NEED AND FEED

Foundation

www.needandfeed.org

What the function of public

relations.
What and why sort of controls are
placed upon advertisers’.
The value of a trademark. Why
should it be registered?

2008 ALI ZULFIKAR ZAHEDI

BBA, PGDPM, MBA, DIP IN AD (UK)
ALI ZULFIKAR ZAHEDI BBA, PGDPM, MBA, DIP IN AD (UK)

What the function of public relations

Public relations is the art and science of building relationships between an
organization and its key publics

Public Relations is a management function which evaluates public attitudes,

identifies the politics of an individual or an organization within the public interest
and then plans and executes a program of action geared at earning public
understanding and acceptance. This means advising management on public
reaction to possible management decisions, as well as the planning and
dissemination of messages to the public(s), for the purpose of gaining support and
understanding. It can be said the function of public relation as below:

• PRESS RELATION
• PROCDUCT PUBLICITY
• CORPORATE COMMUNICATION
• PUBLIC AFFAIRS
• LOBBYING
• EMPLOYEE AND INVESTOR RELATION
• CRISIS MANAGEMENT

The public relations function

Public relations programmes encompass both marketing and corporate

dimensions:

Marketing public relations is used in conventional marketing situations to

influence customers. As such, it forms part of the marketing communications mix
which also encompasses advertising, direct response, sales promotion and
personal selling.

The principal decision to be made when formulating a marketing communication

plan lies between a push strategy and a pull strategy, or more likely the
combination of the two.

• Push strategy: involves directing effort at intermediaries so that they are

motivated to direct their promotional effort at customers, thereby
pushing the product down the distribution channel.

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ALI ZULFIKAR ZAHEDI BBA, PGDPM, MBA, DIP IN AD (UK)

• Pull strategy: involves aiming promotional activities at end users so that

they demand the product from intermediaries, thereby pulling the
product down the distribution channel.

Corporate public relations is used to influence customer and non- customers

publics and is particularly relevant in a marketing context when these publics
have to be influenced in order to gain market entry. An example of this is a pass
strategy which has become increasingly important as public and media attention
focus not only on an organisation’s products and services, but also its response to
critical issues facing society at large:

• Pass strategy: applies when there is a need to enter markets blocked or

protected by parties other than end users; examples include
government, pressure groups, and other opinion formers, as well as
employees

In reality most marketing communications campaigns use a mixture of both push

and pull, although emphasis might be placed on one strategy or the other.
Frequently corporate public relations will be employed in parallel to implement a
pass strategy to address markets where access is constrained either by non-
customers target audiences or non-product related issues. Examples might
include a lobbying campaign to amend the regulatory climate or an educational
programme to overcome concerns over the introduction of new technology.

The functions of Public Relations (PR) can be grouped into two loose categories:

• Organizational
• Societal.
Many viewpoints of the functions fall into both categories and are not mutually
limited. The scope of organizational functions of PR involves actions concerning
the company, and societal functions of PR interests' activities regarding society.
Organizational functions of PR are activities that interact with or affect
organizations while societal functions of PR have to do with actions that connect
to the public. Communications management, media, government affairs,
publicity, investor relations, community relations, consumer relations, and
employee relations are organizational functions while marketing communications,
consumer relations, public affairs and issues management plus social
responsibility are societal functions. An industry must develop a positive

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The functions of public relations take many forms in different organizations.

Public relations specialists handle organizational and societal functions such as
media, community, consumer, industry, and governmental relations as well as
political campaigns, interest-group representation, conflict mediation, or
employee and investor relations.

Public relations specialists handle organizational functions such as media,

publicity, employee relations, investor relations, community relations, consumer
relations and government affairs.

To make clear about the function of public relation we must know what does
Public Relations Include.

Presenting the company favourably includes monitoring, counselling, and

communication. The first two, when undertaken by an outside public relations
practitioner, mean that must monitor the marketing environment for
developments likely to affect the client’s business, and counsel the client on how
to deal with. If company are doing own public relations, this will be an automatic
part of the business. Company also need to communicate.

