Archive for the ‘IP Due Diligence & Assessments’ Category

Why Due Diligence? Part II

Monday, October 4th, 2010

 

More than ever, every business deal counts; the stakes are high.  A company depends on making profitable alliances whenever it embarks on a new partnership or licensing venture, or acquires another enterprise or extends credit.  In any business transaction that involves IP, a company is relying on the worth of that IP to substantiate the financial success of the transaction.  That IP is an asset so long as the company has factored all precautionary examinations into its true merit.  An IP due diligence investigation is both a preventative measure against disappointment and calamity and an activist effort to make the most of every transaction.  This investigation will advance a company in:

  •  Understanding the IP rights and valuation:
    • Identifying the true ownership and control rights  of what the company  is buying, licensing or financing
    • Understanding the economic significance of what the company is buying, licensing or financing
    • Determining the scope of the IP rights (e.g., the scope of patent claims)
    • Determining the validity of the IP rights
    • Identifying the value of the IP rights
    • Maximizing licensing and other business exploitation and development prospects
    • Plugging acquired IP assets into new and emerging markets

 

  •  Determining Potential Restrictions, Liabilities or Infringements
    • Safeguarding against buyer’s remorse
    • Knowing that the history of the IP rights bought or financed is “clear”
    • Understanding the obligations the company may be undertaking toward any third parties
    • Determining any litigation or financial encumbrances on the IP bought or financed
    • Ascertaining any usage restrictions of the IP rights bought or financed
    • Ascertaining expiration dates of IP grants, registrations, licenses, and renewals
  •  Determining Potential Restrictions, Liabilities or Infringements
    • Safeguarding against buyer’s remorse
    • Knowing that the history of the IP rights bought or financed is “clear”
    • Understanding the obligations the company may be undertaking toward any third parties
    • Determining any litigation or financial encumbrances on the IP bought or financed
    • Ascertaining any usage restrictions of the IP rights bought or financed
    • Ascertaining expiration dates of IP grants, registrations, licenses, and renewals

These series of articles are written by two of our industry expert attorneys, Laurie Hughes and Suzanne Kessler.

Next article:  Due Diligence Part III

BACKGROUND:  Typical Company Scenarios

Why an IP Due Diligence Investigation?

Friday, August 27th, 2010

 

Are you concerned about a perceived or real threat of litigation or is your client a defendant in a pending lawsuit as an alleged infringer?  Are you interested in knowing more about the IP rights held by another for any other reason?  Who is the true, legal owner of the IP?  Have the IP ownership rights expired?  In a merger or acquisition, do all such rights actually transfer?  Are the IP rights encumbered by litigation?  A due diligence investigation will answer these questions and more, saving the company financial pain down the road. 

In the next few weeks we will be explaining the following:

 

Purpose:       IP Due Diligence Investigation to Determine the IP Rights Held by Another to Maximize IP Investment Value and Minimize Investment Risk and Liability

 

Purpose:       IP Due Diligence Investigation to Improve Management of a Company’s Assets, Including Identification of Possible Targets for Sale or License

 

Purpose:       IP Due Diligence Investigation to Assist in Your Management of an Allegation of IP Infringement 

Objectives:

 

  • Preempt distress and disaster by pro-actively evaluating the details of IP rights
  • Know exactly what IP assets your company is realizing from the transaction
  • Mitigate liability and negligence charges resulting from the failure to investigate
  • Maximize corporate strategic planning and profits

 

This series of articles are written by two of our industry expert attorneys, Laurie Hughes and Suzanne Kessler.

What is IP DUE DILIGENCE?

Thursday, August 19th, 2010

 Prior to the buying, selling, or licensing of intellectual property (IP), your company must undertake an intellectual property due diligence investigation to ensure that it’s getting the perceived value out of the transaction.  Who is the true, legal owner of the IP?  Have the IP ownership rights expired?  In a merger or acquisition, do all such rights actually transfer?  Are the IP rights encumbered by litigation?  A due diligence investigation will answer these questions and more, saving your company from potential disaster down the road.  Unless your company definitively knows the answers to these questions, it may be a case of buyer’s regret – to the tune of thousands or millions of investment dollars.  There’s nothing worse than thinking that you’re purchasing a cache of jewels, then finding out later that they’re worthless.

