Commercial litigation involving Intellectual Property (“IP”) is increasing, as is evidenced by the Judicial and Court statistics for the last few years. To illustrate, between 2008 – 2009 there was a 142% increase in the number of Intellectual Property disputes seen in the High Court.

The overall rise in IP litigation reflects the fact that that IP is valuable and worth defending. It can often be the case, for example, that around 80% of a business’ value resides in its IP. Research carried out in summer 2008 from leading commercial lawyers in over 40 of the biggest UK law firms, found that IP was the business asset that was seen valued most frequently, by 68% of lawyers. Further, 65% of litigators thought the significance of IP issues to disputes would increase and 75% of non-contentious lawyers thought it would also increase in the future. No-one thought the significance of IP in this context would reduce.

IP value is almost invariably important and should therefore always be considered, even in many other types of dispute. This article will look at how the role of the marketing and brand valuation expert can be relevant and useful to dispute resolution. Specifically, it will depict how such experts can assist the Courts by providing market context and insight for brands, assisting with quantum and giving insight into other relevant issues.

Why are brands valuable?
Brands are one of the most valuable types of IP. In practice, brands, trade names, trademarks and reputation together with other underlying IP assets such as patents and copyright are often used interchangeably, and commonly refer to the distinctive way in which companies distinguish their products and services from competitors. Brands are also by their nature unique, dynamic and changing.

Brands are valuable and important for businesses because they are key drivers of financial value in terms of revenue generation, profitability and long-term growth. As well as driving volume, brands enable companies to charge a premium for their products and services, and this is often seen as royalty charges for use of the brand in licensing arrangements. There are also many benefits from brands to consumers, such as easing the decision making process and helping consumers to confirm and express aspirations which are represented by brands.

Because brand values often contribute considerably to overall business value, they tend to be a central consideration in IP, shareholder, partnership, business or other commercial disputes. Damage to the reputation or brand of a company can result in significant loss of financial value including lost profits, loss of brand value due to ineffective brand investment or advertising expenditure along with other considerable costs (from management time to legal costs) to defend the brand. These can be identified in a brand valuation process utilising market research, competitor and royalty rate analysis as well as conducting financial analysis. 

How brands are valued and when brand valuations are required
International Courts and Dispute Resolution Tribunals have accepted the valuation of brands and intangible assets as evidence put before them. There are generally three main approaches to quantifying value based on: market comparables; future income; and cost. A market-driven approach is often favoured because it provides a commercially grounded valuation that Courts and other Tribunals can relate to

Market approach: used to quantify value based on identifying market transactions relating to comparable assets such as merger and acquisition analyses of prices paid, discount rates and multiples, or royalty rates contained in licensing agreements.

Income approach: used to quantify value based on discounted cash flow analyses to derive the present value of future cash flows of the intangible assets. The relief from royalty approach is commonly used. This involves calculating how much the brand owner is relieved from paying for use of its brand because it owns it. This approach is market-driven as it utilises royalty rates sourced from comparable licensing deals and because it is based on cash flows driven from the market.

Cost approach: used to quantify value based on historic costs to create the asset or the anticipated cost of replacing or recreating a similar asset. This is useful because it analyses the alternative of building a similar asset rather than buying it.

Commercial brand valuations are substantively evidenced and can be thoroughly analysed to highlight and test the key underlying assumptions and issues. There is an increasing trend in non-contentious IP valuations to set out the information, assumptions and methodology clearly so that the reasons underlying the conclusions can be tested. This can be pertinent to a claim, as it requires a methodical approach which gives something the Courts can relate to and use as part of a dispute resolution process.

Brand and intangible asset valuations are carried out for a variety of litigation purposes including trademark infringement and ownership disputes, counterfeit activity, passing-off or misrepresentation, parallel or grey imports, defamatory statements, failure to comply with licensing arrangements, and  partnership, shareholder and other disputes involving business value. This draws on real life experience where brand and intangible asset valuations are extensively produced to quantify value commercially for reasons such as tax, financial reporting (purchase price allocations), mergers and acquisitions, restructuring, and business development.

Can you claim loss of brand value?
Lawyers are often interested in knowing whether a loss of brand value can be realistically quantified and claimed. In fact it should almost invariably be worth considering, because where a loss of brand value has occurred the value of the loss is likely to be significant.  A well known example of this is the impact on the Ratners brand of a speech made by Mr Gerald Ratner at the Institute of Directors in 1991 where he referred to one of their products as “total crap”. Ratners rapidly lost substantial value from the subsequent publicity.

The role of the marketing and brand valuation expert

1.To set market context
A practical role of the brand valuation expert in litigation is to help establish a context of the brand by illustrating how the value of the brand is portrayed from a market perspective. This provides the Courts with the evidence to understand the significance of issues underlying brand value and how this is relevant in the context of the issues.