A. Effective Communication

You put out any positive information you can about your company, your product,
or your staff. You work to maintain or improve reputation, change attitudes,
assuage doubts. You get your picture in the paper if you only send a photograph
of your new office manager to the Sunday papers for use in their Finance section.
You communicate through newspapers, magazines, radio, TV, newsletters and
house magazines, by fax, e-mail, and of course by word of mouth.

i. External Public Relations

External Public Relations means establishing active channels of communication,

maintaining good relationships with the media people in your area, and proving
to them that you are a sound source of genuine, topical news. It means getting
the name of your company before the public in any way you can.

ii. Internal Public Relations

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ALI ZULFIKAR ZAHEDI BBA, PGDPM, MBA, DIP IN AD (UK)

Internal Public Relations, considered just as important as external public relations,

means, in brief, communicating well with your staff. Make sure your staff are kept
informed and happy. Your own employees have great power to spread goodwill.
Keeping staff aware of company activities and making them feel part of the ‘firm’
can be done through induction and training courses, discussion groups, in-house
magazines and newsletters, films, videos and talks - but mostly by sound
employee and labour relations.

The most cogent method of communication is still word of mouth

communication, and the message:

• Their friends and relations;

• Company’s suppliers;
• Company’s clients;
• Distributors, wholesalers, retailers.

Company’ employees practice public relations on company behalf. The

telephonist and receptionist, for instance, play a vital role in conveying the public
image. A telephonist, who speaks poorly, leaves callers hanging on indefinitely or
a receptionist who fails to give messages or is not pleasantly communicative can
counteract any good that is done by your advertising or publicity campaigns.

B. the Corporate Identity

Establishing a corporate identity is achieved by the total of the communications

put out by and about company. It is the image of company projects to the public.
It covers a whole range of image-builders:

i. the stationery
ii. The logo
iii. The vehicles
iv. The staff: their uniforms, their efficiency, their attitudes
V. the advertising
vi. The products and/or services
vii. The literature: brochures, leaflets, packaging, etc., as well as your public
relations campaigns.

C. Communicating through the Media

Public relations are far more than simply sending out the occasional press release.
It is useful to initiate and maintain friendly contact with thelocal media, so that

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company ring up the contact (who may be the editor, the sports or financial
editor, a reporter or whoever) and suggest that they may be interested in some
news company have, or in attending a function. Larger business may call the
occasional press conference to convey specific news.

It is also useful to know what possibilities exist on the local radio station and, of
course, probably the biggest publicity scoop company can make is to appear on
one of the TV magazine programmes.

Among the communications that company may need to prepare are:

• Press releases;
• Brochures, leaflets, letters;
• Speeches;
• Annual reports;
• Films, videos, audio-visual presentations;
• In-house magazines and newsletters;
• Invitations;
• Personalised letters;
• Direct mail shots.

Conclusion:

However, public relations are not only about telling the organization's side of the
story. A very important part of the job is to understand the feelings and worries of
consumers, employees, and other groups. To get better communication, public
relations specialists create and preserve. A good public relation can bring:

• Good public relations conducive to larger profits

• A sound public-relations program accelerates sales

• A sound program protects product-reputation

• Use of a public-relations manual as a guide to good practice

• Public Relations are about public relations and communications.

• Public Relations make sure your story reaches the key audiences, the
people company need to reach.

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ALI ZULFIKAR ZAHEDI BBA, PGDPM, MBA, DIP IN AD (UK)

• Public Relations is about getting company story out to the people that help
the industry analysts, the trade media, the newspaper and magazine
editors – and have them become company's evangelists.

• Public Relations are about strategy, best utilizing time and resources to
bring in the quality press that company’s desire.

• Public Relations are about building smart relationships – building a network

of media that will help a company grow and prosper.

• Public Relations are about servicing clients.

• Public Relations works with its clients to develop a specialized

communications model that anticipates a company's needs and helps
leverage public relations as a strategic business advantage.

• Public Relations offer companies the most value for their investment.