In the upcoming weeks we will be addressing what IP Due Diligence is and the critical importance that the process plays in the investigation to maximize IP investment value and minimize investment risk and liability.

This series of articles are written by two of our industry expert attorneys, Laurie Hughes and Suzanne Kessler.

LEGAL REVIEW CONSIDERATIONS in DUE DILENGE

Tuesday, June 29th, 2010

 

Last time we were talking about Financial Due Diligence and what it includes: Financing needs and terms, the Business Model and budgets and Compensation.  We will close with the legal review.

Legal Review—how is the company organized?  Is it a sole proprietorship or corporation? How much ownership is there above the 10% level? It is important to know how many key players you will need to consider. 

What kind of contracts are there and what is their duration?  This should cover both clients and employees.  Is there value in a long term contract with a client or is the contract about to expire?  How about employees?  Will there be a millstone with long term ramifications or are key players about to walk out the door?

The other side of the coin is the liabilities.  Is everything recorded?  Are there any potential landmines that have not officially been addressed?  Is there any pending litigation?

How is the company’s intellectual property valued and or protected?  This becomes a red flag if there hasn’t been any steps taken to recognize and further protect the value the intellectual property of the firm.  What type of documentation supports your findings of who owns what?  This is not an area to make assumptions.  This includes the ownership of the domain name. Are there any cease and desist letters or pending litigation?  Have there been settlements?  Those need to be reviewed.

 Finally, an accountant should render an opinion on the taxes.  Tax positions should be summarized for as federal, state and any foreign taxes.  Are there any carry forwards?  How is revenue recognized?  Are the taxes paid or are there liens?

Here is a link to an excellent article in Business Week:

http://www.businessweek.com/smallbiz/content/nov2007/sb2007115_311364.htm

If this seems daunting, it is; it should be.  The financial due diligence is the heart of due diligence. However, you are not finished.

Next time we will talk about the other parts of the due diligence process: Products, Customers, Marketing, Research and Competition and a few miscellaneous pieces.

By Mary Whetstine—financial analyst

DUE DILIGENCE/THE TOOL FOR TRANSPARENCY

Monday, May 10th, 2010

By Mary Whetstine 

Do you know what you don’t know when investing in or purchasing a business or Intellectual Property (IP)?  Few of us have walked the path of life when we have not made some type of investment or purchase in which we “assumed” we knew what we were getting, only to be sorely disappointed? Perhaps assuming because the higher price of the product or entity we were getting exceptional quality, or of the evil assumption twin, of “getting a deal” because we were paying “below market value”? John Ruskin, the 19th century English poet and social thinker was attributed to saying: 

There is scarcely anything in the world that some man cannot make a little worse, and sell a little more cheaply. The person who buys on price alone is this man’s lawful prey.” 

The research needing to be done is the due diligence.  When we are making significant investments (in these times what investments are not significant?), the dire need of examining the multiple layers of the deal or the IP product is critical. There are pitfalls of Due Diligence that can become a door or a window.  Does it impede or facilitate the outcome? You and your team need to know what you intend to purchase and why.  The real question becomes, ‘Is what you see, what you get?’   And how about what you don’t see on the surface?  What are the gems and landmines that need to be uncovered?   Is the value and the cost for the venture merited? 

That is the essence of due diligence.  Value and risk, the balance determines if and how much to invest.  Whether an individual, venture capitalist or investment banker, the questions need to be answered before capital is invested. 

Make the ‘No’ or ‘Go’ decision before too much time or money is spent.  Most deals do not make it beyond this exploratory stage. 

To the reader:  Can you share an experience where solid, Due Diligence has guided you and your team to a great decision, that might otherwise been catastrophic? 

 Over the next few weeks, we will be discussing the components of the audit process.

