One question clients often ask is why they need a trademark registration? What is the point? Typically we hear this when someone has infringed on our client’s rights and our client is seeking to understand why having a trademark registration did not prevent the infringement. The answer, of course, is that it is a trademark owner’s responsibility to protect and enforce its mark, the same way it is a homeowner’s responsibility to maintain their home. Sometimes that means sending notice letters to stop infringements, and sometimes that means filing lawsuits against infringers. A homeowner has no guarantee that their house won’t be broken into, but they can take steps to reduce the likelihood of it happening. The same is true with trademarks—it is impossible to guarantee that there will not be an infringement, but trademark owners take steps to make an infringement less likely.
A recent study appearing in Management Science suggests another reason for filing trademark applications: the stock performance and profitability of companies that file for the most trademarks each year — relative to their total assets — is higher in the next 12 months than companies that weren’t as active in new trademark filings. And the study’s authors noted that trademarks are potentially more important than patents in stock performance and profitability since trademarks exist in a broader range of firms and industries than patents.
To evaluate the stock performance and profitability of companies that file for high numbers of trademarks, the researchers examined about 305,000 trademark registrations issued between 1976 and 2014, calculating what they termed “trademark intensity”, a ratio of the trademark registrations issued to a company in a calendar year divided by the company’s total assets for the previous fiscal calendar year.
The researchers then created a hypothetical stock portfolio to see if trademark intensity could predict stock returns. The hypothetical portfolio bought shares of companies ranked in the top third in trademark intensity over the past year and shorted shares of companies ranked in the bottom third in trademark intensity.
The results were striking. Examining the period of 1977 to 2015, the researchers found that using this trading strategy produced annualized returns of about 7.8 percentage points higher on average than the returns of a portfolio that traded in similar stocks without regard to a company’s trademark filings. The study even found that this advantage was maintained even as companies’ trademark intensity changed over time.
While the study found trademark intensity to be a predictor of a company’s stock performance and profitability, it also found that markets undervalue trademark intensity, in part because analysts do not understand the significance of trademark intensity and also because of the difficulty of assessing information regarding new markets and new customer groups.
The study’s conclusion that companies owning more trademark registrations are more profitable reinforces advise that we have been giving our clients for years: registered trademarks (and patents and copyrights, for that matter) make a business more valuable.
 The study claims that patents as legal protection are not feasible or meaningful in certain industries, such as financial and other service industries. However, financial service firms regularly apply for patents, and so-called business method patents can cover a way of providing a service.
 The study says that it focuses on registered trademarks because they “are trademarks that are actually in use by the trademark assignees (owners),” but that is not necessarily true. Applicants from outside the U.S. can secure a U.S. trademark registration without showing proof of use either by relying on a foreign registration or by filing through the Madrid Protocol. To maintain a registration obtained in either manner, it is necessary to file proof of use with the U.S. Trademark Office.