Archive for 'Intangible asset assessments/audits.'

Intangible Asset Due Diligence Transaction Pre-Post Monitoring

August 1st, 2016. Published under Due Diligence and Risk Assessments, Intangible asset assessments/audits., Sustainability of intangible assets.. No Comments.

Michael D. Moberly August 1, 2016 ‘A blog intersecting intangible assets and business!’

Intangible asset specific due diligence is a necessary, but often overlooked component in consummating business transactions, especially pre and post monitoring.

For management teams, c-suites, boards, and stakeholders, it’s important, more so today than perhaps ever before, to recognize that merely because a deal, transaction, or M&A has been proposed, appears promising and has progressed to its relevant due diligence stage, does not constitute assurance any of the projected-anticipated value, synergies, efficiencies, scalability, and competitive advantages will actually materialize or be sustainable.

The probability that any calculated – anticipated projections related to a business transaction outcome will materialize to benefit its initiator, preferably sooner than later, is increasingly dependent on the sophistication of due diligence management teams to recognize the economic fact that today, 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, future wealth creation, and sustainability reside in – evolve directly from IA’s (intangible assets). To increase the probability that initial projections (to a transaction’s outcome) will materialize as intended, the scope of transaction due diligence must include identifying, unraveling, assessing asset fragility and transferability, mitigating risks, and otherwise safeguarding-preserving the key – contributory IA’s value and competitive advantages.

The key forms which the dominant, most valuable, and competitive advantage driving IA’s exist are intellectual, structural, relationship, and competitive capital and reputation/brand. In most instances, it is these IA’s and their scalability which likely drew attention around which the initial and underlying rationale for imagining and undertaking a particular transaction was framed

True, in many instances, valuable – competitive advantage driving IA’s can be variously fragile and vulnerable to various risks, including value – competitive advantage fluctuation, misappropriation and infringement. For good reason then, the ability to monitor control, use, ownership, and value of key IA’s to the transaction, in both pre and post contexts, will sustainable and lucrative projections be realized. The rationale; more companies today engage in domestic – international trade and business transactions as a matter of routine. Too, for a significant percentage of those transactions, the negotiations are aggressive, competitive, predatorial, and come with winner-take-all outcomes. Under these circumstances, dismissing and/or relegating these business – transaction realities and fiduciary responsibilities about IA’s to the un-initiated, unaware, or unfamiliar when IA’s will inevitably be dynamic contributors to lucrative outcomes of transactions.

In that regard, I have had the privilege, over the years, to engage countless business decision makers and strategists across industry sectors. In private conversation, few, if any of these executive dispute my characterizations and advocacy of IA’s. Assuming these conversations are representative, it would seem prudent then that IA’s would be applied to all relevant aspects of a business transaction process, especially pre-post (transaction) due diligence where sustaining – monitoring control, use, and ownership of IA’s contributory role, value, and competitive advantages are paramount to the outcome.

Transaction Due Diligence and Intangible Assets

July 26th, 2016. Published under Due Diligence and Risk Assessments, Intangible asset assessments/audits.. No Comments.

Michael D. Moberly July 26, 2016 ‘A business blog where attention span really matters’!

It is an undisputable economic fact – business reality that today, 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from IA’s (intangible assets)!

It’s prudent to assume then, for every business transaction, initiative, or operation a company and its management team elect to undertake – engage, there will always be IA’s in play. This makes it’s essential for parties to recognize, when contemplating, structuring, and executing a transaction, particularly the due diligence component, that sustaining control, use, and ownership of relevant IA’s, will play increasingly significant roles insofar as valuation, measuring asset performance and outcomes, and defining an exit strategy.

