Trademarks, Brands And Goodwill

Trademarks, Brands And Goodwill:

Overlapping Sources of Economic Value
By Glenn Perdue

B
usinesses develop and acquire assets that are Five generally-recognized categories of intangible as-
used to generate revenues and profits. These sets are (i) marketing-related; (ii) customer-related; (iii)
assets may be financial, tangible or intangible artistic-related; (iv) contract-related; and (v) technolo-
in nature. Collectively, these assets—and their profit gy-based. Some groups of acquired intangibles may
generating potential—form the basis of business value. also be referred to as “brand intangibles.”2
Financial assets such as cash and receivables are dis- Exhibit 1 graphically presents a purchase price al-
tinct and easy to understand. So, too, are tangible assets location for a hypothetical technology company that
such as real estate and equipment. In contrast, intangi- generated revenues of $5 million and earnings before
ble assets may not be identified on financial statements interest taxes depreciation and amortization (“EBIT-
and often deal with more elusive concepts such as le- DA”) of $1 million in the prior year. In this example,
gal rights, proprietary technology and relationships. the buyer purchased the assets of the business for $15
There is great consensus in the worlds of marketing, million which equates to 3 times revenue and 15 times
economics and accounting that intangible assets as- EBITDA.3
sociated with trademarks, brands and goodwill create The accounting-based balance sheet of the company
value­—value that arises from market awareness, rela- in Exhibit 1 is depicted in dark blue and reflects asset
tionships with customers and a good reputation. This values of $4 million for cash, accounts receivable, a
article explores these sources of value. building and other assets. On the other side of the bal-
Accounting vs. Economic Value ance are liabilities totaling $1 million and equity total-
Financial statements based on generally accepted ac- ing $3 million. However, based on the $15 million sale
counting principles (GAAP) reflect the value of assets price, company equity is valued at $14 million—4.7
based on the principle of “lower of cost or market” in times the accounting-based value for equity. The rea-
keeping with the underlying principle of conservatism. son: intangible assets which cause the economic value
Put simply, accounting-based asset values should re- associated with expected income to exceed account-
flect the lower of the historical cost (less adjustments ing-based value.4
for depreciation, amortization, etc.) or market value Consistent with Exhibit 1, for many businesses, eco-
so that the financial statements don’t overstate asset nomic value beyond what is reflected on the balance
values.
In contrast, economic value is based on the concept 2. See ASC 805-20-55-13 for GAAP in the United States and
of what another party would pay for an asset. Stock IAS 38 and IFRS 3 as related to international accounting stan-
market data reflects economic value because it is based dards. While internally-generated brands may have great value
on prices paid in an open market. Stock prices often (think Coca-Cola), this value is not recognized on the company’s
have little to do with a company’s accounting-based balance sheet due to principles of conservatism in accounting
balance sheet. After all, investors are generally more which prevent intangible assets from being “marked-up.” How-
ever, brand value is recognized for accounting purposes in busi-
concerned with expected earnings and growth. ness acquisitions where actual transactions have taken place.
However, when one business buys another, account- For instance, in 2010, Diamond Foods acquired premium potato
ing and economic views of value converge because the chip maker Kettle Foods for $616 million. In its initial post-deal
buyer will place acquired assets on its balance sheet purchase price allocation, Diamond Foods placed a $235 mil-
at “fair value,” a market-based value.1 Due to this re- lion asset value on Kettle’s “Brand Intangibles.” In this transac-
tion, approximately 38% of the purchase price was related to the
quirement, intangible assets that may have never been Kettle Foods brand. (See 10-Q for Diamond Foods, Inc. filed on
reflected on the seller’s balance sheet are indicated on 12/08/2010, financial statement note #5).
the buyer’s balance sheet in a manner that reflects eco- 3. EBITDA is an accounting-based proxy for operating cash flow
nomic value. and is a commonly used metric of business performance consid-
ered in mergers and acquisitions and other valuation purposes.
1. Fair Value is a standard of value used for purchase account- 4. To simplify for illustration purposes, this exhibit assumes
ing purposes. A discussion of different standards of value is be- the book value of assets and liabilities noted in dark blue ap-
yond the scope of this article. proximates fair value.

