The Lapp test is the standard used to determine if there is a risk of confusion between two trademarks. Under the Lanham Act, trademark infringement liability is essentially based on the finding that the use of a trademark causes a likelihood of confusion with another pre-established trademark. There is a risk of confusion when an allegedly infringing trademark may cause an appreciable number of reasonably prudent buyers to become confused as to the source or origin of the products or services for which it is used to identify. The value of a trademark lies in the goodwill associated with that brand.
Goodwill is an intangible asset that is part of the business value of the brand owner. It can be quite difficult to assign a monetary value to goodwill because many variables must be considered. For example, reasonable people may disagree on future business expectations, such as opportunities to increase business value, competitive threats, and market risks, all of which can affect the value of a company's goodwill and, consequently, any trademark that is symbol of that goodwill. Trademark infringement involves the unauthorized use of the protected trademark or similar mark to represent a business, brand, goods or services, other than those of the trademark owner.
The use of the brand should create a high probability of confusion for consumers as to the origin of the products or services. This generally means that the brand should be used to represent competing businesses, brands, goods, or services. The most common form of trademark infringement is through the production and sale of counterfeit products. Courts often use the “likelihood of confusion” test to determine if a trademark infringement has occurred.
Let's break this down into some elements. Many licensing agreements will also have provisions that allow the licensor to control the quality of goods or services produced or offered by the licensee under the trademark under license, which are known as “quality control provisions.”. While a trademark is only one component of a company's brand, it usually represents the most important component that drives brand value. For the purpose of this analysis, the price premium paid for a product that is very similar or identical to another product (other than the use of the trademark) can be correctly attributed to the brand.
For this business model, there are several methods for determining the amount of incremental cash flows attributable to the trademark. For example, if one values a trademark that was more popular in the past than at the valuation date, the valuation analyst may want to rely only on the historical costs incurred to obtain the same level of popularity enjoyed by the trademark at the valuation date, excluding the costs associated with the helps the brand reach a maximum level of prominence that is no longer applicable. That is, the law prohibits the use of certain trademarks (well-known or famous brands) by anyone other than the owner, even if there is no risk of confusion for the consumer. A third party (alleged infringer) is using a trademark in commerce that causes the brand to lose its distinctive character in the market;.
Similarly, a person or company may criticize or comment on another owner's trademark goods or services. A trademark license is an agreement between the trademark owner (the “licensor”) and another party (the “licensee”), in which the licensor permits the licensee to use the licensor's trademark. An assignment of trademark rights can be direct, as it results in the total transfer of ownership of such rights from one entity to another, or (in some jurisdictions) partial, resulting in the transfer of only a portion of a person or entity's trademark rights. This methodology is sometimes considered to be a hybrid of revenue and market approaches, since the royalty rate used in the analysis is typically based on market-based royalty rates for licensing or other transactions for similar brands.
For the third element of a trademark infringement lawsuit, the owner must prove that the use was made without the owner's consent. One such commonly used method is the “royalty waiver” method, which has been defined as “a valuation method used to value certain intangible assets (e.g., trademarks or trade names) on the premise that the only value a buyer receives of the assets is the exemption from paying a royalty for its use. For many companies, especially those that market directly to consumers, trademarks are a very serious business. .
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