Archive for May, 2011

By:  Andrew J. Sherman, Jones Day & Member of Gerbsman Partners Board of Intellectual Capital

CEO’s and business leaders of growing companies inside and outside the Beltway are guilty of committing a very serious strategic sin:  the failure to properly protect, mine and harvest the company’s intellectual property.

From 1997 to 2001, billions of dollars went into the venture capital and private equity markets and the primary use of these proceeds by entrepreneurs was the creation of intellectual property and other intangible assets.  In many cases, five years later, however, emerging growth and middle market companies have failed to leverage this intellectual capital into new revenue streams, profit centers and market opportunities because of a singular focus on the company’s core business or a lack of strategic vision or expertise to uncover or identify other applications or distribution channels.  Investors and tech executives may also lack the proper tools to understand and analyze the value of the company’s intellectual assets.  In a recent study by Professor Baruch Lev at NYU, only 15 % of the “true value” of the S&P 500 was found to be captured in their financial statements.  This gap in capturing and reflecting points out the critical need for a legal and strategic analysis of on emerging company’s intellectual property portfolio.

To begin uncovering hidden value, entrepreneurs and senior executives of growing companies should go through the process of an intellectual property audit.  The intellectual property audit will examine the company’s intellectual asset management (IAM) system (if any), ensure that the intangible assets of the company have been properly protected and most importantly, will serve as the starting point for the strategic planning exercise which will be focused on identifying ancillary applications and markets for the company’s intangible assets, which could create new income streams and profit centers for the company via licensing, joint ventures, strategic alliances and even business format franchising.  The intellectual property audit and strategic planning process based upon the audit results will increase shareholder value by ensuring that the highest and best uses of the company’s intangible assets are pursued – which could also be part of the turnaround or restructuring plan of a troubled portfolio company or which could serve at the core of the value proposition in positioning a growing company for sale.

Understanding The Various Types of Intellectual Property

Intellectual Capital consists of human capital, intellectual property and relationship capital and are the key assets for driving business growth in all types of economic conditions.  As an entry point into the strategy of leveraging IP assets, an appreciation of the different types of assets and their licensing characteristics is useful.  The corporate intangible asset inventory may include trade secrets and know-how, trademarks and trade names, patents and patent applications, and copyrights.

Trade Secrets and Know-How

While trade secrets, considered collectively, often comprise the primary intangible asset a company owns, the protection regime for trade secrets, unlike patents, trademarks or copyrights, trade secret protection is not based on a federal statute.  Trade secrets are unpatented bodies of information that lay outside the public domain.  Formulations, such as the concentrate for Coca-Cola, may be immensely valuable trade secrets. The processes used by an enterprise to make products or to manage itself may qualify as trade secrets. For example, material sources, marketing plans, distribution techniques, customer information, product specification/tolerances, best methods and practices, franchise management protocols, all qualify as trade secrets.  Tweaks and modifications to improve equipment, even off-the-shelf equipment purchased on the open market, may qualify; as do the fruits of the R&D operations: blue prints, test results (even unsuccessful test results are protectable), designs, data bases. etc.  Know-how is a first cousin of trade secrets but far more difficult to inventory as a discrete intangible asset; it is an accumulation of information, knowledge and experience (some of which may qualify as trade secrets, some not) that enables its possessor to achieve practical results which can not be obtained by one not possessing it. Know-how is the essence of what make a company’s most valuable employees valuable.


A patent grants an inventor the right to exclude third parties from making, using or selling the subject matter of his or her invention throughout the United States for a defined period of time. Utility patents, which are the most common type of patents granted by the U.S. Patent and Trademark Office (USPTO), protect new, useful and non-obvious processes, machines, compositions of matter and articles of manufacture for a period of 17 years. Design patents, which stay in effect for 14 years, cover new, original, ornamental and non-obvious designs for articles of manufacture. And plant patents, which USPTO issues for certain new varieties of plants that have been asexually reproduced, are in effect for 17 years.

Trademarks, Servicemarks, and Tradenames

The Lanham Act of 1946 defines a trademark as any word, name, symbol, or device adopted and used by a manufacturer or merchant to identify and distinguish its goods from those manufactured or sold by others and to indicate the source of the goods. A servicemark serves similar purposes, but it protects the advertising and marketing of services rather than products. A tradename is the name a business or other organization selects to identify itself as a distinct entity. While it’s true that some companies do use their tradenames as trademarks or servicemarks, it’s important to treat the two varieties of intellectual property differently. A company cannot assume that its name has automatically acquired trademark or servicemark rights simply because it has been offering its goods or services under its particular company name. Tradename protection, which lasts 10 years, is granted by the USPTO.