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 Trademarks, Brands And Goodwill
sheet can be largely attributed to the value of a good facturer to identify goods or services and to distinguish
name in the market and strong customer relationships. them from competitor’s goods or services; the term
Trademarks and Brands used colloquially in business and industry to refer to
Black’s Law Dictionary provides the following defini- a corporate or product name, a business image, or a
tions, explanatory narrative and case law support for mark, regardless of whether it may legally qualify as a
“trademarks” and “brands”: trademark. Branding is an ancient practice, evidenced
by individual names and
Trademark—A word, phrase, logo or other graphic marks found on bricks,
symbol used by a manufacturer or seller to distinguish ■ Glenn Perdue, MBA, CVA,
pots, etc. In the Middle
its product or products from those of others. The main Ages, guilds granted their MAFF, CLP,
purpose of a trademark is to designate the source of members the right to use a Kraft Analytics, LLC,
goods or services. In effect, the trademark is the com- guild-identifying symbol as Managing Member,
mercial substitute for one’s signature. a mark of quality and for Nashville, TN, USA
The protection of trademarks is the law’s recognition legal protection.
of the psychological function of symbols. If it is true E-mail: gperdue@kraftcpas.com
As illustrated above and
that we live by symbols, it is no less true that we pur-
discussed further below,
chase goods by them. A trademark is a merchandising the term “brand” can be used broadly or narrowly. In
short-cut which induces a purchaser to select what he the narrowest and most colloquial sense, it is a syno-
wants, or what he has been led to believe he wants. The nym for “trademark.” In its broadest sense, “brand”
owner of a mark exploits this human propensity by mak- encompasses other intangibles, including goodwill.
ing every effort to impregnate the atmosphere of the
market with the drawing power of a congenial symbol. Enterprise and Personal Goodwill
Whatever the means employed, the aim is the same—to In discussing the notion of goodwill, let’s begin with
convey through the mark in the minds of potential cus- a common definition from the Miriam Webster Dic-
tomers, the desirability of the commodity upon which tionary:
it appears. Once this is attained, the trademark owner Goodwill—The favor or advantage that a business
has something of value. If another poaches upon the has acquired especially through its brands and its good
commercial magnetism of the symbol he has created, reputation.
the owner can obtain legal redress. Mishawaka Rubber This definition underscores key concepts associated
& Woolen Mfg. Co. v. S.S. Kresge Co. 316 U.S. 203, with economic “advantage” arising from “brands” and
205, 62 S. Ct. 1022, 1024 (1942) a “good reputation.” The definition that follows from
Brand—A name or symbol used by a seller or manu- Black’s Law Dictionary also references “reputation”

Exhibit 1: Purchase Price Allocation Example

A/P $0.3M
Cash $1.0M Liabilities Notes $0.7M $1M Liability Value
A/R $1.5M
Building $0.9M Assets
Equity Ret Earn $2.5M
Other $0.6M Common $0.5M
$13M
TOTAL $4.0M TOTAL $4.0M
Identifiable
Assets Customer $2.0M
Relationships

$15M Non- $1.0M

Purchase Compete
Price Trade- $2.5M
$11M of market $14M Equity Value
marks
value in excess
of book value
Patents $3.5M

