Archive for February, 2009

Due Diligence, Patents, and Patent Value

February 26th, 2009. Published under Due Diligence and Risk Assessments. No Comments.

Michael D. Moberly   February 25, 2009

Let’s start again with this economic fact – business reality, 65+% of most company’s value, sources of revenue, and future wealth creation lie in – are directly linked to intangible assets and intellectual properties.  It’s certainly rational then to presume that in a significant percentage of business transactions, e.g., mergers, acquisitions, and even venture capital investments, intangible assets and IP will be in play and very much part of the deal.

In that regard, transaction due diligence should initially be ‘laser focused’ to achieve two key objectives:

   1. identify, unravel, and assess the status, stability, fragility, and sustainability of the targeted assets, and

  2. ensure control, use, ownership, and value of the (targeted) assets are sustainable (pre – post transaction).

Patents can be significant sources of competitive advantage, value, and potent weapons to be leveraged in the marketplace which makes determining their status and sustainability essential elements in due diligence with bearing on a transactions’ success, e.g., companies can use-leverage patents to literally lock competitors out of a market space and gain competitive isolation which can be a key enabler to achieving (moving toward) the expected growth.

Patents are widely presumed, sometimes naively so, to be the strongest form of intellectual property protection available, because, theoretically, they afford their owners (or, licensees) the right to exclude all others from making, using, selling, offering for sale, or importing the claimed subject matter for a period of 20 years from the patent filing date.  But, there’s overlooked realities about the strength and value of patents that seldom surface in conventional, snap-shot-in-time, one-size-fits-all due diligence processes.  That is, today, intellectual property is very vulnerable to compromise, theft, misappropriation, counterfeiting, infringement, value erosion, and competitive advantage undermining from an acutely competitive, predatorial, and winner-take-all global business environment.  The risks and vulnerabilities to any company’s intellectual property and intangible assets today are consistent and truly asymmetric.

So, using one of the several formulaes for calculating the (current, future) value of a targets’ IP must include a big ‘it depends’.  Patent value ‘depends’ on the comprehensiveness and quality of the transactions’ due diligence which must include (a.) identifying, unraveling, and assessing the status, stability, fragility, and sustainability of the assets as an essential foundation to (b.) ensuring control, use, ownership, and value of the assets are sustainable pre and post transaction!


Intangible Assets Really Count In Franchise Brand, Integrity, and Reputation!

February 25th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Due Diligence and Risk Assessments. No Comments.

Michael D. Moberly     February 24, 2009

The intent of this ‘analysis and commentary’ is to encourage franchisors (franchise systems) to consider a slight shift from being exclusively (solely) market – margin driven to being aggressively protective of their product/service’ intellectual property, proprietary competitive advantages, brand, and reputation.  A franchises’ brand, of course, is the key product name and reputation that’s recognized in the marketplace.

A (franchise) brand integrity program should include processes, features, designs, and (business) practices that collectively ensure (monitor) the on-going integrity, safety, and authenticity (e.g., consumer confidence) of its products, intellectual property, competitive advantages, reputation, image, and shareholder value.

In this context, franchisors’ should consider (a.) how much risk to product/service IP, intangible assets, brand integrity, and reputation, etc., exist in the franchises’ market space, and (b.) has each (franchise) product/service and the associated intellectual property and proprietary competitive advantages been identified, valued and practices put in place to sustain control, use, ownership, and value of those assets…?

The Seven Laws of Brand Integrity and Reputation For Franchise Systems…
1.  Brand integrity and reputation involves more than mere legal protections afforded through conventional intellectual property laws…

2.  If a franchises’ product-service (brand, reputation) is valuable, be assured there are a broad range of global economic – competitive advantage adversaries that will try to appropriate those assets and take the profits…

3.  If a franchisor does not take proactive steps to safeguard their intangible assets, e.g., intellectual property, brand, reputation, proprietary competitive advantages, etc., related to its products and services, no one will do it for them

4.  If a franchisor waits to develop and execute a brand integrity program after one or more of its products/services have been attacked, value eroded, reputation (consumer confidence) diminished, etc., its likely the franchisor will lose…

5.  If a franchisor effectively and consistently executes a plan (practices) to safeguard its brand, intellectual property, proprietary competitive advantages, and reputation, its likely the economic – competitive advantage adversary’s will target competitors, not you…

6.  If a franchisor permits ‘different prices in different markets’ (for products, services), be assured, someone already has, and will continue to ‘steal your profits’…

7.  A franchisors’ own products/services, in the form of gray market goods and counterfeits, are often its biggest, most active, and consistent competitor

Remember, protection (e.g., sustain control, use, ownership, and value) of each product/service that a franchise delivers (produces, owns, etc.) is as important, as the promotional costs – resources used to market it!

