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Part
One
By Harlington L. Hanna
Jr.
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Intellectual Properties (I.P.s.) are the rights in
creative productions attained through legal concepts such
as patents, trademarks, copyrights, and industrial
secrets. They are usually created by operation of law but
can be acquired through transfer, sale, licenses and
other contractual use agreements from the primary I.P.
holders. They are the backbone, integrity, and engine of
modern business. The acquisition and licensing of
valuable Intellectual Properties is also the business of
the future The ownership of valuable Intellectual
Properties provides the owner or controller with the
superior profits in any industry or business
transaction.
To effectively value and acquire intellectual
properties the businessman and investor must have a
thorough working knowledge of these entities and how they
relate to modern business operations.
To reach the top of the financial ladder you must
aspire to own the intellectual property rights which
allow you to participate in the superior profits in any
industry. But first you must first be able to acquire
them, and be sure to acquire the most valuable ones
available at the time. Realize that you do not need to be
the original producer of the product. There are many ways
to acquire the rights in a product and many times
acquiring just a part of some valuable intellectual
property is all you may need. Remember the Bill Gates
story. He and several of the other billionaires in the
Microsoft company all got where they are by owning parts
of the intellectual property in a relatively small and
not exceptionally well developed piece of software called
DOS. Now as of this writing in 1998 three of the five
richest individuals in the United States are members of
the Microsoft team and others are climbing fast. In fact
the Microsoft phenomenon, Silicon Valley and other
software and technology noueau rich, are prime examples
of the power of ownership of valuable intellectual
properties in this modern economy. Bill Gates and his
colleagues from Microsoft and similar technology moguls
will continue to move up the listings of the world's
richest individuals as time passes simply due tot the
inherent nature of the intrinsic way wealth which is
based on valuable intellectual property grows in the
modern economy. If you examine the rise of the newest
group of the worlds wealthiest individuals you will
discover that with each year more and more of these
individuals will rise up the list. It's the type of
property they own or control that counts.
A careful reading of a presentation made by Russell F.
Parrs to a 1994 joint conference of the American Law
Institute and the American Bar Association in Washington
D.C. is insightful. Mr. Parrs is a noted expert on the
value of intellectual properties in the future of modern
business. He has written several books on the subject. If
you are thinking of making money in business in our
modern and global economy I encourage you to read what he
has to say. In his 1994 address he states in
part........
...... "It is intellectual property that establishes
markets, dominates industries, assures national security,
captures the loyalty of customers, and allows the
generation of superior profits. It is intellectual
property that keeps companies from becoming moribund
commodity producers. Curiously, these powerful investment
properties are difficult to define, sometimes impossible
to touch, (and) born of the law"...............
"Recognition of intangible assets and intellectual
property as keystones in the structure of business
enterprise is rather a new concept but is fast becoming
the dominant force behind strategic planning. In fact,
intellectual property is often the ante required to enter
into strategic alliances with others. Don't bring cash,
because nobody wants it. Proprietary keystone
intellectual property is the entrance fee. We are
accustomed to thinking of a business in terms of its
physical property. Our minds fasten on images of train
loads of coal, oil rigs, blast furnaces, and production
lines. We tend to equate the profits of a business with
the successful employment of capital and labor but
overlook that the catalyst in the capital-labor reaction
is intellectual property. It is the inventions, designs,
trademarks, copyrights, distribution networks, know-how
and other intangibles that make the reaction
successful."
"Corporations that properly manage intellectual
property and intangible assets will be in commanding
positions of economic power. The business world is
splitting up into two types of companies: those who have
intellectual property and those who do not. The have-nots
will surely fade away unless they can gain access to
patented technology and well regarded trademarks. The
mere possession of industrial capacity is not enough to
assure continued growth and profitability. Lacking unique
intellectual property, all that remains for a corporation
is the ability to mass produce a commodity or to
manufacture for others as a job-shop. Either fate usually
means slow growth and slim profits. Only a proprietary
technological advantage or a well regarded trademark can
save a corporate investment from mediocrity.".... He then
quotes from George Glider in "Microcosm:The Quantum
Revolution in Economics and Technology" who states "
Today, the ascendant nations and corporations are masters
not of land and material resources but of ideas and
technologies."
In demonstrating the market value of some intellectual
properties Mr. Parr goes on to state that......
".....An entirely new form of international commerce
is evolving around transactions that are based upon the
transfer of intellectual property separate and distinct
from the products or services that the property supports.