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What and why sort of controls are

placed upon advertisers
Factors to Consider
The placement of advertising material can change the local environment. There is a need to
both protect the risk posed to the travelling public by inappropriate positioning of advertising
material and to manage the impact the signage has on aesthetic values (i.e. visual pollution).
Although there are some controls in the District Plan the majority are placed in the current
Bylaw 21 Signs and Hoardings.
There are a significant number of businesses not complying with the current bylaw. When a
sign is identified as not meeting the requirements of the Bylaw the business or property
owner is written to. Recently this has caused concern from some business owners as in
some cases they have had their sign placed in that location for a significant period of time.

Issues to consider include:

Social
Matters dealt with in this policy that could be considered social issues include:

• Public safety and nuisances

• Visual impact on environment

• Provision of information on products and services

• Display of inappropriate messages

• Informing the public of upcoming events and other community activities

Economic
Matters dealt with in this policy that could be considered economic issues include:

• Public safety and nuisances

• Placing of advertising material on public places

• Benefit received by businesses advertising services or products

• Road and building identification

• Increased activity due to better distribution of information

• The economic benefit to the wider community arising from the advertising of events

• The cost to ratepayers of Council enforcing the bylaw

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Environmental
Matters dealt with in this policy that could be considered environmental issues include

• Public safety and nuisance

• Aesthetic impact of signs

• Obstructing public places by placement of signage

Cultural
Matters dealt with in this policy that could be considered cultural issues include:

• Public safety and nuisances

• Advertising of cultural gatherings and celebrations

• Visual impact on environment

• Display of inappropriate messages

The British system of advertising control is tripartite, consisting of direct legislation, statutory
regulation and self-regulation. In the United Kingdom, the first of these plays a much less
significant role than in most other countries, because of the existence of the other two.
Nevertheless, more than a hundred statutes and regulations can affect advertisers in some
way, in England and Wales alone. Many of those apply also to Scotland and to Northern
Ireland, both of which have their own relevant legislation in addition. The most significant
laws controlling advertising in Britain are the Trade Descriptions Acts of 1968 and 1972 and
the 1973 Fair Trading Act. The first empowered the government to decide what claims and
descriptions made in advertisements or sales promotions can reasonably be assumed to
mean, and to require the product or service to perform accordingly. The second set up the
Consumer Protection Advisory Committee, with the statutory duty to investigate 'consumer
trade practices', specifically including advertising and sales promotion, to see if they might
'adversely affect the economic interests of consumers'. It also established the Office of Fair
Trading. The only valid defence an advertiser or advertising agency can offer to prosecution
under either Act is 'innocent mistake' or the claim to have been relying on information
supplied which could not reason ably have been verified. Legislative control of advertising in
Britain is thus a by-product of the general control of marketing. 'Statutory regulation'
describes the special case of control over broadcast advertising. Regulation of television and
radio advertising was the responsibility of a single Independent Broadcasting Authority until
1990, when general control of the two media was transferred to the INDEPENDENT
TELEVISION COMMISSION (ITC) and the RADIO AUTHORITY, respectively. With respect
to television advertising, Acts of Parliament charged the ITC and its predecessors with the
statutory duty to draw up a code of standards and devise a mechanism for enforcing it. The
resultant Code of Advertising Standards and Practice states the General Principle that
'television advertising should be legal, decent, honest and truthful'. It is elaborated by 40
Rules spelling out more detailed Standards and by 5 Appendices dealing specifically with:
Advertising and Children; Financial Advertising; Medicines, Treatments, Health Claims,
Nutrition and Dietary Supplements; Charity Advertising; Religious Advertising. The ITC
distributes its Code and many periodic advisory leaflets so widely throughout the industry
that no advertiser or agency could credibly claim ignorance of its prohibitions or guidelines.

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The advertising industry is being encouraged to take measures to decrease children's

exposure to the advertising of 'less healthy' foods.

1. Improving nutrition

Improving nutrition Involves improving nutrition within the school and early childhood
environments.