Goodwill $2.0M

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 Trademarks, Brands And Goodwill
and ties in the concept of “patronage” which most Personal goodwill is the value of earnings or cash
obviously relates to customers but could also include flow attributable to attributes of the individual that re-
investors and others that support the business. sults in earnings from customers that return because
Goodwill—A business’s reputation, patronage, of the individual, in earnings from new customers who
and other intangible assets that are considered when seek out the individual, and in earnings from referrals
appraising the business, esp. for purchase; the ability made to the individual.
to earn income in excess of the income that would be Enterprise goodwill is the value of earnings or cash
expected from the business viewed as a mere collection flow directly attributable to attributes of the enterprise
of assets.5 that result in earnings from customers that return be-
The final definition provided below from the Inter- cause of the enterprise, in earnings from new custom-
national Glossary of Business Valuation also references ers who seek out the enterprise, and in earnings from
“reputation” in addition to referencing “name” and referrals made to the enterprise.8
“customer loyalty.” In considering these factors and In 1998, the United States Tax Court recognized
“similar factors not separately identified” this defini- the existence of personal goodwill as relevant to the
tion underscores how goodwill represents intertwined tax treatment of gains realized from business transac-
benefits associated with marketing and customer rela- tions in the Martin Ice Cream matter. In this case, a
tionships.6 company owner with personal relationships developed
Goodwill—that intangible asset arising as a result of prior to forming the company distributed Haagen-Dazs
name, reputation, customer loyalty, location, products, ice cream to various grocery chains based purely on
and similar factors not separately identified. handshake deals (i.e., no written contracts). The tax
Just as “brand” can be a broadly encompassing term court ruled that the “seller’s rights” conveyed in the
that includes trademarks, the term “goodwill” can be sale belonged to the owner, not the corporation. As a
similarly broad. In the above definitions, we see that result, capital gains treatment was appropriate for the
these terms can reference one another and overlap- gain realized in the sale of this personal asset.9
ping concepts such as name, image and reputation. In situations where businesses are being sold and
Unlike trademarks, which create value that is inex- a high degree of personal goodwill is present, buyers
tricably tied to the business, goodwill may be tied to may require employment or consulting agreements
the business as “enterprise goodwill” and/or certain with non-compete/non-solicitation provisions that
individuals within the business as “personal goodwill.” allow the buyer to retain personal goodwill from key
individuals once it has been conveyed. In situations
In discussing the definition of goodwill and distinc- where non-compete/non-solicitation agreements are in
tions between its personal and enterprise forms, Dr. place with key individuals before a sale, these individ-
Shannon Pratt states: uals have effectively transferred some portion of their
First, we should understand the classic definition of personal goodwill to the business which may then be
goodwill is the propensity of the customer to return to assigned to the buyer contractually.
the business. Having said that, the separation of per- States have various restrictions on doctors and law-
sonal versus enterprise goodwill depends on whether yers engaging in non-compete agreements to protect
(or the extent to which) the customer returns because patients and clients that rely on their counsel. With
of the individual or elements that belong to the enter- these professionals and others, a high degree of per-
prise.7 sonal goodwill exists due to reputation, education and
In Personal Goodwill in Search of a Functional Defi- expertise—sources of value that follow the profession-
nition, David Wood defines personal and enterprise al. The trust-based nature of professional relationships
goodwill as follows: contributes further to personal goodwill. While your
personal physician may be part of a medical group,
if he or she leaves that group but stays in the area,
5. Black’s Law Dictionary, Bryan A. Garner, Editor, 8th Edi-
tion, (Thomson West, 1999). chances are you will follow. This is personal goodwill
6. From a transaction accounting perspective, goodwill is cal-
at work.
culated as the difference between the purchase price and the
fair value of acquired assets, net of assumed liabilities, as of
the acquisition date as illustrated in Exhibit 1. However, the 8. David Wood, “Personal Goodwill in Search of a Functional
purpose of this article was to explore the economic benefits of Definition,” BVR’s Guide to Personal v. Enterprise Goodwill, 5th
goodwill, not its technical calculation. Edition, (Business Valuation Resources, 2012).
7. Shannon Pratt, “Overview of Enterprise and Personal 9. 110 T.C. No. 18, United States Tax Court, Martin Ice
Goodwill, BVR’s Guide to Personal v. Enterprise Goodwill, 5th Cream Company, Petitioner v. Commissioner Of Internal Rev-
Edition, (Business Valuation Resources, 2012). enue, Filed March 17, 1998.