Copyright protection is available to authors of original literary, dramatic, musical, artistic and certain other intellectual works that are fixed in any tangible medium of expression. In most cases, the owner of a copyright from the USPTO has the exclusive right to or authorize others to reproduce and/or prepare derivative works, distribute copies, perform or display the copyrighted work, during the author’s lifetime, plus 50 years.

Andrew J. Sherman is a Partner in the Washington, D.C. office of Jones Day, with over 2,500 attorneys worldwide.  Mr. Sherman is a recognized international authority on the legal and strategic issues affecting small and growing companies.  Mr. Sherman is an Adjunct Professor in the Masters of Business Administration (MBA) program at the University of Maryland and Georgetown University where he has taught courses on business growth, capital formation and entrepreneurship for over twenty-three (23) years.  Mr. Sherman is the author of nineteen (19) books on the legal and strategic aspects of business growth and capital formation.  His eighteenth (18th) book, Road Rules Be the Truck.  Not the Squirrel. (http://www.bethetruck.com) is an inspirational book which was published in the Fall of 2008.  Mr. Sherman can be reached at  202-879-3686 or e-mail ajsherman@jonesday.com.

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On this Memorial Day, please stop, remember and say thank you/say a prayer for those whose commitment is to defend our freedom.

They are the “brave” and believe in “duty, honor &  country”.

Also on this Memorial Day, our family lost a friend and a friend’s grand daughter was born today.  We both mourn and rejoice in this “cycle of life”.

May God Bless and Protect our Armed Forces and our way of life.

Be proud and smile- we live in the “land of the free” and the “home of the brave”.

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Article from GigaOm.

“As rumors of a pending Facebook/Spotify deal swirled, Mark Zuckerberg took the stage at the e-G8 Forum in Paris Wednesday and reasserted that he has no plans to become the CEO of an entertainment company.

“We don’t have the DNA to be a music company or a movie company,” Zuckerberg said in an onstage one-on-one with Publicis CEO Maurice Lévy.

The comments come just as Facebook is reported to have deepened its partnership with Sweden-based startup Spotify to roll out a more fully integrated music-streaming service within the social networking site, according to a Forbes report published Wednesday citing anonymous sources. The report claims the feature will be called either “Facebook Music” or “Spotify on Facebook.” The new service will reportedly not be available in the United States, as Spotify has not yet cleared regulations to be used in the US.

However, a source familiar with Spotify denied the deeper integration when reached by GigaOM. The company already has a “Spotify on Facebook” feature that allows Facebook users to share links to Spotify songs on their profile pages. A Facebook spokesperson responded similarly, telling me “there’s nothing new to announce” and pointing to the existing integration between the two companies. “Many of the most popular music services around the world are integrated with Facebook and we’re constantly talking to our partners about ways to improve these integrations,” the spokesperson said. Both Facebook and Spotify have separately raised funding from telecom mogul, Li Ka-Shing.

Whether the Spotify/Facebook rumor du jour is true or not, Facebook is clearly keen to get more immersed in the media and entertainment industries. At e-G8, Zuckerberg noted that while Facebook had no ambitions to move the company from Silicon Valley to Hollywood, entertainment companies could do well to take advantage of all that social networking has to offer. “I hope that we can play a part in enabling… the companies that are out there producing this great content to become more social,” he said. “We’re going to see a lot of the transformation in these industries over the next three, five years.””

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Article by Middleberg Communications and The Society for New Communications Research (SNCR) released the Third Annual Survey of Media in the Wired World, a study detailing journalists’ use of social media.

Don Middleberg is a member of Gerbsman Partners Board of Intellectual Capital.

Journalists’ Use Of Facebook, Twitter, Blogs And Company Websites To Assist In Reporting Surges From 2009/2010 Study.

New York, NY – May 6, 2011 – Today, the Society of New Communications Research (SNCR) and Middleberg Communications announced the results of the 3rd Annual Survey of the Media in the Wired World led by SNCR Senior Fellow Don Middleberg and Jen McClure, president of the Society for New Communications Research. The study, supported by quantitative data gathered from 200 journalists, examined the effects and impact of social media, new media and communication technologies on modern journalism.

The study was released in a keynote address given today by Ms. McClure and Mr. Middleberg before the PRSA Digital Impact Conference.

The goals of the study were to:

– Determine how and why journalists use new media and communications tools

– Examine the frequency of use, preference for, and assess the value journalists place on these new tools and technologies

– Measure the impact new media and communications tools have on the way journalists work and solicit feedback on the perceptions journalists hold regarding the current trends in journalism

Of the 200 journalists surveyed, 90% were based in the U.S., 67% identified themselves to be either reporters or editors and most journalists’ surveyed worked in one of the following outlets: newspaper, radio, or television.

Key findings include:

– 75% of journalists use Facebook as a tool to assist in reporting, a 6% increase from 2010 study.

– 69% of journalists use Twitter as a tool to assist in reporting, a 21% increase from 2010 study.