The aim is to ensure that food and drinks high in sugar, fat and salt are no longer provided at
schools or early childhood education services.

Approximately 30% of children's daily food intake is consumed at school (this is possibly
higher for under-5 year olds). By ensuring healthier food is sold and served in schools and
early childhood education (ECE) services, young people's food choices can be influenced.

• Communication and education

• Food and beverage classification system

• Food and Nutrition Guidelines

• Regulation change – National Administration Guideline

• Regulating – ECE Services

2. Student health promotion

Student health promotion Involves promoting healthy food options and providing the
incentive and opportunities for students to get actively involved in learning about healthy
nutrition.

3. Self-Imposed Control

The Advertising Standards Authority is the body representing the advertising agencies of the
UK. It is administered by the Committee of Advertising Practice which periodically issues an
updated British Code of Advertising, Sales Promotion and Direct Marketing. The major
objectives of the Advertising Standards Authority are:

• Continually to improve the standard of advertising;

• To discourage dishonest and undesirable practices in advertising and related fields.

It seeks to ensure that competitive activity is at all times ethical and that it does not bring the
practitioner body or the industry as a whole into disrepute.

Members of the Advertising Standards Authority should not compete by:

i. disparaging any other member or his work directly or by implication

ii. Circulating harmful rumours about that member

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iii. Seeking to obtain an account by offering employment to a staff member holding that
account, etc.

It also holds that the primary function of advertising is to interpret to the public the
advantages of a product or service and deplores advertising which disparages a competitive
product or service. It regards advertising as a social force for the public good and supports
advertising that contributes to the welfare of the public. It deplores advertising that does not
uphold generally accepted standards of good taste and morality and rejects claims that
cannot be verified by objective tests, along with the use of misleading messages which
confuse or deceive the public.

The general principles of the British Code of Advertising, Sales Promotion and Direct
Marketing cover such areas as decency, honesty, fear, superstition, violence, illegality,
truthful presentation, testimonials, guarantees and money-back undertakings.

Medical and health claims, slimming, alcohol, tobacco, hair and scalp products, mail order
advertising, advertisements specially addressed to children and young people are covered in
special sections.

Many advertisements appear no more than once before the hand of self-control comes down
heavily and immediately on any that incurs displeasure. Of course, a single insertion is often
enough for an advertiser’s purposes, but with a wide range of watchdog associations and
voluntary controls, little in the way of objectionable advertising slips through the net in
Britain.

4. Other External Controls

• Office of Communications (Ofcom) Ofcom is the government regulator for the UK

communications industries, with responsibilities across television, radio,
telecommunications and wireless communications services;

• Newspaper Publishers Association (NPA) The NPA is the trade association for
Britain’s national daily and Sunday newspapers and The Evening Standard. Its aims
are to protect national press interests and its activities include promotion of good
practice in advertising, including vetting and monitoring of agencies and advertisers
for credit-worthiness.

LEGAL PROVISIONS

Certain types of advertising are illegal or strictly controlled, such as trade coupons and
lotteries, money-lending, and advertisements for charities, which must carry a registration
number. Professional people (e.g. doctors, dentists, lawyers) are not allowed to advertise.
Anything ‘obscene or indecent’ is also illegal.

The laws that affect advertising include:

1. The Misrepresentation Act (1967) and Trade Descriptions Act (1968) which protect buyers
from misleading statements.

2. The Copyright Designs and Patents Act (1988) and the Trade Marks Act (1994) which
protects registered users of names and marks. International copyright agreements also

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protect advertising itself. Not only copy, but designs, layouts and TV and radio commercials
are copyright-protected, which prevents a person tearing a page out of a magazine in one
country and using it in another.

3. The Weights and Measures Act (1985) assures that the content, weight, etc. of a product
is just what it purports to be.

4. The Fair Trading Act (1973) is designed to protect customers and ensure ethical business
practice.

5. The Obscene Publications Act (1959) and the Indecent Displays (Control) Act (1981)
cover the publication and display of anything indecent, obscene or offensive.

