The Intellectual Property Position
.....Updated 2/20/2000

(Underlined italicized text represents the latest additions to this training guide. Underlined text represents the previous additions to the training guide)


The key to gaining unparalleled success in any business transaction in modern business is obtaining the "Intellectual Property Position" (IPP) in the transaction. This can be defined as that position which owns or controls the ultimate property which is being bargained for in the transaction. Another way of defining it is that position which allows the attainment of the superior profits in the transaction. The superior profits in business today are those profits tied to royalty type payments for a license or use of some proprietary technology or process. These proprietary rights are protected by law in every industrialized country and by treaties among the countries. These rights are generally referred to as Intellectual Property because they do not embody any physical tangible property but only the right to use an invention or creation for which you usually pay a licensing fee. In modern business, Intellectual Property gives the holder a unique advantage by providing opportunities enhanced by the lack of competition the I.P. affords the holder.

The legal definitions of these rights are Copyrights, Trademarks, Servicemarks, Patents, and Industrial Secrets. These are the primary types of Intellectual Properties, the types that are protected by law. These are the most coveted. The secondary types of Intellectual Properties are protected by contracts and are basically different forms of licenses given by the holders of the primary Intellectual Properties to holders of the contractual license. The holders of subsidiary or secondary rights in the form of licenses still possess an extremely powerful profit making instrument.

Modern business depends on the legal protection of these rights in order to have a unique source of profits, to function efficiently, to operate across national boundaries, and to grow large and obtain the economies of scale necessary to create monopolies, oligopolies and competitive advantages in business. Without these Intellectual Properties being protected by law universally the way we do business in the modern economies would not be possible. Therein lies the power of Intellectual Properties and the need to obtain the Intellectual Property position in any business transaction. This is why we refer to intellectual properties as the engine behind modern success in business. It is important to look at each transaction and determine exactly where the Intellectual Property exists in the deal, and determine who is holding these rights, to what degree, type and disposition.

The profits tied to the Intellectual Property Position are "Superior" because they are generally derived from the top of the plate before other costs of production are paid. True royalty payments received by the holder of the Intellectual Property Position (IPP) does not require the I.P Holder to further expend resources to capitalize the production process. The capitalization of the production process is left to the licensee. it is he who must produce the phyisical product dependent on the I.P. it is the licensee who must makt the product, distribute it and collect the sales price. It is the licensee that must absorb all these costs.

It is the capitalization of the production process that prevents the licensee or user of the Intellectual Property from making superior profits. He or She must capitalize a production process using the IPP holders Intellectual Property. The royalty payments made to the IPP holder becomes a cost of doing business, which is factored directly into the mix. The liensee must then make enough of a profit to pay the royalty and keep some of the revenue generated for himself. The portion he keeps for himself is what we traditionally described as the earnings or profits from the production process. The IPP holder walks away with a piece of the action for which he does not have to expend any capitalization, production, promotion or distribution costs. The IPP Holders profits are then obviously superior in type and position to that of the licensee or "Production Master" whose profits can be termed the subsidiary profits from the transaction.

It may be difficult in some circumstances to clearly identify the IPP. However if you look closely enough you will find it. It is always present but as business relations become more complex and remote in modern economies awash with collaborations mergers, subsidiary companies etc. it becomes more difficult to recognize.

The IPP is not always a pure position. There may be several IPPs and partial IPPs. The wise negotiator in any transaction or acquisition will search them all out and determine how he or she spends valuable time and resources, chasing superior profits, or subsidiary ones. Attainment of full or partial control of the Intellectual Property Position will ensure superior profits.

 

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