Too, respecting the ease which valuable-competitive IA’s (particularly intellectual, structural, and relationship capital) can be misappropriated, undermined, entangled, lost, or merely walk out the front door, the impulse to consummate a deal in a gratuitously hurried fashion, absent pre and post due diligence focused specifically on IA’s, it becomes probable that some manner-form of IA economic – competitive advantage hemorrhaging will occur. In other words, in today’s aggressive, interwoven, predatorial, and winner-take-all (global) business climate, the IA’s a party believes they are buying – acquiring ownership, may lose various percentages of their contributory value.

Having been actively engaged in safeguarding and mitigating risk to IA’s for many years, my counsel on the issue of IA (specific) due diligence is straightforward. Decision makers responsible for deal structuring have fiduciary responsibilities that include sustaining control, use, ownership, reputation, and monitoring value and materiality of the about-to-be-purchased (acquired) IA’s. The most effective way to mitigate risk to those assets is an effective pre and post due diligence, specific to the relevant IA’s. The key to this due diligence is knowing what IA’s are, how they evolve-develop within a company, and their contributory role and value.

For maximum benefit, the due diligence is best commenced at the point in which the deal/transaction is being contemplated so the locus of the relevant IA’s can be determined and due diligence planned accordingly. Again, it’s worth noting, 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from IA’s!

IA hemorrhaging (in deals and transactions) is frequently facilitated when two frequently held attitudes of decision makers converge, i.e.,

• unnecessarily high or unjustified sense of urgency attached to deal execution. (Urgency and speed often
mutate to become a dominant driver of a transaction which in turn can constrict – impede a thorough due
diligence, especially with respect to unraveling the origins, stability, sustainability, value,
and ‘mergability – transferability’ of the IA’s in play.)
• assumption that deals-transactions can be consummated and revenue streams commence before relevant IA’s fall
prey to depreciation or loss.

Mitigating asset vulnerability and probability to value – competitive advantage – reputation hemorrhaging, well in advance of the ink drying on a transaction agreement, is an essential contributor to achieving the desired (successful, profitable, sustainable) outcome.

Assessing Intangible Assets

May 26th, 2016. Published under Due Diligence and Risk Assessments, Fiduciary Responsibility, Intangible asset assessments/audits.. No Comments.

Michael D. Moberly May 26, 2016 ‘A blog where attention span really matters’!

What Are Intangible Assets…
Company and institutional value has shifted from collections of physical (tangible) assets to synergistic assemblages of non-physical IA’s (intangible assets) rooted in – evolving from intellectual, structural, relationship, and competitive/entrepreneurial capital.

However, unlike conventional IP (intellectual property), i.e., patents, trademarks and copyrights, there is no certificate issued by the government that says ‘these are your IA’s and competitive advantages’. Instead, the responsibility for identifying, assessing, safeguarding and otherwise preserving the value of those assets is a fiduciary responsibility for each company – organization and its management team.

Margaret Blair and Steven Wallman, previously associated with the Brookings Institution’s ‘intangibles project’, serving as that project’s principle investigators, along with Jonathan Low, describe IA’s as…“non-physical factors of production that contribute to or are used in producing goods or services, or as factors expected to generate future benefits for the individuals or firms controlling the assets”.

I see, with increasing consistency IA’s are the product of uncoordinated, unplanned, variously collaborative, and occasionally serendipitous actions of knowledge relevant individuals, and not necessarily the result of a decision arising from a dedicated capital allocation. Specific examples of IA’s are described with considerable specificity in numerous posts at my ‘Business IP and Intangible Asset Blog’ and distinguished in some 14+ categories.

The relevance of IA assessments…
An IA assessment is a methodical, insightful, and ultimately prescriptive tool for identifying, unraveling, and distinguishing the contributory – competitive value of key – strategic IA’s that underlie (serve as the foundation to) a company’s stability, profitability, and sustainability, and reputation.