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 Trademarks, Brands And Goodwill
Personal goodwill may also exist with business 4. Enabling messaging efficiency in advertising, pub-
owners and sales people that have developed strong lic relations, on-line and word-of-mouth;
relationships with customers. Consider the long-time 5. Providing a platform for the introduction of new
owner of a local automotive dealership that bears his products and services that inherit the market
name. The dealership is a beneficiary of value arising benefits of the brand; and
from the owner’s personal goodwill. Similar situations 6. Allowing for price premiums and better profits to
exist with insurance brokers and others that have de- the extent that a company’s brand is associated
veloped a book of business over many years with loyal with a higher degree of quality or desirability
customers. than competitive offerings.
In contrast, when we deal with Amazon by making Regarding this last point, the pharmaceutical indus-
on-line purchases, our interaction and any resulting try understands the power of brands as a means of
goodwill accrues to the enterprise. A similar situation generating price premiums.
exists when we buy a Coca-Cola or an Apple iPhone.
When branded pharmaceutical products lose patent
Brands and Brand Equity10 protection, approved generic drugs are allowed to enter
What constitutes a “brand” may differ depending the market. Faced with losses from cheaper products
on whether it’s being viewed from the perspective of that are perfect substitutes13 one might consider it rea-
accounting, economics, management or marketing.11 sonable for the branded manufacturer to reduce price
Even within these disciplines, brands may be viewed in an effort to maintain production volumes and mar-
narrowly or broadly. In the narrowest sense, a brand ket share. What actually occurs is often quite different.
is the sum of elements that constitute the visual iden- Manufacturers often raise the price of their branded
tity of a company—the name, logo, colors, and shapes drug following generic entry because a brand-loyal seg-
associated with a business or product. A broader view ment of customers is willing to pay more due to the
of the notion of brand includes not only these visual el- perceived quality of the branded product over generic
ements but also related market associations. This more alternatives. With successful pharmaceutical products,
expansive view reflects the manner in which a brand as the value of patent protection wanes over time the
embodies the image and reputation of the seller and value of the brand often strengthens.
may also consider associations with other stakeholders Brands create economic value for businesses, which
such as employees, investors, suppliers, distributors, may be referred to as “brand equity.” One view suggests
and regulators.12 Clearly, if a strong brand helps a com- that brand equity is derived from a combination of (i) per-
pany attract talented employees, investors or desirable ceived quality; (ii) brand loyalty; and (iii) brand awareness
resellers, this too provides economic value. and associations that exist in the relevant market.14
While the narrower view of brand would consist of Based on the sources of value noted above, business
marketing-related intangible assets such as trademarks, investments in the following can logically contribute
service marks, and trade dress (unique color, shape, to brand equity:
package design, etc.), the more expansive view of
brand may reflect goodwill and value from other intan- Marketing and Legal:
gible assets. • Trademark registration.
Brands help businesses by: • Brand identity development through name selec-
1. Driving demand for products and services due to tion, visual design, and related research through
brand awareness and desirability; focus groups and other sources.
2. Providing a unique means to identify the company • Marketing strategy to assess market-positioning, brand
and its offerings; messaging, pricing, etc.
3. Helping the company communicate its quality and • Advertising, public relations, and promotional activ-
differentiating characteristics; ities that create brand awareness and communicate
brand attributes.
• Brand enforcement to insure compliance with brand
usage policies within the company and to prevent
10. The original version of several paragraphs in this section
were published in “Is Profiting from the Online Use of Anoth- unauthorized external use.
er’s Property Unjust? The Use of Brand Names as Paid Search
Keywords,” 53 IDEA 131 (2013) (By Daniel Gervais, Glenn Per- 13. The US Food and Drug Administration (FDA) requires
due et al), Also selected for inclusion in the Intellectual Property small molecule generic drugs to be chemically identical to their
L. Rev. (West 2014). branded counterparts to gain approval for market entry.
11. See Gabriela Salinas”The International Brand Valuation 14. Boonghee Yoo, Naveen Donthu, and Sungho Lee, “An Ex-
Manual,” chap. 1 (2009). amination of Selected Marketing Mix Elements and Brand Equi-
12. See id. ty,” 28 J. of “The Academy Of Marketing Science” 195 (2008).