Licensing, joint ventures, and outright sale are the
primary means by which intellectual property is
exploited............. We have witnessed in the last
decade corporate acquisitions and takeovers of enormous
magnitude. Philip Morris purchased Kraft, Inc. For $13
billion and with it acquired one of the best collections
of consumer product trademarks in the United States.
Maxwell Communications purchased Macmillan, Inc. And
received an irreplaceable collection of active book
copyrights. The RJR Nabisco takeover required $25
billion; 80% of which was attributed to the acquisition
of trademarks and other intangible assets...Jim Beam, a
division of American Brands, purchased a collection of
well known liquor brands from Seagram. The price was
$372.5 million."
I encourage you to get a copy of Mr. Parr's books
particularly if you want to prepare for doing real
business in the 21 century....You may purchase them from
the publisher John Wiley & Sons, New York, NY., or
you may obtain the full text of his 1994 presentation
from the ALI-ABA Committee on Continuing Education,
Philadelphia, PA.
Understanding what makes a piece of intellectual
property valuable or potentially valuable is the first
step to acquiring the right stuff. Patents, Copyrights
Trademarks etc in and of themselves may mean nothing
….the true marketable value of I.P's. must
ultimately be determined.
Generally, unless the property involves some major
break though in technology or possesses some uniquely or
intrinsically valuable characteristics, the key to its
value will lay in its prior wide spread exposure or
potential for wide spread exposure. There are several
academic and formalistic ways to judge the value of
Intellectual properties such as the Value approach, the
Market Approach, the Cost Approach etc., however all of
these are as speculative as the other. To facilitate the
discussion of I.P. value the two basic methods we suggest
can be more easily referred to as the Intrinsic Value and
the Exposure Value. These two general categories of
potential value for Intellectual Properties are extremely
important to recognize.
The Intrinsic Value method looks at the value of the
I.P. in and of itself, and attempts to determine how
important the I.P. is to furthering the technological
progression of a particular industry. For example, a new
drug for the treatment of an important disease, or a new
operating system that will allow computers to operate
faster and more efficiently. I.Ps. which afford such
breakthroughs in technology have an intrinsic value which
can be determined based on their potential use in the
industry and the profits which may be derived from their
application to leading edge processes in industry.
Patents and industrial secrets and copyrights generally
play the major role in this type of valuation.
Exposure value relates to potential value associated
with the widespread use or widespread publicity
association with the I.P. or its physical application. In
such cases the I.P. or its physical application may not
have any intrinsic value to industry, but due to its
popularity it acquires important value. Examples of this
type of I.P. are the copyrights in famous songs, books,
and movies, and the trademarks associated with names of
old traditional companies. Copyrights, trademarks and
servicemarks usually are the types of I.P.s that develop
value in this way. Entertainment productions for example,
although generally unique, are so ubiquitous due to the
ease of production that their value accrues more from the
popularity they receive from widespread exposure or from
being associated with a well know entity, artist or
production.
Just as different types of I.P.s may be associated
with the same product, the valuation of I.P.s. may be
depedent on both intrinsic and exposure factors. In
determining value both of these basic methods must be
evaluated. A detailed evaluation will include many other
factors. The following list of questions is important in
ultimate value determination.
Important questions to ask and to be answered in
determining the value of Intellectual Properties
How unique is the I.P. or its physical
application.
How useful is it compared to its competitors.
What kind and amount of publicity has it received.
How newsworthy is its presence.
When is the term of the patent, copyright or other
intellectual property expiring?
Who owns similar I.P?
What is the history of I.P. development of the
company?
What are the ancillary I.P.s
What derivative I.P.s are associated or likely to be
derived in the future?
How well protected is the I.P.
Are there any lawsuits pending for infringement or any
threats of adverse litigation?
How soon is the I.P or its physical application(s)
marketable?
What are the current and future applications of the
I.P?
What type and amount of publicity has the I.P.
received
What is the potential for value of the raw I.P. without
use in applications?
Obviously each of these questions requires further
analysis and expertise in reaching the answers. This is
where further knowledge and expertise will pay off in the
research process.
In addition, knowledge of the particular industry
which you are researching is extremely important. One
good idea is to develop a form or checklist which you can
complete on each company or piece of intellectual;
property you are evaluating. This streamlines and
facilitates the evaluation process and improves your
productivity and efficacy. An example of a specific form
and checklist which can be used in evaluating
entertainment productions such as music and videos
follows.