– 68% of journalists believe that reliance on social media has increased significantly.

– 95% of journalists believe that social media can be a reliable tool for sourcing stories.

– 69% of journalists use mobile technology to search, use social networking apps, and capture videos and pictures for reporting.

Another goal of the study was to provide insights as to how public relations professional can understand these growing changes in modern journalism and how they can provide more value to the journalistic community.

Although social media is changing the profession of journalism by giving journalists new tools to assist with reporting, many journalists still prefer traditional communication and relationship building: 53% still prefer receiving emails and 34% still prefer receiving information via phone. Conversely, one 1% of respondents stated that they would like to be contacted via Twitter or a direct message via a social network.

According to one survey respondent, “New media aren’t ending journalism, but they are changing it. Journalists should no longer expect to be the sole source of information, but rather a guide and curator of content from multiple sources. Journalists will need to develop skills to tend stories long after the ‘deadline’ has passed, since updates are ongoing . . .”

“This year’s study shows that journalists are increasingly using social media in their research, story development and reporting,” stated Jen McClure. “Social media tools and technologies are being used by journalists to monitor issues, stories and content even after a story has been published. The publication of the story is no longer the end result. Today, media organizations and journalists also must serve as curators of content, are looked to to drive conversations, and expected to provide information to keep the conversation going even after the story has been published.”

“This study provided some very important findings for those of us in public relations,” Don Middleberg adds. “It is interesting to see that mobile technology is used as a tool to aid reporting and that journalists are using it to help generate content on the go. Twitter usage is also increasing dramatically.
What it all boils down to is that journalists are communicating in a variety of channels. It is incumbent upon those of us in public relations to know each channel intimately so that we have increased communications enhanced by technology and social media.”

For full survey results, visit http://www.slideshare.net/sncr/how-are-media-journalism-evolving or see the PDF on the Middleberg Communications homepage.

About Middleberg Communications

Middleberg Communications is a full-service, independently owned public relations agency with specialized expertise in the consumer, corporate and financial services, media, and technology markets. The agency focuses on delivering tangible results that help clients grow their businesses. Hallmarks of the firm are smart, creative strategic thinking; targeted media relations; and unbridled enthusiasm for clients’ business goals, all supported by good old-fashioned hard work.

About the Society for New Communications Research (SNCR)

The Society for New Communications Research is a global nonprofit 501(c)(3) research and education foundation and think tank dedicated to the advanced study of new communications tools, technologies and emerging modes of communication, and their effect on traditional media, professional communications, business, culture and society. For more information about the Society for New Communications Research, visit http://www.sncr.org.

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Article from SFGate.

“LinkedIn Corp. raised the expected price of its initial public offering by $10, to a new range of $42 to $45 per share, making it even more overvalued by any conventional metric.

In my Sunday column (sfg.ly/k0PpDv), I pointed out that LinkedIn was going public at valuations that far exceed established tech companies such as Google, Apple and Amazon – and that was based on its previous expected IPO range of $32 to $35.

At $45 per share, LinkedIn would trade at roughly 17 times its 2010 revenues and 100 times its earnings before interest, taxes, depreciation and amortization, according to Morningstar analyst Rick Summer. That metric, dubbed EBITDA, is seen as a proxy for cash flow. With just $15.4 million in 2010 profit, LinkedIn’s price-to-earnings ratio is meaningless.

By comparison, Google is trading at just under six times revenue and about 14 times EBITDA, Summer says.

LinkedIn still plans to sell between 7.8 million and 9 million shares, which would raise up to $406 million and give it a market value of up to $4.3 billion.

The Mountain View company, which operates an online network for professionals, is expected to set a final IPO price tonight and begin trading Thursday under the ticker LNKD.

Investors are often willing to pay inflated price-to-sales or price-to-cash-flow multiples for fast-growing companies like LinkedIn, Summer says. However, for a higher-risk situation such as LinkedIn, you could argue that investors should be paying a lower multiple.

Less than 10 percent of the company’s shares will trade publicly, which could keep the price up in the short term if demand runs high. But eventually, the venture capitalists and insiders who own the rest of the shares will want to unload some and that could send the price down.

As the first major U.S. social-networking company to go public, LinkedIn could become a favorite of investors who like “pure-play investable themes,” Summer says.

But that also makes it hard to come up with an appropriate value for the company. “This is not an industry we understand incredibly well,” he adds.

Unlike the dot-com companies of yore, some investors argue that social-networking companies deserve lofty valuations because they have “real businesses and real business models,” Summer says. He agrees that LinkedIn has a strong business model and a competitive advantage. “But that’s like looking at a house and saying, ‘It’s livable, it has four bedrooms and two bathrooms. It’s worth any price because it’s a real house.’ ”

Read more here.

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