6. The Charities Act (1992) controls all charitable appeals and advertising, which must
include a registration number.

7. The Food Safety Act (1990), the Medicines Act (1968), various Medicines Regulations
(1978 & 1994), and the Cosmetic Products (Safety) Regulations (1996) govern the content,
labelling and marketing of a wide range of consumer products.

8. 8. The Betting, Gaming and Lotteries Act (1963) which covers lotteries, competitions,
games of chance, sports pools and so on.

9. The Endangered Species (Import and Export) Act (1976) is self-explanatory.

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The value of a trademark. Why should

it be registered?
A Trademark is the means by which a business makes itself visible in the marketplace. A
Trademark can be any distinctive (not solely descriptive) name or logo. The best
Trademarks are instantly recognizable and conjure up in the minds of existing or potential
customers things like quality, dependability, or at the very least the source of the goods or
services being bought.

A trademark is often defined as: “a word, name, symbol or device that is used in trade with
goods to indicate the source of the goods and to distinguish them from the goods of others”.
A service mark is the same as a trademark except that it identifies and distinguishes the
source of a service rather than a product. The terms "trademark" and "mark" are commonly
used to refer to both trademarks and service marks.

Trademarks provide their owners with the legal right to prevent others from using a
confusingly similar mark. They cannot be used stop competitors from making the same
goods or from selling the same goods or services under a clearly different mark.

Examples of well-known Trademarks are: Coca-Cola, Rolls-Royce, The Apple logo and the
Nike “swoosh”.

Value of a trademark
Trademarks, often valuable assets, pose rather difficult but nevertheless interesting
valuation problems that business valuators and appraisers must address whenever a
transaction involves their purchase, sale or assignment. So let.s look at some of the more
baffling of those problems and at the methods for solving them. In nearly every area of tax
law, acquisitions and divestitures, the problem of valuing property
occurs. Patents, copyrights and trademarks are no exception. Whether property is being
purchased and depreciated, or sold, a proper valuation is crucial. The question of value is
one of fact and can be answered only when all the particulars and circumstances are known.
In general, the valuation of intangibles such as trademarks is founded directly on earning
power. Where little or no income history is available, however, imagination, common sense
and experience may be the best guides, in addition to studies of the industry in which the
trademarks
will be used or the products marketed, market surveys of probable sale prices and expected
profits, and opinions of industry experts. Companies generally take years and spend a
fortune developing each new product and marketing it
under its own trademark to win and maintain widespread demand. In fact, conventional
wisdom has it that in the United States it costs, on average, about $50 million to research,
develop and market a new product. After all this, does a trademark have any value? And if it
does, what is the
Value should it change hands? Trademarks are bought and sold for a variety of reasons. For
example, in early 1982, Procter & Gamble Co., Cincinnati, purchased the international
prescription and non-prescription drug business of Morton-Norwich Products Inc. of Chicago
for $371 million cash, or about 17 times the
Division’s 1981 pre-tax earnings and 24 times its 1981 after-tax earnings. Procter & gamble
wanted a major entry into the pharmaceutical business; Morton-Norwich wanted cash to

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repurchase a block of its shares to protect itself from any unfriendly acquirers, and to invest
in areas it considered potentially more attractive.
In 1980, Dow Chemical bought Richardson-Merrill’s prescription drug division for $260
million worth of Dow shares. The price was calculated at 25 times that division’s pre-tax
earnings, and twice its net worth. Dow Chemical wanted to expand its prescription drug
business and was impressed with the potential of Richardson-Merrill’s products still in the
research stage. For its part, Richardson-Merrill found its prescription drug operations too
small to support the research and development needed to exploit its products commercially
in the long term and chose to sell
Rather than expand by acquisition. In both these cases, the price tags represented large
premiums over tangible assets and reflected the perceived value of intangibles assets,
namely, goodwill, expertise, products at the research stage, patents and trademarks. How
much of the price in the examples mentioned could be allocated to
Trademarks per se are unknown. Experts, however, have .generally accepted. approaches
for valuing businesses with valuable trademarks. The final price is usually the result of one
or more of those approaches and, in the final analysis, some hard-nosed bargaining
between the two parties.

