for them to continue to serve as a director. Next, get a complete understanding of the company’s financial situation. Don’t take management’s word for it at face value; it’s the directors’ assets that are on the line. Analyze the company’s indemnification provisions and directors’ and liability insurance. Are they adequate? Is there any credit behind them? Finally, pay close attention to the company’s tax situation. The IRS and state taxing authorities may be looking for revenue wherever they can find it and won’t hesitate to chase the officers and potentially the directors of any company that fails to pay payroll withholding or state income taxes.
Strategic Intellectual Property Portfolio Management
The current downturn presents an opportunity for a company to undertake a careful, strategic analysis of its IP assets with a view to not only conserving costs, but also garnering new sources of revenue. Since it can be very costly to maintain families of patents and trademarks, it is important to analyze how vital such IP is to the company’s current and future business plan. While the reduction of some filing and maintenance fees can result in significant cost savings, such pruning must be done with a keen eye to the future. It would be folly to cannibalize a company’s IP portfolio in the name of cost cutting only to find that the company is at a substantial competitive disadvantage when the economy recovers.
The next strategic issue to address is whether the company wants to use its IP offensively, defensively, or a combination of both. If the company is primarily interested in using its patents and trademarks to protect its current and projected (near term) operations, then it should consider adopting a largely conservative strategy that emphasizes cost control and strategic filings. Still, even those companies should analyze whether there is any additional revenue that can be generated from a sale, licensing or litigation program.
Companies that have invested significantly in their IP should strongly consider harvesting their investment. A well-thought-out licensing and litigation strategy can result in an enhanced bottom line, often without significant new investment. Certainly infringement litigation is not inexpensive, but many companies in the current environment might be inclined to settle infringement suits to avoid the heavy costs of IP litigation, sometimes even at the expense of significant license fees.
Licensing in the current environment has its own set of risks. It is critical that the “nuts and bolts” of licensing be observed even in the face of the over arching need to “make a deal” and start generating revenue. Clearly defined field of uses, royalty provisions, representations, warranties, and indemnification provisions are critical for a successful licensing program. It is equally important to assess the credit of potential acquirors and licensees of IP. If a company licenses valuable IP to another company that goes into bankruptcy, it may end up in the unenviable position of dealing with a bankruptcy trustee.
This kind of savvy strategic planning, and a willingness to make difficult decisions, will define who will be the winners and losers in the New New Economy.
