Negotiating & Contracting
the Acquisition of Privately Held Intellectual Properties

Part One
By Harlington L. Hanna Jr.

Introduction

Before attempting to effectively negotiate the acquisition of privately held I.Ps. a significant amount of knowledge must be attained and a systematic approach must be developed and utilized. Remember this is the ultimate in deal making and this is what separates the men from the boys the women from the girls. To be successful over the long run you must take a professional approach and become a true professional in this arena.

The acquirer must keep in mind at all times that he or she is ultimately negotiating to obtain the valuable or potentially valuable rights in some type of product which usually has a physical presence. The physical product although valuable itself is not the goal of this exercise although it may be intrinsically tied and wrapped up in the same deal.

The acquisition process is many times an effort involving much more than a simple buy and sell transaction, and can involve complex contractual agreements between multiple parties involved in the ultimate exploitation of the Intellectual Property.

There is no one way to negotiate and contract, there may be many ways to reach the same result. Successful negotiators bring a tremendous amount of knowledge and shills to the table. There is no way to really teach a person to be a successful negotiator. They must acquire all the knowledge and experience they can and learn to repair potentially bad decisions and mistakes to prevent a bad situation getting worse. They must be flexible and pragmatic, confident but watchful, honest, credible and trustworthy.

This treatise of the subject matter will utilize the acquisition of entertainment based I.Ps. in order to discuss the subject. Remember however that many of the process and strategies discussed can be extrapolated to other areas, but a key element is a complete and continuing knowledge of the particular industry or area involved. If you do not understand the industry or area thoroughly you will probably not be successful over the long haul.

The negotiation process is a two part event and can be evaluated and discussed from both sides, and should be evaluated from both sides. Where ever possible the following discussion attempts to look at the issues from both sides. Reviewers of this treatise must be careful to understand where they sit at the table and review the contents from that perspective.

The entertainment business is an excellent example for the review of the subject of negotiating the acquisition of privately held I.Ps. This is so because the entertainment industry is perhaps the most mature industry as it relates to I.Ps. in general and it is the industry where more I.Ps, are developed on a day to day basis, providing many opportunities for private acquisitions. The Entertainment industry also provides a more complex and sophisticated I.P. structure due to their longevity in the I.P. arena and their tremendous dependence on I.P. related income for most of their revenues. They have paved the way and developed additional rules, regulations, laws, customs, and practices which preserve the rights to I.P. protection and related revenues. These serve as excellent examples and precedent setting guidelines for other industries. A thorough understanding of I.P. acquisitions in the entertainment arena will cover almost all the important points and serve as an excellent base from which to expand your acquisition efforts in other arenas.

This industry is also a good choice for the discussion since many of the individuals and companies involved with the Hannaian Business Network, whom this discussion was developed for, operate entertainment based or related businesses.

Negotiating Entertainment I.P.s.

The business value of an entertainment production involves quite a bit more than its esthetic value. How well a song, book or movie may appeal to any particular audience is really only a small part of the picture that the entertainment entrepreneur must evaluate. In fact all things being equal many more factors dealing with the legal and business aspects of the project are important to consider before further time, effort and other resources are expended on the project. It is essential that as much of these factors be researched and considered before moving ahead on the project. Many times what seems to be an attractive project after initial evaluation of the production, turns out to be far from attractive after even a cursory evaluation of the legal and business aspects surrounding the project. Both entrepreneurs and artists and producers should evaluate these factors as much before hand to establish value, minimize potential frustrations, disappointments, misunderstandings and loss of financial and other resources. Artists and producers who desire to be business ready and place themselves at the front of the line in this buyers market must give as much attention to the legal and business factors as the artistic and esthetic ones. For an example of a system to establish value see "The Hannaian Quality Assurance Principles & Checklist". Also carefully review "Understanding and Valuing Intellectual Properties".

A Buyers Marketplace

Fortunately for the entrepreneur, and unfortunately for the producer, the marketplace for transacting entertainment properties is primarily a buyers market. There are many more producers of entertainment properties than there are buyers or exploiters and so the entrepreneur many times can acquire potentially valuable property rights for a reasonable fee or through reasonable efforts. Today due to the proliferation of inexpensive computerization as a means of producing excellent quality productions, the already overburdened marketplace has become flooded with quality productions, all seeking their day in the sun, but in reality with no place too go unless the entertainment entrepreneur can take them somewhere. It is amazing that so many producers and potential producers in the marketplace do not realize this one important fact. The fact is that many many people are talented at production, many many people are attracted by production, many many products are available to help many many people produce many many productions, but sadly there are not many many outlets available to reap significant financial rewards for the exploitation of these many many productions.

Businessmen in Control

In negotiating I.P. contracts always remember the party most representative of the businessman in the project will always be in control. Business people are really the ones that make the market and ultimately provide the widespread success of any particular product. They are the real players, they make the market, they control distribution, publishing and administration, and they take most of the financial risks and exert most of the control in the ultimate process and venture. Artists and producers can only exert complete control and influence once they become well known and famous in their own right. Even then their influence and control depends on just how much of a businessperson they have become, or how much of the businessman's role they are willing and able to perform. This is an important factor in negotiating contracts because it sets the stage for the negotiations in general. Unfortunately though it may be an equitable idea that most negotiations begin with equally powerful parties on each side of the table, this is generally not the case, one or the other party generally begins with the upper hand, and usually it is the businessman. If this concept is true then I.P. negotiators should understand that the more they represent the businessman's role in the negotiations, the more likely it is that they will have the upper hand.

Finding the money in entertainment is first recognizing who the real money players are in Entertainment. If you are an artist or author and intend to make your money by producing or performing entertainment productions, realize that you are right at the bottom of the hierarchical pyramid of players, and that there are a lot more of you than there are of any other player in the marketplace. Yes you may become a major star and make a lot of money, but the odds are slim and the road difficult because you have all those other players positioned better than you in the business marketplace. Even if you become a huge mega star that there will always be someone else making more money than you. After all someone has to pay you the big bucks you hope to make. Any way you cut the cake, the more you are involved with the business aspects of the marketplace, the more you are a business player in the marketplace, the more certain you are to make some money.

There are certain strategies which will help the entertainment entrepreneur gain access to success in the marketplace and which will facilitate the acquisition of equity and options for a controlling participation in the project or venture.

 

 Part Two

 

For Further details of the Hannaian Business network and its associated business opportunities visit the Business Opportunities Section of the Hannaian Publishing Website at
http://www.hannaian.com/distribr.htm