What’s in a name?
The Trademarks Act defines a trademark as:

(1) A mark that is used by a person for the purpose of distinguishing or so as to distinguish
wares or services manufactured, sold, leased, hired or performed by him from those
manufactured, sold, leased, hired or performed by others;
(2) A certification mark;
(3) A distinguishing guise; or
(4) A proposed trademark

The act also defines a trade name as the name under which any business is carried on, be it
a corporation, partnership or individual. A trade name must, however, be attached to a
business; it cannot exist in vacuo; that is, independent of the business enterprise. A
trademark differs from a trade name, then, in that it is used in association with vendible
commodities or services, while the latter is more properly applied to a business. Goodwill.
Trade names may be applied to or used in association with goods, but only to indicate the
marketer’s or trader’s name from whom those goods emanate. In other words, a trade name
might also be a trade

mark . Coca Cola, for example. A trader may use more than trademark, but goodwill of his or
her business is represented by a single trade name, which remains constant. To illustrate
this difference, here are examples of some well-known trademarks:
. . Money’s worth and more.. (Sears)
. .The quality goes in before the name goes on.. (Zenith)
. .It’s the real thing!. (Coca-Cola)
A company’s success in establishing a recognized trademark depends to a large degree, of
course, on its reputation for quality products or services. In most cases, however,
trademarks can be developed and maintained through extensive and costly advertising.
While patents and copyrights are distinct in themselves (patents deal with the physical arts
and sciences, copyrights with products of the intellect), they do have this in common: they
both protect the substance of the article itself.
Trademarks, in comparison, protect only the device or symbol attached to the goods, not the
goods themselves: the goods are open to the world. The trademark’s owner is entitled only
to prevent it from being used to make purchasers believe they are buying his or her goods

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when, in fact, they are buying those of a rival. Furthermore, patents and copyrights in
Canada have limited legal lives. A copyright’s term is for
the life of the author plus 50 years, while a patent’s life is for 17 years. But a trademark, once
registered, may be renewed at 15-year intervals, without limitation, on payment each time of
the necessary renewal fees.

Valuation methods
Two methods are commonly used to value intangibles:

(1) The residual technique (where identifiable intangibles such as patents have a finite
economic life) and
(2) The excess income method (where identifiable intangibles such as trademarks and
unidentifiable intangibles such as commercial goodwill have a perpetual economic life).

In other words, the single most important element affecting a trademark’s value or other
intangibles with indefinite economic lives is the property’s earning power.
The adoption of the excess income method implies the use of the dual capitalization
approach, which recognizes that a different level of may be attributed to tangible asset
backing than to intangible assets, such as goodwill, which is represented by earnings in
excess of a fair rate of return on net tangible assets. While this method recognizes that an
intangible property’s earning power is essential in establishing value, it does not enable a
valuator to segregate value between identifiable and unidentifiable intangibles. This
segregation is often required because identifiable
Intangibles are often purchased, sold or assigned independently of the business enterprise
owning them. Given that limitation, one of the approaches used more commonly to value
trademarks per se is the
Relief-from-royalty approach. The idea here is that, by owning a trademark, a company is
relieved of the necessity of having to pay someone else a royalty for its use. It follows,
therefore, that anyone wanting to obtain the right to this trademark would have to enter into a
business arrangement with the original owner. Such arrangements, akin to the licensing of
patents, usually entail a royalty payment, generally a percentage of product sales. The
percentage will vary depending on a trademark’s strength and visibility and, more
specifically, on:

. The product’s opportunities in the market.

. The product’s integrity: Does it do what it claims to do?
. The security, if any, afforded by a patent, recognizing that most products in the
development stage or in a yet-to-be established market have patents to guard against their
unauthorized use by competitors.
. The security of supply of raw materials.