To be sure, IA-specific assessments remain relatively new. They have largely born out of necessity, that is, the economic fact – global business reality that 80+% of most company’s value, sources of revenue, and sustainability lie in – evolve directly form IA’s, no longer tangible-physical assets. As such, a new, non-conventional approach (method, model) to identify and assess those assets was needed; distinguishable from conventional IP valuations and inventories. To accommodate IA’s, this approach must, of course, be sufficiently flexible to (reveal) identify IA’s in a variety of inter-linked and global circumstances and contexts in which they’re being used and the formats in which they exist.

Prioritizing Public Radio’s Intangible Assets

January 28th, 2016. Published under Intangible asset assessments/audits., Intangible asset valuation., Sustainability of intangible assets.. No Comments.

Michael D. Moberly   January 28, 2016   ‘A business blog where attention span really matters’!

National Public Radio (NPR) is a privately and publicly funded non-profit membership media organization that serves as a national syndicator to a network of 900 public radio stations in the United States.

NPR produces and distributes news and various cultural programming, however, individual public radio stations are not required to broadcast all NPR programs, instead most broadcast a mixture of NPR programs and content from other providers, i.e., American Public Media, Public Radio International, and Public Radio Exchange, as well as locally (station specific) programs.

There numerous qualities My experience in identifying and prioritizing most organization’s IA’s (intangible assets) commences with assessing the assets’ strategic relevance to mission, i.e.,

  • the sustainability – longevity of the asset’s contribution to an organization’s overall value and/or to a particular project or initiative.
  • their consistency insofar as sources of revenue and competitiveness, and
  • their defensibility.

There is an important caveat to this process however, at least through my lens. That is to ensure IA prioritization is not portrayed in a subjective (high, medium, low) continuum context or range estimates, ala Antique Road Show. Instead, asset prioritization should include clear and objective demonstration of their collective, collaborative, competitive, and/or individual contributory role(s) and value.

IA’s, of course, materialize in various ways. For example, relationship capital (an IA) that a public radio station and its staff forge with their communities of listener’s and stakeholders, holds substantial value and frequently triggers new initiatives, projects, and/or programming which in turn deliver multi-layered competitive advantages, i.e., attractive platforms for articulating – communicating issues of the day to all corners of a station’s community of listeners and stakeholders. As it is for any journalistic – news gathering – reporting enterprise, relationship capital is an essential, highly prized, and very valuable IA which embodies, in this instance, a public radio station’s brand.

I am confident public radio leadership appreciate – recognize (station) value, competitiveness, and impact to their respective communities of listeners. These are frequently attributable to prudent ‘envelope pushing’ initiatives, be it through exceptional personnel, new programming, or schedule modifications integrated-enhanced through community outreach, social media, podcasts, an informative website, and a receptively engaging staff. Each serve public radio as legitimate and effective leverage points to…

  • attract capable and creative-innovative intellectual capital (staff).
  • operate an organization with an appealing-gratifying work culture and ethic.
  • deliver substantive content about issues of the day to its communities of listeners, readers, contributors, and sponsors, and
  • strengthen, expand, and ‘bank’ relationship capital.

It is indeed indisputable economic fact that IA’s play increasingly significant roles in organizations, ala 80+% of their value and sources of revenue, etc., lie in – emerge directly from IA’s. So, again, I encourage IA prioritization unravel IA’s relative to their individual and/or collaborative and ‘contributory role-value’, e.g., to a particular project or initiative, a station’s mission and its competitive advantages.

Mr. Moberly is an intangible asset strategist and risk specialist and author of ‘Safeguarding Intangible Assets’ published by Elsevier in 2014, m.moberly@kpstrat.com View Mr. Moberly’s videos on YouTube at ‘safeguarding intangible assets’ or his CNN and CNBC videos at his webpage http://kpstrat.com

IA’s, Beyond Conventional Financial Statements and Balance Sheets

January 27th, 2016. Published under Intangible asset assessments/audits., Intangible asset training for management teams.. No Comments.

Michael D. Moberly   January 27, 2016   ‘A business blog where attention span really matters’!

