The International Organisation for Standards (ISO) has adopted a standard for the valuation of brands. Although I have not seen the final version, as you have to pay to download it from the ISO site, David Haigh - the CEO of Brand Finance and someone closely involved in te creation of the standard - explained its central points in an article we published earlier this year in IAM. Here are a few of the things he had to say:

ISO 10668 applies to brand valuations commissioned for all purposes, including: accounting and financial reporting; insolvency and liquidation; tax planning and compliance; litigation support and dispute resolution; corporate finance and fundraising; licensing and joint venture negotiation; internal management information and reporting; strategic planning; and brand management. The last of these applications includes brand and marketing budget determination, brand portfolio review, brand architecture analysis and brand extension planning.

ISO 10668 is a meta standard which succinctly specifies the principles to be followed and the types of work to be conducted in any brand valuation. It is a summary of existing best practice and intentionally avoids detailed methodological work steps and requirements.

ISO 10668 specifies that when conducting a brand valuation the brand valuer must conduct three types of analysis before passing an opinion on the brand’s value.

These are legal, behavioural and financial analysis. All three types of analysis are required to arrive at a thorough brand valuation opinion. ...

The first requirement is to define what is meant by brand and which intangible assets should be included in the brand valuation opinion. The brand valuer ... may include names, terms, signs, symbols, logos, designs, domains or other related IP rights intended to identify goods and services, and which create distinctive images and associations in the minds of stakeholders, generating economic benefits for the branded business.

The brand valuer is required to assess the legal protection afforded to the brand by identifying each of the legal rights that protect it, the legal owner of each relevant legal right and the legal parameters influencing negatively or positively the value of the brand.

The second requirement ... is a thorough behavioural analysis. The brand valuer must understand and form an opinion on likely stakeholder behaviour in each of the geographical, product and customer segments in which the subject brand operates.

...

The brand valuer needs to research brand value drivers, including an evaluation of relevant stakeholders’ perceptions of the brand in comparison with competitor brands. Measures commonly used to understand brand strength include awareness, perceptual attributes, knowledge, attitude and loyalty. The brand valuer needs to assess the brand’s strength in order to estimate future sales volumes, revenues and risks.

The third requirement ... is a thorough financial analysis. [The standard] specifies three alternative brand valuation approaches - the market, cost and income approaches.

The income approach is the recommended approach because it measures value by reference to the economic benefits expected to be received over the remaining useful economic life of the brand. This involves estimating the expected future, after-tax cash flows attributable to the brand then discounting them to a present value using an appropriate discount rate.

There is no compulsion for anyone to employ a brand valuation method which meets the ISO 10668 standard, but an international standard is an international standard, isn't it? I guess that as time progresses if you do not use a valuation method that complies with it, then you will have to do a lot of explaining as to why.

One of the really significant aspects of the whole thing is how it brings together legal, marketing and financial analysis. Under ISO 10668, it is clear that brand owners will not get valuation done properly without IP people sitting down with marketing and finance people. In terms of breaking down the silos that so often exist inside companies, this has to be a very good thing. It also means that a common language will have to be developed between professionals from very different backgrounds - something that may well make communication about IP and other forms of intangibles a whole lot easier in general.

At the beginning of 2008 there was talk of the creation of a standard for patent valuation too. As far as I can tell, although that has not been abandoned, we are still far away from any conclusion.

Sectors

Brands, IA management, IP valuation