The brand valuation process assists by using frameworks such as the 7 Ps (Product, Price, Place, Promotion, People, Process and Physical Evidence) to analyse the markets and business as well as the positioning and strength of a brand relative to its competitors. Further, it demonstrates how the brand plays an important role together with advertising investment and other business functions to generate overall value for a business.

2.To assist with quantum
Brand valuations are relevant for assisting with quantum, particularly where there are multifaceted brand issues involved in a claim. By focusing on the brand, and analysing how this plays a part in driving value means that complex issues become more understandable, leading to a simpler and more practical quantification of losses. An example of an area where this frequently helps is in quantifying the loss of an opportunity to expand into a market or launch a product or service.

3.To give insight into other relevant issues
A marketing and brand valuation expert can also provide insight into other issues which are not immediately apparent, such as whether a brand’s reputation or image has declined. This can be achieved by conducting competitor analysis which can illustrate that a brand’s positioning has been relegated, or drawing on market research and surveys which can reveal a change in consumer perceptions of a brand. There are also a large number of other issues which are important to consider in a claim, such as investment in the brand itself and evaluating attempts to mitigate the loss or damage.

The use of research & survey evidence
The use of market research, benchmarks and surveys is common in non-contentious brand valuations and related work. The use of research can effectively highlight how a brand’s performance compares with other market participants and provides insight into the future trends, market movements and opportunities that characterise a market.

For contentious brand valuations, pre-existing research and published reports such as market research reports and academic studies are likely to be helpful to the Courts. The commissioning of new research, in particular survey evidence specifically for a dispute, is fraught with difficulty. The main issues are predominantly based around the scope and method of obtaining the survey material. This includes the extent to which survey questions can be leading, the way in which survey questions are asked and who carries out the survey. Research needs to be fair, transparent, consistent and representative of the likely views of the whole market or population under analysis.

Issues associated with using research are discussed in esure Insurance Limited v Direct Line Insurance plc [2007]. The Judgment points out that research questions need to be approved by the Court prior to carrying out surveys to minimise any inherent uncertainties. In the Court’s view, this would help to increase the reliability of using surveys as evidence. The case also raises the issue of research commissioned being unnecessary because it already covers issues that the Judge has knowledge of.

This does lead to an interesting dichotomy: in practice research is a widely used commercial technique. However, its use has severe limitations in the context of evidence for disputes, so great care needs to be taken where this is being considered.

Trademark infringement / comparative advertising and unfair advantage
One of the important recent cases on trademark infringement and comparative advertising is the decision by the Court of Appeal in L'Oréal SA and ors v Bellure NV and ors [2010] which concluded that the fragrance brand owner L'Oréal can prevent the use of its well known brands on comparison lists that promote look-alike and smell-alike copycat products.

This confirms a broader protection for brands against free-riding by others even where there is no confusion and against the use of brands to market imitation products. The Judgment indicates that this was due to a shift in EU law. Before this the English Courts had generally tended to be more sympathetic to free competition (rather than IP rights).

In this context, the marketing and brand valuation expert evidence was important originally for establishing the market context for fragrances in the UK and illustrating how brands were deployed in the market. It also enabled the Judge in the Court of First Instance to understand of the role of brands in the case and how look-a-like products could pose a significant threat to the reputation and value of brands.

This case also indicates that companies engaging in comparative advertising are more exposed to claims from brands which they compare against. The Comparative Advertising Directive (97/55/EC) permits comparative advertising where all of the conditions set out in the directive are satisfied. These can be summarised as:

• The advertisement is not misleading;
• It objectively compares features of goods or services that are intended for the same purpose and may include price comparison;
• The advertisement does not create a likelihood of confusion in the market between the advertiser and a competitor or between their respective trademarks, trade names, distinguishing marks and goods and services;
• It does not discredit the trademarks, trade names, other distinguishing marks and goods and services, activities of a competitor;
• The advertisement pertains only to the products with the same designation of origin;
• The advertisement does not take unfair advantage of the reputation of any distinguishing marks of a competitor or of the designation of origin of competing products; and
• Goods and services are not presented as imitations or replicas of goods or services bearing a protected trademark or trade name.

Counterfeit goods
Counterfeit goods are becoming increasingly problematic and damaging for brand owners due to their widespread presence in almost all areas including luxury brands.

In the eBay v LVMH case [2008] the French Courts issued eBay with a substantial fine of €40 million for trading in counterfeits which pertained to LVMH brands. The internet auctioneer was held liable for counterfeits bought and sold through its site on the basis that eBay had facilitated and profited from the sale of counterfeits.

According to the statistics derived from LVMH’s survey of eBay fakes prior to the commencement of the trial for the second quarter of 2006, only 15,000 of 150,000 handbags sold on eBay were genuine products. The use of this research was particularly useful in this case, exposing the significance of the counterfeit problems to LVMH and similar brand owners.