What I wish to draw reader attention to in this post are conventional financial statements and balance sheets. Both documents are the presumptive ‘Holy Grail’ for identifying – projecting organizational performance, value, growth, and sustainability, etc. But, seldom, if ever, does either (largely regulatory) document, report IA’s (intangible assets) which are internally originated – developed. Instead ‘conventional’ financial statements and balance sheets report only externally acquired IA’s, leaving internally developed IA’s indistinguishably combined – lumped together as mere goodwill.

My experience suggests, in many instances, conventional balance sheets and financial statements  serve to moderate, if not stifle, management team  curiosity – motivation to engage their organization’s IA’s and/or mischaracterize activities related to identifying, unraveling, assessing, and valuing them as pointless undertakings, even though doing so will assuredly develop lucrative – competitive paths of value, revenue, competitiveness, resilience, and sustainability.

As an illustration of this, readers are asked to consider buy-sell transactions for a public radio station, wherein convention would emphasize – draw attention to assets which have more tangible features and outputs, i.e.,

  • numbers – size of a.m. – p.m. listening audience.
  • competing radio stations in the same market space.
  • height of transmission tower and strength of transmitter signal, etc.

Obviously, buy-sell transaction due diligence will reveal some-all of the above and competitively positioned and lucratively exploited, individually – collectively will be desirable assets. However, for this IA strategist these represent tangible-lite types of assets and would be a secondary focus of due diligence I would execute in the same circumstance.

Instead, I would focus more attention on the contributory role – value, competitive position, and measurable impact delivered by a station’s internally originated – developed IA’s relative to its communities of listeners, contributors, donors, and sponsors, along with assessing each IA for its stability, fragility, materiality, and defensibility.

In fairness, conventional financial statements, balance sheets, and asset valuation methodologies were generally not designed (intended) to capture the intangible, i.e., what we factually now know to be the most relevant strategic markers for gauging an organization’s financial health, competitiveness, and performance. To be sure, absent operational familiarity – insight about IA’s contributory roles and value, organizations are significantly less likely to achieve a comprehensive or necessarily accurate portrait of their financial and competitive position.

For these reasons, I encourage readers to recall…it really is an economic fact that 80+% of most organizations value, revenue, and competitiveness, derive from IA’s. If you are a buyer or seller of an IA intensive – dependant organization would it not be prudent to have this (due diligence) knowledge in advance?

Mr. Moberly is an intangible asset strategist and risk specialist and author of ‘Safeguarding Intangible Assets’ published by Elsevier in 2014, m.moberly@kpstrat.com View Mr. Moberly’s videos on YouTube at ‘safeguarding intangible assets’ or his CNN and CNBC videos at his webpage http://kpstrat.com

Transaction Analysis For Intangible Assets!

December 21st, 2012. Published under Business Transactions, Due Diligence and Risk Assessments, Intangible asset assessments/audits.. No Comments.

Michael D. Moberly    December 21, 2012

As stated here on numerous prior occasions, it’s absolutely essential for business decision makers to recognize that in a vast majority of transactions they either initiate or otherwise become engaged, correctly identifying and assessing intangible assets plays an increasingly significant role in achieving a desired, presumably profitable and sustainable, outcome!

The reason of course, is that steadily rising percentages, at least 65+% of most transactions’ value and potential resides exclusively in the effective stewardship, oversight, and management of the intangible assets in play, and, as noted above, critical to achieving a favorable transaction outcome. So, if a transaction management team overlooks or dismisses the intangible assets, it’s tantamount to excluding how and where deal/transaction value is created, revenue is generated, and further strategic planning will be executed.