Company Reputation: The Intangible Asset ‘Risk of Risks’

February 9th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap. 1 Comment.


Michael D. Moberly    February 9, 2009

In December, 2005 the Economist’s Intelligence Global Risk Briefing Unit produced a report titled Reputation: Risk of Risks based on a survey and interviews with 269 senior risk managers.

Company reputation is certainly a prized, yet highly vulnerabile asset in my view.  The reports’ respondents agreed by stating that it represented a main concern for the majority of risk managers, ahead of, for example, (a.) regulatory risk, (b.) human capital risk, (c.) IT network risk, (d.) market risk, and (e.) credit risk.  Perhaps the priorities for some of those concerns have changed somewhat since the publication of the report relative to the current recession.  But it’s certainly fair to say reputational risk still represents a very significant concern that can adversely affect, as we’ve seen of late, an entire industry simultaneously, not merely a single company.

Company reputation is an intangible asset of the first order and obviously, a major source of competitive advantage! Company reputation is defined (in the Economists’ report) as ‘how a business is perceived by stakeholders, including customers, investors, regulators, the media, and the wider public’.  Company reputation, the report goes on to state ‘declines when experience of an organization falls short of expectations’. But before fully accepting the latter, it’s first necessary to clarify and reach consensus about (a.) whose experience, (b.) what experience, and (c.) which expectations.

Protecting a firm’s reputation is, with few exceptions, the most important, but also, in my view, one of the more challenging tasks/responsibilities in company stewardship, oversight, and management.  In large part, the challenges, again in my view, lie in the asymmetric nature – elements of the risks and threats to reputation.  The Economists’ study pointed out that (a.) development of (24/7) global media and communication channels, (b.) increased scrutiny from regulators, and (c.) reduced customer loyalty as examples of reputational risk which certainly are not symmetric.

A relevant, but not easily answered question though, about company reputational risk (damage), in terms of trying to mitigate, prevent, or manage it, is whether it should be characterized as (a.) a stand alone issue, or (b.) the consequence of other, perhaps simultaneously converging risks?  As I suggested above, reputational risk, in my judgment, is highly asymmetric. In that context, I am inclined to address it not exclusively as a stand alone or separate risk, rather a consequence (by-product, multiplier) of other threats-risks that can materialize and adversely affect a company on various levels.

Respondents to the Economist’ study, report that the three biggest threats – risks to company reputation are:

– failure to comply with regulatory or legal obligation

– failure to deliver minimum standards of service and product quality to customers

– exposure of unethical practices

It’s Important How Company’s Perceive Reputational Risk – Ultimately, its important for company’s to reflect on (recognize) how they actually perceive reputational risk relative to the processes, procedures, and/or programs they (may/may not) have in place to address (mitigate, manage, prevent) them

For example, when conducting a comprehensive (intangible asset) assessment of a company (which includes reputational risks) and there’s evidence that the company’s plans and/or attitudes for responding to reputational risks appear more closely aligned with ‘crisis management’ than ‘contingency planning’, I will likely engage the senior risk manager for clarity.  If its revealed that the company genuinely addresses reputational risks/threats solely in conventional ‘crisis management’ modes, its often an indicator, in my view, that the company may not be consistently monitoring – scanning ‘their horizon and stakeholders’ for risks/threats which is so essential today, and are, my judgment ‘underliers’ to quality contingency planning, not crisis management!

Employee Allegiance: More Challenges For Companies To Safeguard IP, Proprietary Know How, and Trade Secrets!

February 6th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap. No Comments.

Michael D. Moberly   February 6, 2009

More challenges lie ahead for companies to sustain control, use, ownership, and value of their intangible assets, IP, trade secrets, and proprietary/sensitive information.

