Intangible Assets Business Transaction Teams

Business transaction teams are obliged to recognize today, that for every transaction considered or engaged…there will be valuable – competitive advantage intangible assets, comprised of intellectual, structural, and relationship capital…

in play, i.e., directly relevant to achieving a lucrative, competitive, and sustainable outcome, and

at risk, i.e., to infringement, misappropriation, undermining, or merely ‘walking out the door’.

More specifically, owners – holders of those assets, and/or those having fiduciary responsibilities for their stewardship, oversight, and management, recognize how, where, when, and from whom or what challenges posed by the global culture and business of infringement and counterfeiting when negotiating, but, before finalizing, a deal.

Aside from the subjective estimates of losses attributed to infringement, counterfeiting, and product piracy, to be sure their large, it’s important to also recognize that these acts represent substantial (and growing) percentages of many countries’ GDP, sources of employment and personal income and ‘manufacturing’ base. It’s appropriate then, for business (transaction) teams to draw the conclusion that infringement, counterfeiting and piracy have moved well beyond the realm of annoying probabilities to inevitable and costly realities if left unchecked or un-considered.

When assessing – negotiating the expectations of a transaction, especially those in which intangible assets, IP, know how, and competitive advantages in play, prudent decision makers should recognize there are few, and in many instances, no impediments for existing or would-be infringers, counterfeiters, and product pirates to engage in such acts.  In part this is because (a.) the ‘start-up’ costs are minimal, (b.) they can operate in relative anonymity globally, (c.) the legal deterrents’ are lax, inconsistent, or non-existant, (d.) there’s enormous potential for quick and very substantial margins (profits), and lastly, (e.) the extraordinary speed in which infringement, couterfeiting, and product piracy can materialize and adversely affect a companies’ margins, reputation, and goodwill. (Adapted by Michael D. Moberly from ‘Hot Property’, The Stealing of Ideas In An Age Of Globalization. Pat Choate)

The following represent a few key questions I’ve developed and urge prudence relative to assessing transactions in which intangibles, IP, know how, and/or competitive advantages are ‘part of a deal’:

1. What is your companies’ loss tolerance threshold (tipping point) insofar as economic, competitive advantage, market share, image, goodwill, consumer confidence…?

2. What is the probability such losses will be irreversible – permanent and what, if any, recovery options are available, and how much will they cost your company…?

3. What is the degree of global universality of your company’s products and/or services and are there any potential dual-use components or applications within those assets…?

4. What is the cultural (business, legal, government) receptivity to (climate for) infringement, counterfeiting, and product piracy in the host country-region where the transaction will be executed…?

While these represent only a few of the considerations I urge company transaction teams to consider, I especially urge them not to dismiss these questions solely for the expediency of a deal.  It’s equally important to recognize that economic – competitive advantage hemorrhaging (attributed to infringement, counterfeiting, and/or piracy) can occur well before the ink dries on a transaction contract.  A reality is though, some management teams (still) assume they can consummate deals and commence revenue streams before any assets will be infringed, counterfeited or pirated.  In the ultra-competitive, predatorial, winner-take-all global business arena, such a position could be accurately characterized as ‘permissive neglect’!

Michael D. Moberly June 20, 2008


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