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!