First, I want to say this post is directed to those individuals/practitioners’ receptive to examining research that has a bearing on managing – mitigating the rising risks/threats posed by insiders to companies, as I have addressed in numerous (previous) posts at this blog.

Second, for those readers unfamiliar with PERSEREC (Personnel Security Research Center), it is a relatively small, non-descript arm of the DoD, headquartered in Monterrey, CA that houses an extraordinary group of highly focused researchers committed to conducting a broad range of, often times, collaborative research, on matters related to ‘personnel security’, the product of which is primarily directed to DoD and various entities within the U.S. intelligence community.

In a recent report produced by PERSEREC titled ‘Allegiance in a Time of Globalization’ (Defense Personnel Security Research Center, Technical Report 08-10, December, 2008) Katherine Herbig provides readers with much needed, in my judgment, insights, perspectives, and facts regarding the single concept of ‘allegiance’. One reason I am interested in Herbigs’ research on ‘allegiance’ is that I am currently facilitating two groups of highly experienced security practitioners whose mission it is to serve as a ‘reality check’ for an ‘insider risk audit tool’ (prototype) being developed by PERSEREC.

‘Given the current context of globalization,’ Herbig suggests, ‘questions about how to assess, investigate, and adjudicate allegiance are of increasing concern’. While Herbig suggests these ‘concerns’ are of relevance to the personnel security community and counterintelligence agencies, I might also add those same ‘concerns’ have relevance to the private sector particularly insofar as protecting – preserving intangible assets, proprietary/sensitive information, intellectual property, and trade secrets.

But, as Herbig points out, ‘allegiance is increasingly difficult to assess in the context of globalization’, that is to say, ‘since 1990, more countries are offering dual citizenship to those who immigrate and naturalize elsewhere, trying to bind their citizens to the countries of origin’. Such practices have, in turn, allowed larger numbers of people to ‘collect dual or multiple citizenships’, which, according to Herbig (and, I agree) serve ‘to dilute the meaning of citizenship and allegiance’!

It’s not difficult then to project even more complex challenges will lie ahead in terms of companies being able to consistently and effectively safeguard their intangible assets, trade secrets, sensitive/proprietary information and intellectual property globally, and in any business transaction.  This takes on, in my view, even greater significance when considered in light of the economic fact that today, 70+% of most company’s value, sources of revenue, and future wealth creation (sustainability) lie in – are directly linked to intangible assets and IP not tangible (physical) assets.

When Herbig’s work is examined in parallel with the findings of a 2005 PERSEREC study (below) it conveys yet more challenges that lie ahead insofar as companies being able to consistently safeguard their sensitive information, i.e.,

– Growing numbers of employees have/retain emotional, ethnic, and financial ties to other countries fostered by technologies that allow global communication that serve to sustain those ties, one product of which is less inclination to seek U.S. citizenship…

– Fewer employees are deterred by a traditional sense of (employer) loyalty. More inclination to view theft of information assets (espionage) to be morally justifiable if sharing those assets will benefit the world community or prevent armed conflict…

– Greater inclination for employees engaged in multinational trade/transactions to regard unauthorized transfer of information assets or technology as (a.) a business matter rather than (b.) an act of betrayal or treason…

– Growing allegiance to the/a global community, i.e., increasing acceptance of global as well as national values. Tendency to view human society as an evolving system of ethnically and ideologically diverse and interdependent people making illicit acts easier to rationalize…‘Technological, Social, and Economic Trends That Are Increasing U.S. Vulnerability To Insider Espionage’ Defense Personnel Security Research Center Lisa A. Kramer, Richards J. Heuer, Jr., Kent S. Crawford Technical Report 05-10 May, 2005 International Journal of Intelligence and Counterintelligence as ‘America’s Increased Vulnerability to Insider Espionage’ (20: 50-64, 2007)



Theft of Trade Secrets and IP: A Sobering Business Reality and ‘Wake-Up Call’

February 5th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap. No Comments.