Furthermore, the royalty rate depends on the frequency with which new, acceptable products
enter the market. Generally, the less frequent the entry, the more a market is considered to
be a licensor’s market. Ultimately, the selection of an appropriate royalty rate will take all of
the characteristics mentioned into account, since the trademark’s user is expected to benefit
immediately from a competitive standpoint.
According to experts in trademark valuations, trademarks closely identified with consumer
products will generally command high royalty rates. much higher than those for goods and
services in the industrial sector. Under the relief-from-royalty method, trademark valuation
computations generally include consideration of the present value of the annual after-tax
stream of revenues. the result of not

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Having to pay royalties. and of the present value of future income tax savings resulting from
claiming capital cost allowances on a specified portion of a trademark’s cost; that is, the tax
shield. To determine the present value of this after-tax stream of future revenues, certain
assumptions are generally made regarding the annual estimates of revenues associated
with the trademark product, the royalty rate, the company’s tax rate and a reasonable rate of
return, normally based on the risk involved in realizing the projected revenues when
considered in relation to the type of trademark product being acquired. Where a business
arrangement stipulates that the trademark is to be used for a definite term and then phased
out, its value will gradually diminish over the finite life of the product. For instance, a
purchaser might enter into an agreement with a vendor for, say, a five-year term, to use an
established trademark. This will allow the user to benefit immediately from a competitive
standpoint. Implicit in such an arrangement, though, is the need for the purchaser to have a
well-defined marketing plan to replace the existing trademark with another to prevent the
erosion of its market position and share. As the new trademark becomes more familiar to the
market, the significance of the old one will fade. It follows that when such an arrangement is
used, the relief-from-royalty method should, in addition to the factors mentioned, reflect the
estimated rate of decline in the old trademark’s recognition and significance. A purely
judgmental and subjective factor. Under Canadian income tax law, a trademark is treated as
an eligible capital expenditure. As such, any valuation preceding an arm’s-length taxable
transaction should include both a purchaser’s and a vendor’s perspective of value. From the
purchaser’s viewpoint, the fair market value would include an estimate of the present value
of tax savings resulting from claiming future capital cost allowances. The vendor, on the
other hand, would estimate the net proceeds of disposition, after taking the relevant tax
costs into account. Suffice it to say that, in an arm’s-length transaction, the fair market value
would likely range between the value from a purchaser’s perspective and the after-tax
proceeds in the vendor’s hands. The ultimate value would be established, of course, through
negotiations between the two. In a tax-free transaction involving the Income Tax Act’s
elective rollover provisions, the purchaser generally assumes the adjusted cost base of the
trademark being acquired. In this case, a deferred tax liability would arise in the purchaser.s
hands. What then has to be considered is the present value of such a liability which, in most
cases, may not be material, assuming the purchaser will
Own and use the trademark for some time.

Secondary valuation approaches

Where possible, the primary approach to trademark valuation should be supported by one or
both of the following:
(1) Carryover benefit of past advertising costs, or
(2) Gross profit margin differential.

Carryover benefit of past advertising costs

As mentioned earlier, a recognized trademark is often developed and maintained through

extensive and costly advertising. This approach, which tries to compute the after-tax worth of
future savings in advertising costs, is based on the following premises:
. The estimated cost of recreating the position enjoyed by the trademark’s owner at the
valuation date. (Remember, although advertising costs are usually a material and essential
element in developing and maintaining a product trademark, there are exceptions. For
instance, in the pharmaceutical industry, product advertising costs are minimal, but
recognition and the significance of product symbols are maintained by a network of
salespeople in direct touch with doctors).
. The product symbol in question is established and reliable.
. The establishment, albeit on a purely judgmental basis, of an estimated rate of decline in a
trademark’s recognition and significance in consumers. minds. Implicit in this approach is the

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ALI ZULFIKAR ZAHEDI BBA, PGDPM, MBA, DIP IN AD (UK)

assumption that advertising ceases immediately at the valuation date and that, without
further advertising, the prominence of a recognized product in the minds of consumers starts
to decline progressively. Since this first approach is essentially a cost-based one (based,
that is, on the estimated cost of recreating the position presently enjoyed by the trademark’s
owner), a prudent, knowledgeable
vendor and an equally knowledgeable prospective purchaser would recognize that, in
assessing the carryover benefits of past advertising costs, and, hence, a trademark’s value:

