The Licensing Journal, October 2018: Preventing brand value from going up in flames
1. SEPTEMBER 2018 T h e L i c e n s i n g J o u r n a l A
Licensing
OCTOBER 2018
DEVOTED TO
LEADERS IN THE
INTELLECTUAL
PROPERTY AND
ENTERTAINMENT
COMMUNITY
V O L U M E 3 8 N U M B E R 9
Edited by Gregory J. Battersby and Charles W. Grimes
THE
Journal
2. OCTOBER 2018 T h e L i c e n s i n g J o u r n a l 1
copyrights by employing staff to
search for instances where such
use does not comply with their
standards in an effort to inter-
vene and avoid any lasting dam-
age to the brand.
Aside from these traditional
efforts, some companies take
brand protection to the next
level. According to a recent BBC
article (www.bbc.com/news/busi-
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 fur-
nace that captures the energy from
the process for re-use (which does
little to please the environmental
proponents who oppose this pro-
cess). Over the past five years, it
is estimated that more that £90
million worth of Burberry goods
have suffered the fate of the fur-
nace—which gives us a pretty good
understanding 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 mil-
lion and £40 million in “Additions”
to its “Intangible assets in the
course of construction” 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 develop-
ing 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
brand. Constant pressure from
shareholders for expansion and
production often pushes fash-
ion companies to produce excess
stock—presenting them with the
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 potential
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 auc-
tioned 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 accu-
mulated debt and legal fees as a
result of bankruptcy 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 cate-
gories: the ability to charge pre-
mium prices and the ability to
take advantage of diminishing
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 competition in many differ-
ent ways, which results in higher
priced phones, computers, tablets,
etc. Although superior product
features certainly contribute to the
company’s premium prices, it is
undeniable that the brand—which
has become synonymous with
quality, design, and innovation—
drives consumers to pay exces-
sive prices. The value of the Apple
brand is on full display when look-
ing 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 previ-
ous quarter. (www.investors.com/
news/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 licensees. A
good example of these “tradi-
tional” 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