Michael D. Moberly – February 5, 2009

First, let me emphasize at the outset, as I consistently have in previous posts, I am not a protectionist, and under no circumstances am I advocating government protectionist policies.  I am, however, a strong proponent of Article I, Section 8 of the U.S. Constitution that states, quite clearly, ‘if I invent, I’m the one who should reap the economic benefits’, presuming, of course, I (a.) abide by the relevant laws and best practices insofar as monitoring all attempts to misappropriate, infringe, and steal (my IP) which will inevitably occur, and (b.) aggressively pursue any and all who wish to deprive me of the full and rightful benefits accruing from my invention.

The first, and perhaps most important reality to consider is that not all cultures’ – economies’ – countries embrace this philosophy, notwithstanding that it is a basic requisite to WTO membership.

In McAfee’s study, Unsecured Economies: Protecting Vital Information, conducted by Purdue University’s CERIAS unit, survey respondens and experts agreed that:

‘if an enterprise can appropriate R&D at minimal cost compared to its competitor and the company can still produce a comparable product at a far lower cost, basic economics dictates that the firm will win in the marketplace…’

‘therefore, the incentives for industrial – economic espionage are high, particularly in highly sought after developing markets, where many old economy firms might not be well established by brand reputation…’

While the sentiment (reality) conveyed above is certainly a long understood fact among information asset protection professionals, there remain a significant number of companies who have yet, or are extremely slow to respond to this global and very costly reality.  What’s more, many, if not a majority of companies, still do not have an integrated (enterprise-wide) approach to address the problem, i.e.,

– converges the expertise of information asset security, HR, IP counsel, IT, risk management, marketing, and R&D, etc.

– ensure that control, use, ownership, and value of the information (intangibles, IP, trade secret, competitive advantage) assets are sustained for the duration of the transaction or deal.

Ultimately, there must be (a.) a continually shared and respected dialogue among the different areas, (b.) recognition of each areas’ perceptions of risks and threats, and (c.) the tools – attitude to reach consensus on actions to take and resources to use.


Information Security and Geopolitical Perceptions: Important, But Often Overlooked Factors

February 4th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap. No Comments.

Michael D. Moberly   February 4, 2009

It’s worth noting in McAfee’s study conducted by Purdue University’s CERIAS unit titled Unsecured Economies: Protecting Vital Information, that ‘certain countries are emerging as clear sources of threats to sensitive data, in particular, intellectual property’.

Perhaps the most compelling point made in this section of the study, at least in my view, is that it suggests that ‘geopolitical perceptions are influencing data (security, protection) policy reality’, i.e., China, Pakistan, and Russia were reported as ‘trouble zones’ for various legal, cultural, and economic reasons’.  More to the point, the study’s respondents:

rated China, Russia, and Pakistan as the ‘worst when it comes to the protection of digital rights’, and

perceived Pakistan, China, and Russia (in that order) to have the worst reputations for pursuing or investigating security (information loss) incidents.

While experienced information asset protection professionals are likely to find nothing particularly new insofar as citing these, and other countries, as ‘trouble zones’, most of us have probably not characterized it in quite the same manner, i.e., constituting ‘geopolitical perceptions’.  Professionally speaking, I find this to be a much welcomed and refreshing departure from conventional portrayals of this persistent and costly problem.

The study also points out that the ‘perceptions’ expressed by survey respondents may be rooted in both historical conflicts and modern economic, cultural, and political differences’.  In other words, there have been warranted and long lasting ‘tensions beween China and Japan, as well as India and Pakistan, the U.S., U.K. and Russia, for example.  Collectively, some of these ‘tensions’ may well have influenced the perceptions we have come to hold with respect to the security and protection of proprietary/sensitive company information and intellectual property.

Particularly interesting findings in terms of acquiring more comprehensive views – insights into global information security and protection are the perceptions held by other countries about information risks and threats.  For example, when asked to rate the threat level of various countries in terms of sensitive data and IP:

– 47% of Chinese respondents chose the U.S., followed by Taiwan, India, and Japan

– 57% of Japanese respondents chose China, followed by Russia

– 61% of Indian respondents chose Pakistan

– 62% of U.S.-based respondents chose China, followed by Russia

– 74% of U.K.-based respondents selected Russia, followed by Pakistan and China

One of the business realities to these findings is that, as a result of this mistrust, some, perhaps more, companies are completely refusing to produce their products in or transfer their intellectual properties to countries they believe – perceive pose a risk/threat.