This makes it all-the-more-important, and, according to many, rising to a level of fiduciary responsibility insofar as transaction management teams’ incorporating intangible assets in their task of strategic oversight. When executed effectively, a transactions’ intangible assets will be collectively addressed in due diligence, inventory, audit, and valuation contexts. On the otherhand, if transaction management teams are deaf to the intangibles underlying most any deal, i.e. by doing neither, it’s quite fair to say it’s time to either change transaction management teams or engage them in relevant training to elevate their operational familiarity with intangible assets, i.e., their ability to identify, unravel, make quantitative-qualitative judgments regarding their status, stability, fragility, contributory value cycle, and overall sustainability.

As readers know, there is an abundance of research that consistently paints a very convincing picture that if and/or when a merger, acquisition, strategic alliance, or other type of transaction ‘goes south’, evidence of impending problems and challenges will surface quite early and will very likely be determined to be rooted in mishandling or disregard for the relevance or contributory value of one or more intangible assets necessary for achieving sustained transaction success.

One technique to mitigate or even remedy the probability that the latter will occur is for decision makers to require (receive) a ‘heads up’ from their transaction management team in the form of what I broadly describe as a ‘before transaction consumation asset impact analysis’. As the phrase implies, this specialized analysis should bring greater (business) clarity, i.e., a more definitive picture of the stability and strategic contributory value of key assets, particularly should certain risk(s), reputation and others, materialize that carry a high probability for adversely affecting one or more of the intangible assets integral to achieving a favorable transaction outcome. The most usable analysis (report) will address

  • the inter-relatedness of intangible assets’ contributory value and associated risks and threats as well as key assets identified as being impaired in some manner, or are found to be already misappropriated, infringed, and/or counterfeited.
  • the probability that particular risks/threats will materialize to adversely affect the projected economics, competitive advantages, and/or synergies of a transaction
  • strategies for mitigating and containing certain risks/threats relative to the resiliency and sustainability of the transactions’ key intangible assets.

The obvious rationale for incorporating a  ‘before transaction consumation asset impact analysis’ is for decision makers to be apprised of circumstances and scenarios that should be revealed which can (may) influence decisions and outcomes.

I am a strong advocate of  ‘before transaction consumation asset impact analysis’ because I believe the three, most challenging intangible assets to sustain and preserve their contributory value (pre/post transaction) are, (a.) intellectual, (b.) relationship, and (c.) structural capital because they are individually and collectively highly mobile and attitudinally based.

Too, a ‘before transaction consumation asset impact analysis’  can reveal other cautionary circumstances/scenarios while retaining the option to proceed with a (a.) plan for risk mitigation, or (b.) re-negotiate a deals’ terms in light of the risk(s) and/or asset impairment(s) that have been identified.

But, the objective remains the same, that is to facilitate a more secure and profitable transaction going forward, not impede it!

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance. And, I always welcome your inquiry at 314-440-3593.

Intangible Asset Due Diligence: Selecting The Absolute Best Individual or Firm Is Critical

May 31st, 2012. Published under Due Diligence and Risk Assessments, Intangible asset assessments/audits., Sustainability of intangible assets.. No Comments.

Michael D. Moberly   May 31, 2012

A requisite to conducting superior due diligence for today’s intangible asset dominated and driven businesses, is possessing a depth of experience, knowledge, and investigative skill sets.  These are unique differentiators and essential requisites which collectively serve as starting points for achieving the necessary and insightful (due diligence) product that allows management teams to make informed decisions, i.e., proceed, don’t proceed, buy, don’t buy, or invest, don’t invest!

Respecting the economic fact that 65+% of most company’s and transaction’s value, sources of revenue, and foundations for growth and sustainability evolve directly from intangible assets, selecting not just the right, but, the absolute best individual or firm to conduct due diligence is critical.

For starters, a well-designed and executed due diligence plan must fully examine each of the target’s intangible assets.  That’s because they will inevitably be in play in any transaction. Effective assessment and integration of intangibles serve increasingly significant role to a transaction’s success.  On the other hand, with untold frequency, when intangible assets are not addressed or dismissed during due diligence, transaction failure can be imminent and materialize in a long, slow, and costly fashion, i.e., ‘failure by a thousand cuts’.

