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The Licensing Journal, October 2018: Preventing Brand Value from Going up in Flames


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Sebastian Custodia's Brand Licensing article in The Licensing Journal

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The Licensing Journal, October 2018: Preventing Brand Value from Going up in Flames

  1. 1. 20 T h e L i c e n s i n g J o u r n a l OCTOBER 2018 Brand Licensing Sebastian Custodia Preventing Brand Value from Going Up in Flames A brand can be one of a com- pany’s most valuable assets. As discussed in “Geoffrey the $500M Giraffe” (http://foresightvaluation. com/geoffrey-the-500m-giraffe/), the value of a brand has the poten- tial to cover millions of dollars in debt and fees during liquidation events and can even represent values greater than 100% of a company’s reported asset values. Such was the case when Toys “R” Us auctioned off much of its intellectual property, including the Toys “R” Us name, the Babies “R” Us brand, its collection of domain names, and the beloved Geoffrey the Giraffe mascot and logo to cover its accumulated debt and legal fees as a result of bank- ruptcy proceedings. Traditionally, the value that a brand (including all accompany- ing trademarks, copyrights, etc.) provides to a company can be boiled down to two main cat- egories: the ability to charge premium prices and the ability to take advantage of diminish- ing marginal marketing costs as a company expands. A strong brand can allow a business to charge premium prices for its products and/or services, above and beyond what a consumer would typically be willing to pay. The most obvious example of this branding power at play is with Apple. Fanatics (myself included) will argue that Apple products are superior to the com- petition in many different ways, which results in higher priced phones, computers, tablets, etc. Although superior product fea- tures certainly contribute to the company’s premium prices, it is undeniable that the brand— which has become synonymous with quality, design, and inno- vation—drives consumers to pay excessive prices. The value of the Apple brand is on full display when looking at industry profit statistics. According an Investor’s Business Daily article published in February of this year, Apple claimed 87% of total industry- wide smartphone profits while only accounting for 18% of unit sales in the previous quar- ter. ( technology/click/apple-rakes-in- bulk-of-smartphone-profits-but- small-slice-of-unit-sales/). Going to Great Lengths to Protect Brands Given the immense value that a well-established brand can provide, it is unsurprising that many companies take extreme measures when it comes to pro- tecting that asset. The traditional measures that companies take to protect their brand include set- ting strict internal regulations on how the brand is used, as well as air-tight restrictions on how the brand is used externally for brand representatives or licens- ees. A good example of these “tra- ditional” brand protection efforts is the Louis Vuitton lawsuit against My Other Bag, claiming that the parody handbags dilute the “distinctive quality” of the Louis Vuitton trademarks. In fact, many companies actively police the use of their trademarks and copyrights by employing staff to search for instances where such use does not comply with their standards in an effort to intervene and avoid any lasting damage to the brand. Aside from these traditional efforts, some companies take brand protection to the next level. According to a recent BBC article ( ness-44885983), luxury fashion retailer Burberry literally burned £28.6 million worth of clothes, accessories, and perfumes last year. In an effort to protect the Burberry brand from dilution via unwanted discount sales or theft, the company incinerates its excess stock in a specially designed furnace that captures the energy from the process for re-use (which does little to please the environmental proponents who oppose this process). Over the past five years, it is estimated that more that £90 million worth of Burberry goods have suffered the fate of the furnace—which gives us a pretty good under- standing of just how highly the company values its brand. For further context, we can examine Burberry’s most recent Annual Report, dated June 6, 2018. The company reports roughly £19 million and £40 million in “Additions” to its “Intangible assets in the course of construc- tion” over the last 2 years. From this we gather that Burberry incinerates tangible goods for the sake of protecting its brand that are valued at amounts nearly equal to, if not greater than, the amount it spends on developing new intangible assets. It is important to note that Burberry is not alone in the prac- tice of destroying its unsold goods for the purpose of protecting its
  2. 2. OCTOBER 2018 T h e L i c e n s i n g J o u r n a l 21 brand. Constant pressure from shareholders for expansion and production often pushes fashion companies to produce excess stock—presenting them with the choice between costly inven- tory repurchases (regularly fol- lowed by destruction) or running the risk of brand dilution and devaluation. The measures that these companies go to in order to protect their brand is a clear indication of just how valuable they are. Burberry and its peers watch tangible value go up in flames to secure the massive future cash flows made possible by their intangible assets. Sebastian Custodia is an Associate at Foresight Valuation Group, a Silicon Valley–based intellectual property advisory firm, where he specializes in the valuation of intellectual property assets including patents, brands, trade secrets and software. His experience in finance also includes work in M&A advisory, high-tech compensation consult- ing, and solar energy financing. He holds a B.S. in Finance from Santa Clara University and is currently pursuing his MBA at the USC Marshall School of Business. Right of Publicity Adam S. Baldridge and Nicole Berkowitz In March of 2018, tennis great Roger Federer ended his twenty- one-year relationship with Nike, and in June 2018, entered into a $300 million deal with Uniqlo, a Japanese clothing company. Although Nike no longer has a clothing contract with Federer, Nike still owns the trademark registration in the iconic styl- ized RF logo in various registries across the world in classes of use covering clothing and footwear. See U.S. Trademark Reg. No. 3,838,371. During a press con- ference at Wimbledon, Federer suggested that he would one day gain the rights to the RF mark, stating: The RF logo is with Nike at the moment, but it will come to me at some point. I hope rather sooner than later, that Nike can be nice and helpful in the process to bring it over to me. It’s also something that was very important for me, for the fans really. Look, it’s the process. But the good news is that it will come to me at one point. They are my initials. They are mine. The good thing is it’s not theirs forever. In a short period of time, it will come to me. RogerFederer,PressConference (July 2, 2018), http://www. articles/2018-07-02/2018-07-02_ roger_federer_first_round.html. Federer’s Uncertain Hope in Obtaining the RF Logo from Nike From a legal perspective, it is not clear why Federer is so opti- mistic about recovering the RF trademark. Perhaps some provi- sion of his contract with Nike provided him the right to one day receive these rights. Federer is one of the most famous athletes of all time. He currently has won more majors than any male ten- nis player in the “Open Era,” and he is admired all over the world, not only for his excellence on the court but also for his humble attitude and family man persona off the court. See FP Staff, Federer Most Trusted, Respected After Mandela in the World, FirstPost (September 21, 2011), https:// most-trusted-respected-after-man- dela-in-the-world-survey-88642. html. Short of a contractual provi- sion, Federer may be attempting to look to his right of public- ity for the logo which includes his initials. Jurisdictions within the United States, however, are divided over whether foreign indi- viduals, like Roger Federer, can claim a right of publicity in the United States. Whether a person’s initials are entitled to the same protection as one’s name may be another issue as well as whether he could satisfy the elements of an actionable claim. Likely the biggest issue is whether Federer gave Nike consent in his contract to use his initials when Nike origi- nally developed the RF logo and applied for the trademark regis- tration in 2008. Whether Nike’s continued use of the RF logo after the expiration of its agreement with Federer exceeds the scope of Federer’s consent would depend on the specific language in the agreement. See, e.g., Sharman v. C. Schmidt & Sons, Inc., 216 F. Supp. 401, 405-06 (E.D. Pa. 1963) (considering whether the use of plaintiff’s photograph exceeded the authorization of his release to use the photograph); Cepeda v. Swift & Co., 415 F.2d 1205, 1207-08 (8th Cir. 1969) (finding