attract investors;
- negotiate licencing agreements for third parties to use your trade mark; or
- settle a legal dispute involving your trade mark.
Whatever the reason might be, it is important to remember that when you value a registered trade mark, an expert can only give you a close estimate of its value. This is because the value of a registered trade mark is prone to fluctuate. This is why a business might record an intangible asset’s value as significantly lower than its actual value.
Rather than providing you with an absolute value of your business’s trade mark, the true value of your trade mark can be ascertained once it is sold or transferred at an agreed transaction price. In this instance, a business might include the value of its intangible fixed assets based on its agreed purchase price.
Common Methods for Trade Mark Valuation
You should be aware that registered trade marks have both qualitative and quantitative value. The qualitative value of a trade mark refers to its status at law. A valuer can determine the value of your intangible fixed asset based on its qualitative characteristics.
For example, the qualitative value of your trade mark might include how many goods and services your trade mark protects. On the other hand, since you can sell trade marks, they also have a quantitative value. In this sense, in valuing your trade mark you might consider:
- how often you have licensed your trade mark; and
- the revenue you receive from licensing.
In any event, expert valuers should consider both the qualitative and quantitative aspects of your trade mark. To help you understand how a valuer might measure the value of your intangible fixed asset, below are three different valuation methods for trade marks.
1. The Income Method
If you regularly licence your registered trade mark, a valuer might determine the value of your trade mark based on the income method. Using the income method, a valuer would determine the expected future earnings of your trade mark adjusted to the present value of your asset.
2. The Market Method
In the instance where a similar trade mark exists in the market, a valuer might determine the value of your trade mark based on the market method. Using the market method, a valuer would determine the value of your trade mark based on the transaction price of similar IP assets with comparable features.
3. The Cost Method
Similarly to the market method, the cost method determines the value of your trade mark based on the cost of a similar or exact trade mark asset.
A registered trade mark is an intangible fixed asset. This is because trade marks are often developed internally within a business without any measurable value that can be capitalised. Since trade marks cannot easily be converted into cash or ‘liquidated’, they are also considered fixed or long-term assets.
Frequently Asked Questions
A trade mark’s value is typically representative of your brand’s goodwill.
Goodwill refers to the value of a range of things in a business, such as its loyal customer base and good employee relations.