(1) Advertising costs Expended over the years by the vendor are, in effect, after-tax
advertising dollars due to their tax-deductible nature;

(2) On the sale of the trademark, only 50% of the gain over the cost base of this
Asset would be taxable for Canadian income tax purposes; the balance would be tax-free;

(3) Funds that would normally have been earmarked by the purchaser for promoting the
product protected by the trademark need not be spent on such promotion but may instead
be invested in potentially more lucrative areas. in increasing the business. Operating
capacity or asset base.

Gross profit margin differential

This approach compares the gross profit margins of a product with an established trademark
to a similar .no-name. or generic product. The gross profit margin differential is a function of
a trademark’s reliability and public acceptance, which depends in turn on the product’s
quality. Generally speaking, the greater the public acceptance, the larger the differential.
Since the advent of generic products, however, particularly in the food and pharmaceutical
markets, consumers have shown strong resistance to the often substantial costs associated
with maintaining trademarks (through promotions, advertising and so on). It can be
misleading to compare the reported gross profit margin of a generic product with that of a
Trademark product, since costs associated with maintaining the trademark are generally
excluded in computing the gross profit and resulting margins. The gross profit margins of
trademark products would necessarily have to be substantially higher than those for generic
products to cover these costs; therefore, it is only by deducting them from the gross profits of
trademark products that a realistic, comparable differential can be derived. The adjusted
gross profit margin differential, when capitalized using appropriate multiples, would likely
approximate the trademark’s value. The multiples in such situations would obviously be
lower than normal earnings multiples and would reflect the pre-tax nature of the differential
and

Why register A Trademark?

Prudent business people register their Trademarks with Patent Offices to gain an official
record of their rights to a particular mark. A Trademark registration also grants a statutory
right, subject to certain conditions, to prevent others from using the trademark without the
registered owner's permission - i.e. to prevent infringement.

One of the principal aims of a business is to build up the reputation of its goods or services
and by applying for and gaining a Registered Trademark accelerates the process as it
serves notice on would-be copiers of the serious intent of a business to defend its position in
the marketplace.

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ALI ZULFIKAR ZAHEDI BBA, PGDPM, MBA, DIP IN AD (UK)

If a Trademark is properly promoted and protected it can be a very valuable asset for any
business and can in some circumstances be worth more than the bricks and mortar of a
business.

Generally, Registered Trademarks are protected for specific classes of products and
services for periods of 10 years, which are renewal indefinitely.

Business, Trade or Company names are names under which a trading entity conducts its
business. They are usually used for governmental, company registration, taxation and
financial reporting purposes. Invariably a company or business name will not contain a logo
or other identifier.

Probably only about half of all company names are eligible for trademark Registration. In
fact, many company names are confusingly similar or so descriptive that they cannot be
trademarked. In other words they do not have the necessary “distinctiveness” to be used in
the marketplace to distinguish one proprietors good or services from another.

A Company Name can be registered as a Trademark, but only if it is used as such, that is,
used to identify wares or services

To be registrable a trade mark must be:

distinctive for the goods/services for which registration is sought, and

not deceptive, or contrary to law or morality, and

not identical or similar to any earlier marks for the same or similar goods/services.

It is important when starting a business to consider not only what the business is to be called
and what name is to be used to attract customers but also whether or not the name will
infringe another businesses Trademark.

PIPERS highly recommends that before taking this important step to conduct a thorough
search of relevant Trademark Registers, Company name Registers, Business Registries, the
Telephone Yellow pages (or similar) and domain name registries to ensure that you are free
to use that name in trade.

Please also be aware that simply because have a company name or a domain name does
not automatically mean that the name will be accepted as a Trademark.

NEED AND FEED

Foundation

www.needandfeed.org

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