Michael D. Moberly December 28, 2011
Let’s start again with this economic fact, 65+% of most company’s value, sources of revenue, and building blocks for growth lie in – directly evolve from 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 a deal.
In that regard, transaction due diligence should be ‘laser focused’ to achieve two key objectives:
- identify, unravel, and assess the status, stability, fragility, and sustainability of the targeted IP and other intangible assets, and
- ensure control, use, ownership, and value of those assets are sustainable and monitorable in both pre and post transaction contexts.
Patents can obviously be significant sources of competitive advantage, value, and potent (defensive – offensive) weapons to be leveraged in the marketplace which makes monitoring their status, sustainability, and value essential elements in due diligence with a strong bearing on a transactions’ success.
However, patents are widely presumed, sometimes naively so, to be the strongest form of intellectual property protection available, because of their (presumed) deterrent value insofar as affording their owners (or, licensees) the legal standing to exclude all others from making, using, selling, offering for sale, or importing the claimed subject matter for a period of years.
But, there are realities that are often times overlooked or dismissed regarding the deterrent value of issued patents that seldom surface in conventional, snap-shots-in-time, one-size-fits-all due diligence processes. That is, today, all forms of intellectual property are vulnerable to compromise, theft, misappropriation, counterfeiting, infringement, and competitive advantage undermining (value erosion) from an acutely competitive, highly predatorial, and winner-take-all global business environment. The risks and vulnerabilities to any company’s intellectual property and intangible assets today are persistent and asymmetric.
So, in my judgment, relying one of the several formulas for calculating the (current, future) value of a targets’ IP and other intangibles must include a big ‘it depends’. That is, patent value depends on the comprehensiveness and experience of a transactions’ due diligence team which must include monitoring the targeted assets pre and post transaction!
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