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 Trademarks, Brands And Goodwill
• Investments that differentiate the company and its despite how smart and personable they may be. This
offerings. lies in contrast to the earlier example of a physician
Direct and Indirect Sales: leaving their current medical practice. In that case, loy-
• Direct sales force investments (e.g., selection, ed- alty—and thus revenue—generally follows the doctor,
ucation/training, etc.). not the company.
• Indirect channel investments in resellers of the I recently had lunch at a Chick-fil-A restaurant. While
company’s products and services. eating, I overheard an interview at an adjacent table.
• On-line sales investments. The interviewer was explaining the service philosophy
and values of Chick-fil-A to a job candidate with great
Development and Support: clarity and conviction. I have always been impressed
• Product development activities that perpetuate the with the food quality, value, and customer service at
brand. Chick-fil-A and overhearing this interview amplified
• Employee training and development activity that these positive sentiments. But much like the brilliant
supports the brand (e.g., tech support, customer folks at the Apple genius bar, my heightened loyalty at-
service). taches to Chick-fil-A, not the dedicated interviewer be-
• On-line support investments. cause if she left to work at another nearby restaurant,
• Packaging that reinforces the brand. this would not influence my lunch choice for the day.
• Quality control activities that reinforce the per- Exhibit 2 illustrates components of brands and brand
ceived quality of the brand. equity discussed thus far. At the center of the model
All of the items listed above in some way contribute is the individual stakeholder interacting with the busi-
to the image, reputation, and awareness of the compa- ness which is considered to be a customer for the sake
ny and its offerings. In this regard, each of these items of this discussion.
constitutes a brand-building investment even though Market Messaging related to the brand may be
some may not fit neatly within the classical rubric of provided through traditional media (print, broadcast,
marketing. For instance, product development might point-of-purchase, etc.), on-line media, at shows/
be deemed more of an engineering function in some events and through word-of-mouth. Messaging also oc-
companies. However, at a company like Apple, prod- curs through others that visibly support a certain brand
uct development reinforces a brand identity built on through the cars they drive, the clothes they wear and
developing fashionable, leading-edge consumer prod- other such displays. This is particularly true of brands
ucts like the iPad and iPhone. In the fashion industry, that function as status symbols. Messaging may be
ties between product development and the brand are deliberately created by a company through marketing
particularly apparent with logo treatments, color pal- efforts but also occurs through individuals that interact
ettes, patterns and other design
elements that are associated with
the brand. Exhibit 2: Brands And Brand Equity
Apple also provides a great ex-
ample of how front-line employ-
ees can contribute to the good- AWARENESS, IMAGE, REPUTATION
will of the company. Most people Market Messaging
I know (including myself) that
have visited the genius bar at an
Apple store come away feeling
OWNERS & EMPLOYEES

impressed and satisfied with the Personal Personal

Trademark
Goodwill Goodwill
service they receive. While those
ENTERPRISE

providing this service are typically

smart and personable, the value
of this service accrues to Apple’s Enterprise
Goodwill
enterprise goodwill because these
Enterprise
interactions generally cause us to Goodwill
be more loyal to Apple, not the in- Other
Intangibles
dividual providing the service. Af-
ter all, if that individual left Apple
to join Samsung, I doubt many of Personal Experience
us would ditch our iPhone to start
using a Samsung Galaxy phone,