To increase the probability that certain projected transaction objectives or outcomes be realized, it’s imperative that the individual or firm contracted to conduct the due diligence can articulate the findings in objective business contexts and certainly not through a one-size-fits-all, snap-shot-in-time guesstimate oriented lens.

Key elements to superior due diligence in today’s intangible asset dominated and driven businesses, starts by possessing the experience, knowledge base, and investigative insight to…

  1. unravel (identify) how, where, and by whom the key (intangible) assets originated.
  2. determine and assess how or whether control, use, and ownership of the assets is or can be sustained.
  3. determine the assets’ contributory value and complimentary role(s) relative to current and future projects and initiatives, i.e., as potential sources of revenue and foundations for (future) growth and sustainability.
  4. recognize and differentiate the origins, motives, and asymmetric nature of global risks and threats to (intangible) assets that have become embedded in all transactions.
  5. understand how materialized risks can adversely affect asset value, a company’s competitive advantages, reputation, brand, and/or stifle project momentum and best practices to prevent or mitigate those risks.
  6. ensure asset control, use, ownership, and value are monitored for sustainability, especially in post-business transaction contexts.
  7. build a risk intelligent culture that renders a company more aware and resilient to significant and catastrophic risks, natural disasters, and/or business interruptions.

Anything less can produce an array of unwelcome challenges or worse, spell almost certain doom to the projected and desired outcomes of a transaction!

Intangible Asset Due Diligence

April 10th, 2012. Published under Due Diligence and Risk Assessments, Intangible asset assessments/audits., Investing in intangible assets.. No Comments.

Michael D. Moberly   April 10, 2012

It’s time prospective investor’s and VC’s get serious!  In my judgment, an important, but all too often overlooked aspect to achieving favorable terms and outcomes to venture capital-backed projects, is balancing (a,) the understandable requisite for putting an experienced management team in place, with (b.) ensuring control, use, ownership, value and materiality of the about-to-be invested intangible assets are sustainable.

A starting point for achieving such a balance is conducting a comprehensive due diligence and assessment of the targeted intangible assets designed to provide prospective investors (VC’s) with an objective and over-the-horizon analysis of the assets’ status.  A equally worthy product of the due diligence and assessment is that it can serve as the foundation for:

  • making the all-important invest – don’t invest decision, or
  • consummating a more secure, profitable, and sustainable outcome for investors.

This level of due diligence and asset assessment must extend well beyond the conventional ’snap-shot-in-time’ or amateurish ‘check the box’ approach.  It must include…

  1. unraveling the assets to identify any/all under-the-radar risks and vulnerabilities that could…
  2. impair and/or entangle particular (intangible) assets and adversely affect investor’s ability to sustain their control, use, ownership, and value
  3. serve as preludes to costly, time consuming, and investment stifling legal disputes and challenges.
  4. identifying all centers of internal and/or stakeholder intangible asset generation, value, and revenue production beyond what is already publicly available.
  5. identifying – assessing existing (intangible) asset production, protection, and value preservation measures and determine if they are effectively aligned with the:

                     a. investors’ objectives

b. company’s strategic business plan, and

                     c.  functional (life, value) cycle of the about-to-be invested assets.

Preferably, depending on the due diligence – asset assessment team’s operational familiarity with intangibles, they would determine if the identified risks can be prevented or mitigated to a (risk) tolerance level acceptable to the investing party so the transaction can proceed.

For start-ups and early stage firms, it is not uncommon for 75% to 90+% of their value, sustainability, projected sources of revenue, and building blocks for growth to directly evolve from intangible (IP-based) assets. This makes intangible asset due diligence and assessments all-the-more essential and potentially revelatory insofar as serving as a foundation, again for invest – don’t invest decisions, relative to distinguishing assets that are suspect, impaired, or have already been compromised.