The next article in this series will be: — Financial Due Diligence 

 By Mary Whetstine, Financial Analyst

Alternative Dispute Resolution (ADR): Positional Bargaining Negotiation

Tuesday, February 23rd, 2010

In a previous article we discussed the concept of negotiation and defined it as a process in which the parties involved communicate with one another through a facilitator to resolve a dispute, consummate a transaction, or simply to reach agreement in order to create balance or clarity.  There are two primary styles that we are going to address, Positional Bargaining Negotiation and Interest Based Negotiation.   Today we will discuss Positional Bargaining Negotiation.

Positional Bargaining

To illustrate positional bargaining, consider an actual situation in which a partnership was ending.  In 1996 two young, bright and close friends Jason and Matt founded a software internet based company.  However, within months of the launch, it became apparent that their business and people skills, as well as their business philosophies were in most ways on opposite ends of the spectrum.  The business took off extremely well and they put their put their differences aside and took positions of simply accepting these differences.  Soon the business flourished and they enjoyed making the type of money that neither had ever even dreamt of.  Going into their fourth year, the day-to-day operations of the business became highly stressful for both Jason and Matt.  It was now reaching a point where it was having an effect on their personal production.  With professional guidance, both became cognizant of the dysfunctional nature of their partnership and how it was manifesting itself not only in their business, but also in their personal lives; it was at that point both agreed that it was time to end their partnership. Jason asked to be bought out so that he could start another technology company and Matt was in agreement.

Fortunately, aside from being savvy technology entrepreneurs, they also were also forward thinking when they started their partnership.  They had created a partnership agreement with their attorney, an agreement with an exit strategy.  As with many such agreements there was a buy-sell provision that arranges a buy-out; if one partner leaves the business, the other partner must buy him out.  This provision included a buy-out based upon a prenegotiated percentage of the business value.

The Bargaining

This was a 3 step negotiation.  First, was agreeing on a mutually acceptable non-compete agreement. Second, was agreeing on what firm would perform the objective Third Party Valuation.  The standard process for the valuation is for a qualified industry valuation expert to analyze the financials, market trends, industry trends and comparables of similar businesses in their segment of the technology industry.  A key component of the process was an IP assessment of their IT intellectual property for licensing, trademarks, copyright and a pending patent. The due diligence process was a main ingredient to forming a positive closure of Jason’s and Matt’s business relationship; a third party performed an objective valuation on their IP, which otherwise might have been an emotionally volatile situation. The final business valuation provided a specific range of value on what their business could likely be sold for in the current market place.   

In the first 2 steps, there were basic pragmatic decisions that were easily agreed upon.  The third step was the primary focus of this mediation.  In this type of negotiation, parties will often examine their strengths and weaknesses to establish maximum and minimum figures before going into negotiation.  During the course of the negotiation, both Jason and Matt went strategically back and forth on price, based upon their perceived value.  With outside, objective professional guidance, they both moved incrementally towards each other’s negotiated numbers to arrive at a mutually accepted figure. 

With the monies from the buyout, Jason was able to jumpstart his new endeavor and it has taken off nicely. One of the lessons that he learned from his business experience with Matt was the importance of creating a clear, consistent vision of who his company is and where he wants it to be.  With such awareness he was able to become a more effective and dynamic leader.

Matt continues to grow his business to new levels of successes.  He has been able to build an organization around a group of individuals who share a similar business philosophy and mind set.   He continues to make a very comfortable income and is having fun doing it.

Keys

The keys to effective and appropriate positional bargaining are:

  • An objectively defined sum or task that is being considered
  • Emotions and a continuing relationship are not important
  • No other underlying interests or outcomes other than money
  • Trust and flexibility are not likely or even possible

Summary

Positional bargaining is a very useful and effective tool in mediation when individuals have either prepared or anticipated for such mediation, or in situations where one party might be in a particularly strong position and simply wants to draw a close to the business relationship.  Most often, the preferred style is the interest base negotiation where parties are moved from rigid positions to a more flexible one, where both parties win. 

Reader, please share how you have utilized this method of negotiation to resolve business conflict and create your win-win solution.

“Everything should be made as simple as possible, but not one bit simpler.”

                                                                                                            Albert Einstein

 

Reader, what does the above quote mean to you in regards to negotiating conflict?

Next week: Interest Based Negotiations.