The Value of Trademarks and Patents: A Shark Tank Case Study

13-year-old Rachel Zietz was a skilled lacrosse player. She became frustrated after spending hundreds of dollars on lacrosse equipment. This is because it was of low quality and would quickly break down.

So, in December of 2013, she decided to start her own lacrosse equipment company. She called it Gladiator Lacrosse. 

And in 2015, at only 15 years old, she went on ABC’s hit TV show Shark Tank to pitch her product. While all the sharks turned her down, she seemed to be doing more than fine.

Her having millions of dollars in sales speaks for itself.

So, even without directly investing, the Sharks seemed to foresee her imminent success and market value growth. Most of her answers to their questions directed at her made them seem more and more impressed with her vision and overall character.

But there was one question she wasn’t asked by the Sharks that might have saved her a lot of time and annoyance in legal disputes.

Do you have a patent or trademark?

Without fail, this is usually one of the first couple of questions asked by the Sharks to any hopeful entrepreneur on Shark Tank. ‘

There are many reasons why someone may get a patent or trademark. But arguably, the most important reason is the signaling effect it has on innovation for investors.

Innovation is historically and notoriously difficult to measure. As such, companies looking to invest in research and development (R&D) through acquisitions often use proxies to measure the value of innovation. 

These proxies include metrics such as:

•  patent count
• citation-weighted patent count (how often people mention the patent)
• R&D expenditure
• and market response to new patents

While the traditional viewpoint held that patent and citation weighted patents counts were the best proxy for innovation:

A new study out of George Washington indicates that may, in fact, not be the case.

What the research shows us: the true value of “patent-pending”

James Poetpa and Kyle T. Welch, assistant professors of accountancy at George Washington, used a variety of measures to figure out the most suitable measure for measuring proxies. 

Their study, “Innovation Worth Buying: The Fair-Value of Innovation Benchmarks and Proxies,” found no compelling evidence that:

Patent count, citation-weighted patent count, and research and development expenditures relate consistently and significantly to innovation.

They were useful, but only as far as showcasing the capture of technological developments already developed.

Meanwhile, Poetpa and Welch found that trademarks are: “positively and significantly associated with innovation.” 

In an interview with World Trademark Review, Potepa further explained why he believed trademarks were a better proxy for innovation than patent counts besides just the raw data in the study.

Patents represent technology that has already been developed. They’re often hidden from competitors, and technology is starting to move toward an open-source platform. 

Comparatively, trademarks represent a combination of recognition and what customers anticipate a company to do moving forward. 

Trademarks help capitalize on advances in a way that competitors can’t replicate. And even if major companies’ products can be patented with the move to open source, large brand names will still be widely recognizable. 

Poetpa concludes by stating that it is quite possible trademarks are undervalued.

What happened to the young CEO?

Rachel Zietz was never asked if she had intellectual property protection. As a result, she didn’t file for a trademark until December of 2015. The mark was eventually registered a year later. But Rachel and Gladiator Lacrosse faced opposition and a trademark infringement lawsuit soon after. 

Sports Guard, which sells custom mouthguards under the “Gladiator” brand, filed suit in February 2017. The case was dismissed a few months later. But it serves as an important reminder about the function of trademarks:

Regardless of how substantial trademarks are for signaling innovation, trademarks are still vital for brand protection.

Moral of the story: protect your intangible assets

While legal fees may deter you from protecting your intangible asset, remember that intellectual property rights become a helpful tool later. While you might think nobody will lean on your brand name or copy your invention, it’s a large world, and you can never be sure.

Create a competitive advantage, and complete your trademark registration online with Trademarkia today. Get in touch with one of our trademark law experts today. Need help to develop your patent portfolio or dealing with a patent infringement? We can help with that, too.