In these circumstances, while it may not be necessary to wholly abandon a particular investment opportunity, it can prompt prospective investors to include specific (risk mitigation – transfer) covenants that are applicable on both the pre and post transaction side.

It’s unlikely, in my judgment, when an intangible asset due diligence – assessment revels significant risks, merely putting an experienced management team in place would, standing alone, be able to overcome or reverse such transgressions absent costly, time consuming, and momentum stifling legal challenges!  Therefore, having experienced and sophisticated intangible asset specialists conduct the due diligence will reap strategic returns for prospective investors.

Intangible Asset Hemorrhaging: Deal Expediency and Short Term Thinking

April 3rd, 2012. Published under Due Diligence and Risk Assessments, Fiduciary Responsibility, Intangible asset assessments/audits., Intangible Asset Value. No Comments.

Michael D. Moberly   April 3, 2012

It’s important that those responsible for the management, stewardship, and oversight of a company’s intangible assets recognize that financial – competitive advantage hemorrhaging of those assets can commence before the ink dries on a transaction agreement.

The kind of (intangible) asset hemorrhaging I’m referring to is that which is attributed to theft, misappropriation, infringement, counterfeiting and piracy, etc., anyone of which can undermine the assets’ contributory value and competitive advantages.

In todays’ globally competitive, predatorial, and winner-take-all business transaction arena, this sort of (intangible) asset hemorrhaging is facilitated by two general attitudes, i.e., an

  • unnecessarily high sense of urgency relative attached to deal execution.  Urgency and speed often mutate as the dominant driver of a transaction which in turn can constrict – impede the time allotted for and the thoroughness of the due diligence, especially with respect to the intangible assets in play.
  • assumption that deals-transactions can be consummated and revenue streams commence before the (intangible) assets in play will fall prey to theft, misappropriation, or simply walk out the front door as intellectual capital (know how) with departing employees.

Thorough (intangible) asset due diligence if obviously crucial to transaction success and profitability today, particularly when 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability evolve directly from intangibles.  This is why it’s essential for asset buyers in a transaction ‘get out front’ by (a.) acknowledging, and (b.) preventing and/or mitigating those adverse attitudes.

If, on the other hand, a company’s decision makers and/or counsel conveyed dismissiveness about the potentially adverse outcomes such attitudes would produce, presumably they would have to know precisely:..

  • the opportune time when acts of (intangible asset) misappropriation,  theft, infringement, misappropriation will occur, and,
  • the time required for an adversary to integrate the misappropriated – stolen (intangible) assets into their products and/or services as enhancements, efficiencies, and competitive advantages.

The virtual head start and competitive advantages the victim company presumably had achieved would begin to narrow and/or be undermined quite rapidly, along with its reputation, image, and goodwill   Exacerbating such increasingly probable events is the rarity that an (intangible) asset buyer will have the necessary asset) value – competitive advantage safeguards and  monitoring capabilities in place to alert would be buyers, in sufficient time to stabilize – recover the compromised assets before substantial and many times irrevocable asset hemorrhaging commences.

An adversary’s (market space, competitive advantage) ‘head start’ following their illicit acquisition – use of the intangible assets remains subjective, but it’s prudent to measure it in hours and days, not weeks, months, or quarters. Unfortunately, there are numerous actual and would-be (intangible) asset buyers that I would characterize as being ‘permissively neglectful’ about managing, safeguarding, and about-to-be purchased intangible assets by erroneously  assuming:

  • any economic and/or competitive advantages an adversary may glean from the (intangible) assets they compromise – acquire will be short-lived and/or outpaced by rapid changes in consumer – market demands which only the legitimate originator will be able to deliver, and,
  • intangible assets are (readily) renewable resources.

Respecting the narrowness of (profit) margins today, I encourage management teams and counsel to re-consider both assumptions!

While visiting  my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or m.moberly@kpstrat.com

 

 

Economic – Industrial Espionage: It’s The Intangible Assets They’re After, Not Just The Intellectual Property!