The use of misspelled search terms by online businesses is also regularly linked to counterfeit activities. Although it is common practice for online businesses to pay search engines such as Google and Yahoo! to direct searches to company sites using keywords, the purchasing of misspelt search terms can encourage the sale of counterfeit goods. 

The brand valuation expert can add significant value in cases which have the features of counterfeit goods. It is often important for the Judge to understand the nature of the market in which the brand operates, the brand’s market share and growth prospects in order to fully appreciate the threat posed by similar activities. The brand expert can assist with market mapping analysis, identifying channels susceptible to counterfeit activity and analysing its significance. In addition, the brand valuation process helps to quantify the potential impact of counterfeit activity by analysing the damage done to a brand’s image and positioning, calculate the loss of brand value and reveal the reasons or issues that led to the loss of value.

Once counterfeit goods enter mainstream markets and channels the threat to brand value becomes enhanced. One of the most serious channels emerging for the distribution of counterfeit goods is the internet. So the threat from counterfeit is becoming much more significant. It is worth noting in this context that brand owners seem to have struggled more in an on-line environment: in L’Oreal v eBay [2009] an online auction room was not jointly liable; and Google France SARL v Louis Vuitton Malletier SA and Others [2010] a provider of AdWords was not in itself infringing.

Similar and look-a-like products
Copying is widespread and takes all forms from blatant infringement of IP rights to forming part of a designer’s inspiration. It can be damaging for a brand, for example when similar product packaging leads a consumer to believe that both products are the same, similar or even supplied by the same brand owner.

According to a recent study commissioned by British Brands Group in May 2009, there is compelling evidence that showed shoppers were being influenced into buying products whose packaging closely resembled that of familiar and leading brands. In the survey, 65% of consumers agreed that similar packaging between two grocery products can be confusing or misleading and 64% believe similar packaging suggests a connection that did not exist with a leading brand. The findings of the study clearly point out that similar packaging induces consumers to recall the original product. The perceptions of similarity in packaging were mainly associated with the colour (79%), overall design (60%) and the shape (54%) of packaging.

This represents a serious problem for brand owners because consumers will believe that a product which has distinctively similar features will originate from the same manufacturer as the original brand and may affect a consumers’ propensity to buy.

In the United Biscuits (UK) Limited -v- Asda Stores Limited [1997] case, ASDA had attempted to sell its Puffin own-label biscuit through the use of very similar packaging to a Penguin biscuit. However, the English Court of Justice ruled in favour of United Biscuits, owner of the McVities Penguin brand, stating that the packaging used by the Puffin own-label biscuit was “deceptively similar”. In this instance, the brand valuation expert can provide valuable analysis to assist the Judge in determining his ruling. This can be done by providing market context as to how the brand is placed relative to competitors and assessing the impact of how an own-label product, that is similarly packaged to the original brand, can damage the performance and reduce effectiveness of brand investment. The brand valuation process is also used to quantify these impacts and often involves assessment of research to illustrate how consumer purchasing decisions are affected. This naturally leads to a well informed quantification of losses.

United Biscuits estimated that ASDA’s look-a-like product had a negative annual impact of £30 million on Penguin bar sales and it had committed to more than £4 million annually in advertising its product. The Puffin look-a-like was sold 25% cheaper and was marketed as a “brand beater” in over 200 ASDA stores. This illustrates how own-label products can be damaging to a brand owner.

In Diageo v Intercontinental Brands [2010], Intercontinental Brands had commenced selling schnapps (a clear spirit) branded as VODKAT in the UK in 2005. In order to determine whether or not Intercontinental Brands could continue to sell its products under the VODKAT brand name, the Judge would require evidence to show that selling products under the VODKAT name could be misleading to the consuming public and suggest that VODKAT is vodka. This can be established as part of the brand valuation process, by drawing on research studies and survey evidence to illustrate how consumers perceive the brand name, whether the brand name causes the consuming public to recall vodka, whether consumers perceive that the brand name misleads them when purchasing the product, and the extent to which the consuming public hold these views.   

Conclusion
Brand experts are now increasingly used in IP-related litigation and other litigation cases to provide Courts with the necessary knowledge and insight to make better informed decisions. The skills and experience of marketing and brand valuation experts and the resulting expert evidence is often observed in cases where brand value is substantial and damage to the brand owner can be significant. While there are some issues inherent in the use of research evidence, its use together with other information and analysis is continually and effectively used to set market context, identify a brand’s positioning within a market, assess consumer perceptions of brands and quantify losses. It is evident that Courts will continue to benefit from the use of marketing and brand valuation expert evidence where it helps. On balance the role of such experts is likely to expand substantially.