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 Trademarks, Brands And Goodwill
with the company directly or indirectly. Customers, em- The British band Deep Purple was formed in 1968
ployees, owners, competitors, vendors, and regulators and lived through multiple incarnations with six dif-
may all add to the pool of company messaging. Wheth- ferent lead singers. These singers contributed their
er good or bad, this messaging contributes to company personal goodwill due to work in previous bands and
awareness and its overall image and reputation. took their personal goodwill with them as they left to
Business Interactions may occur at both the enter- join new bands. Through it all, the Deep Purple brand
prise level and personal level with owners and/or em- remained intact. In 1980, original lead vocalist Rod Ev-
ployees. While interactions with some companies such ans and a group of studio musicians launched a band
as Amazon or Google may only occur at the enterprise using the Deep Purple name without consent. This
level, in other businesses human interaction may be group became known as the “Bogus Deep Purple.” A
most prominent. Value provided to a customer through lawsuit ensued which resulted in other band members
personal interactions can contribute to the enterprise reclaiming their rights to the name while precluding
goodwill of the business and/or the personal goodwill future use by Evans. In 1984, a reunited Deep Pur-
of the individual providing service. Elements of oth- ple with vocalist Ian Gillan released Perfect Strangers,
er intangibles may contribute to business interactions their first album since 1976, which ultimately charted
that lead to sales and greater customer loyalty. in the top-20.15 Deep Purple’s fan loyalty and resulting
Personal Experience results from business inter- goodwill was largely tied to the band (i.e. the enter-
actions. This experience may also be shaped by mar- prise) not any specific lead singer.
ket messaging. For instance, messaging about certain Formed in the 1970s, AC/DC is one of the big-
luxury brands may contribute to the way individuals gest-selling and longest-running rock bands of all time.
experience the brand at an emotional level. These ex- “Highway to Hell” was released in 1979 and would
periences form the basis of further contributions to become the band’s first top-40 album. Months after
the pool of brand messaging by individuals as part of a peaking in the charts at No. 17 with “Highway to Hell,”
market feed-back loop. lead singer Bon Scott was found dead of acute alcohol
Awareness, Image and Reputation are driven by poisoning. Five months after Scott’s death, “Back in
market messaging and personal experiences. While a Black” was released with Brian Johnson premiering as
trademark may form the initial basis of brand aware- the band’s new lead singer. “Back in Black” surpassed
ness, deeper associations with the brand and what it the success of “Highway to Hell” by peaking in the
stands for form the basis of image and reputation. charts at No. 4. In 1981 both of these past success-
es were eclipsed with “For Those About to Rock We
Goodwill, Brand Equity and Celebrity Salute You” when it peaked at No. 1. In this case, the
The personal goodwill of owners and employees can replacement contributed to greater success than the
contribute to brand equity. Businesses are beneficiar- original and the enterprise goodwill of the band grew.16
ies of these contributions while the individuals creat- Other well-known examples include Van Halen with
ing the goodwill remain associated with the business. Sammy Hagar replacing David Lee Roth and Journey
But what happens when they leave? with Filipino Arnel Pineda replacing Steve Perry. In
Earlier I cited interactions with employees at Apple these cases, the bands carried on but never recaptured
and Chick-fil-A. In both examples, I noted how benefits prior levels of success.17
from employee contributions to my positive experienc- Then there’s the band Chicago. Lead singer Peter
es accrued to the enterprise and how the departure Cetera was there for Chicago’s first 17 albums, 12 of
of these employees would not divert my business. which peaked at top-10 positions in the charts. Follow-
Contrast that to a situation where an owner sells a ing Cetera’s departure to pursue a solo career, Chica-
business then opens a competing business across the go released its 18th album which peaked at 35. With
street which then attracts customers of the business the exception of a greatest hits album released after
that was just sold. In that situation, the buyer may have Cetera’s departure, subsequent albums experienced
purchased certain assets of the business—even its ever-declining peaks and ultimately stopped charting.18
name—but the draw of the previous owner (i.e., per- In this case, Peter Cetera’s personal goodwill proved to
sonal goodwill) was strong enough to divert customers.
For a buyer, this is the situation that non-compete and 15. https://www.rollingstone.com/music/artists/deep-purple/
non-solicitation agreements are intended to prevent. biography—accessed 6/4/2018.
So what about a very special type of business, mu- 16. https://www.billboard.com/articles/6406362/acdc-albums-
sical acts, where one employee, the lead singer, is of- ranked-highest-to-lowest-charting—accessed 6/1/2018.
ten considered to be the “face” and quite literally the 17. https://www.rollingstone.com/music/pictures/15-bands-
“voice” of the business? Rock and roll history is littered that-carried-on-with-new-singers-20130813/journey-with-ar-
with stories of lead singers leaving bands for various nel-pineda-2007-present-0344025—accessed 5/22/2018.
reasons and in many cases, the bands carried-on with 18. https://en.wikipedia.org/wiki/Chicago_discography—ac-
replacements. cessed 6/1/2018.