March 21st, 2012. Published under Due Diligence and Risk Assessments, Economic Espionage, Intangible asset assessments/audits., Intangible asset protection. No Comments.

Michael D. Moberly    March 21, 2012

I routinely hear presumed experts on various media, C-SPAN in particular, but broadcast and cable news programs as well, describe how intellectual property is being targeted and stolen, via industrial – economic espionage and/or cyber-attacks.  These experts usually make compelling cases, further suggesting IP theft is occurring at rates that equates to multiple trillions of dollar losses annually to U.S. held IP.

Many of these experts self identify as current or former employees of agencies within the U.S. intelligence community, federal law enforcement and/or Washington-based ‘think tanks’.

A significant difference I, and I presume many other advocates of protecting IP rights have noticed, is that these experts are more comfortable today, than in years past, in naming the presumed culprits and/or countries where a significant percentage of the attacks – thefts originate.  In a growing number of instances, these experts freely cite either state sponsored or independent operators as the origin of the problems, often citing China, Russia, Brazil, India, eastern Europe and various other legacy free player countries as the primary culprits (recipients and/or beneficiaries) of the stolen IP.

Naming the culprit countries in open source carries some potential benefits, i.e., the adverse publicity can, in some instances:

  • bring political – diplomatic pressure on some of the named country’s legislative and enforcement bodies to be more aggressive and consistent in their pursuit of infringers.
  • prompt holders of valuable intangible (IP) assets to strengthen their business transaction due diligence and reduce asset vulnerability by putting in place practices and procedures to sustain control, use, ownership, and monitor the value and materiality of all of the (intangible) assets in play in both pre and post transaction contexts.

It’s worthy to note that much of this information has been available for many years through the U.S. Trade Representatives’ Section 301 list as well as the Department of States’ Overseas Security Advisory Council.

While I don’t dispute these expert’s positions about the significance of the problem, I do find reason to dispute their consistent characterization of it solely as an ‘IP problem’.  Intellectual property is comprised of patents, trademarks, copyrights, and trade secrets.  In today’s increasingly competitive, predatorial, and winner-take-all global business transaction environment it’s rapidly becoming a given that company’s intellectual properties are not merely vulnerable, rather the probability that theft, misappropriation, or infringement will occur at some point during the assets’ life-value-functionality cycle is highly likely.  Just how likely, remains somewhat subjective and carries many variables, i.e., asset demand, attractivity, effectiveness of safeguards, etc.

I do hold however, a somewhat different view about what most of the economic and competitive advantage adversaries are targeting and it’s not solely a company’s IP.   I have worked, studied, and conducted much research on intangible assets and economic espionage over the past 25+ years.  A cursory understanding of the adversaries (referenced by the experts) social, political, economic, and legal history suggests most are just now commencing the early stages of a second generation of individuals who possess the capability to create large scale manufacturing facilities to produce the various products and/or services that sometimes emanate from infringed – stolen – misappropriated IP.

What’s missing in my judgment, from the experts’ economic espionage and cyber-attack equation is the adversary’s ability to understand and/or replicate the intangible assets, i.e., the intellectual and structural capital and know how that’s embedded in any (misappropriated – stolen) IP.  Intangible assets today comprise 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability. It’s quite correct then to say intangible assets are absolutely essential in the global economy to building product/service quality, securing supply chains, and creating efficiencies in distribution, etc.  Be assured, those engaged in using stolen IP have, in most instances, an equally strong desire to compete globally and in the same market space as the IP’s rightful holder-owner.

Know how (intellectual capital) can, to be sure, be classified as trade secrets (providing the holder consistently meets the six requisites of trade secrecy) or proprietary.  Either way, I can confidently report that companies would be well served if they identified and safeguarded the contributory value of the intangible assets that underlie all IP, because that’s what the adversaries need most.