Why is IP valuable?

I recall inquiring a new client that essentially seem to be a software consulting firm whether it had IP (“intellectual property”) and whether it retained such IP when providing software consulting services to their clients.  Its CEO replied in the affirmative.  However, when I began to do my due diligence, I noted that the IP was non-existent.  Maybe there was a misunderstanding. Yet, not having IP severely impacts the valuation of this type of company, I concluded.

As I have related to someone else, if it is not “written somewhere”, it does not exist.  That is tvaluationrue for IP.  IP must be registered or secured somehow by notices or security. There are 2 major categories of IP  — that IP which is registered and notified as being protected through registration, and that IP that has notification but held as trade secret.

For the first category, we all know about patents. There are fairly well understood rules regarding patents that include vetting and registration.  In other words, if not properly registered, the IP is not protected. There is some form of notification, “patent pending”, to offer some notice of the process.  I certainly did not see any such notification from this client.

Then there are the registrations for trademarks and copyrights. The former has an approval process as well during registration, and, when in process, there is a form of notification on any mark. Copyrights can be filed and require notification by the ubiquitous “©” symbol.  Again, did I see any such marks or copyrights for this client, the answer is still negative.

Finally there is trade secret that has no registration.  Instead, any third party must be notified on every document or page, that the information or formula is protected.  Every page must warn through the appropriate label the viewer of its protected claims. Otherwise there is no protection.  Again, nothing that the client demonstrated to me showed that protection.

With regard to this client, I knew that it developed software for the telecom industry.  I also noted that it had no registered trademarks, no patents pending, or even trade secrets.  Now, in this software industry, it is hard to argue “trade secret” to coding, since software codes are designed to bring certain results and, through minor modifications, codes can be rewritten and still bring about the same results.  Code alone is not protection. Since the results are not protected, that leaves little or no room to protect code.

Now, as GC, I have invariably received notices from outside counsels from potential investors to produce “any and all IP” held by the company.  Unless I have documentary proof of the IP, I would have considerable difficulty of delivering such IP requested through due diligence by outside counsel.  And, when I fail to produce such documentation, I immediately know that it would have an impact on the valuation of the company.

All of this analysis makes common sense. Now, going back to this client. Should the client re-evaluate its claims regarding IP?  The answer is affirmative. Can it then begin to buttress its IP portfolio?  And the answer is still affirmative. Look at Apple: it continuously files for patents, marks every year. It is not only a reflection of its innovation but also its acknowledgement that the innovation needs to be protected somehow.  IP creates not only branding; it increases barriers to entry for competitors.  Hence IP adds to the valuation of the firm. So every company’s CEO must be made aware that there is no avoidance in the very request about its IP portfolio and it must be produced upon request.  That is what that every client should know.


About Juan Ramón Zarco, SVVGP 胡安•雷蒙•扎尔科

Juan Ramon Zarco, 胡安•雷蒙•扎尔科, Silicon Valley Ventures Growth Partners llp, Hygieia Healthcare Technologies Company, AllRest Technologies LLC, Crimson Growth Partners LLP, jrzarco2001@yahoo.com, is an experienced as CxO, General Counsel and Secretary to public and private companies with global operations. Established track record of producing practical, revenue-focused solutions. As Counselor and Secretary, demonstrating vision, integrity, and sound business judgment, to CxOs. Managed complex, strategic transactions, M&A, contracts support, PE Financing, IPO, SEC compliance, Corporate/HR governance, IP licensing, Budgeting, Staff, outside counsel management, International market access strategies, Domestic & foreign government relations and advocacy. Creative in designing and implementing market access strategies. Practices law beyond conventional model with low-overhead and project-based fees. Effective at managing departments, formulating marketing strategies, balancing budgets, and implementing cost-saving measures. Extensive in-house and private practice experience, advising clients on commercial, corporate, international business, and technology law and policy. http://www.docstoc.com/video/89135472/make-your-business-an-international-presence; http://www.youtube.com/watch?v=fx5gijf3yoc For Sprint, he managed iDen international development in Southeast Asia, Middle East, and Africa, and contractual issues with Verizon. In Private Equity, he worked with Pegasus in vetting international investment deals and interim President for portfolio companies, such as Data Foundation, a data storage company, handling marketing, strategy, fund raising, and accounting. Before Pegasus, Mr. Zarco, as CLO and V.P. of Corporate Development, played a principal role in the structuring, international expansions for 2 telecom companies, U.S. Cable Group and Viatel, Inc. in financing and M&A deals exceeding $200 million. Mr. Zarco earned a J.D. from NYU Law School, M.B.A. from Cornell, and B.A. from Williams College; is fluent in Spanish, Portuguese, French, and German, with working knowledge of Russian, Arabic and Japanese.
This entry was posted in legal, Technology, Valuation. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s