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 Trademarks, Brands And Goodwill
be a critical element of the band’s success which fol- Right of Publicity—The right to control the use of one’s
lowed him into a solo career. own name, picture, or likeness and to prevent another from
So what about superstar celebrities such as Elvis, using it for commercial benefit without one’s consent.
Prince and Michael Jackson? “The right of publicity is a state-law created intellectual
In the case of Prince—whose birth name was Prince property right whose infringement is a commercial tort
Rogers Nelson—the issue of his personal brand be- of unfair competition. It is a distinct legal category, not
came quite complicated from a marketing and legal just a ‘kind of’ trademark, copyright, false advertising or
perspective. Through a press release after becoming right of privacy,” J. Thomas McCarthy, The Rights of Pub-
disillusioned with his record contract, Prince stated that licity and Privacy (2nd Edition 2000).
“Warner Bros. took the name, trademarked it, and used One distinction that exists between right of publici-
it…The company owns the name Prince and all related ty and trademark lies in the fact that right of publicity
music marketed under Prince.” So, in 1993, Prince be- deals with the commercial use of an individual’s name,
came “the artist formerly known as Prince” and used a image and likeness—attributes of one’s personal iden-
self-described Love Symbol as his trademark. In 2000, tity—whereas trademark law deals with the value of
the recording contract expired and Prince was able to specified words and symbols which are attributes of a
start using his name again.19 When Prince died in April business identity used for commercial purposes.
2016, a new set of complications arose due to the fact However, as with Prince, a celebrity’s name is of-
that Prince did not have a Will and that a value need- ten covered by a federally-registered trademark too, in
ed to be placed on his estate—including a value for his which case unlicensed use may be pursued under fed-
post-mortem name and likeness—for tax and estate dis- eral trademark laws.22 But beyond that, name, image,
tribution purposes. likeness and associated rights of publicity are covered
The complexities associated with the valuation of a by state law. Rights of publicity further underscore how
celebrity’s name and likeness may be best exemplified trademarks, brands and goodwill work together in the
by Michael Jackson. Due to erratic behavior coupled context of commercial use and economic value.
with allegations of child abuse and drug abuse towards As I was concluding this paper, news of the death of
the end of his career, executors of the Jackson estate fashion designer Kate Spade had just become known.
claimed his tarnished name and likeness was worth a When she started in 1993, with colorful utilitarian
mere $2,105 on the date of his death. In contrast, the handbags, her brand and designs were tied to her per-
IRS claimed his name and likeness was worth $434 mil- sonally.23 But as the business grew and other designers
lion. Supporting the IRS position has been a wave of were added, enterprise goodwill developed.
post-death business deals involving the “This Is It” doc- In 1999, Spade sold a 56 percent equity interest to
umentary, Cirque du Soliel tribute shows and deals with Neiman Marcus with the remaining 44 percent interest
Sony records worth hundreds of millions of dollars.20 being sold in 2006 for a total of $93 million from both
After Elvis died in 1977, a rash of unlicensed prod- transactions. A week after concluding its purchase, Nei-
ucts bearing his name and likeness flooded the market. man Marcus sold its 100 percent interest in Kate Spade
While unauthorized merchants cashed-in on the death to Liz Claiborne for a reported $124 million. Liz Clai-
of Elvis, his estate was unable to pay its federal taxes. borne ultimately rebranded the entire company as Kate
Following a series of litigation involving the unauthor- Spade & Co. in 2014. In May 2017, Coach purchased
ized use of the Elvis name and likeness, the State of Kate Spade & Co. for $2.4 billion.24 At the time of its
Tennessee enacted the Personal Rights Protection Act of sale to Coach in 2017, Spade had not been involved
1984, which provided for the descendibility of personal- with the company for over a decade.
ity rights, also known as right of publicity, to “executors, The story of Kate Spade illustrates how goodwill can
assigns, heirs, or devisees.”21 In light of problems ob- be parlayed into a powerful brand that takes on a life
served following the death of Elvis, Tennessee law made of its own that transcends its namesake. I’m sure Levi
specific provisions for post-mortem rights of publicity Strauss could relate. ■
and several other states followed suit thereafter. Available at Social Science Research Network (SSRN):
Black’s Law Dictionary provides the following definition: https://ssrn.com/abstract=3218573.

19. http://www.bbc.com/news/magazine-36107590—accessed 22. Additionally, certain images of individuals may also be

6/4/2018. protected by federal copyright law.
20. https://www.lexology.com/library/detail.aspx?g=7b17006e- 23. https://www.katespade.com/katespade-about-us/
f851-40b2-9911-a77adf3390cd—accessed 6/4/2018. katespade-the-histor y.html—accessed 6/5/2018.
21. https://www.natlawreview.com/article/elvis-and-prince- 24. https://www.forbes.com/sites/noahkirsch/2017/05/08/
personality-rights-guidance-dead-celebrities-and-lawyers- why-kate-spade-wont-see-a-penny-of-the-2-4-billion-sale-to-
and—accessed 6/4/2018 by Peter Colin Jr. coach/#2d0d36fa5b2b, by Noah Kirsch—accessed 6/5/2018.

264 les Nouvelles

Electroniccopy
Electronic copy available
available at:
at: https://ssrn.com/abstract=3218573
https://ssrn.com/abstract=3218573