These are abstracts of presentations made by Attorneys Timothy J. Vezeau and Steven V. Napolitano at the Arthur Andersen Symposium 2000, held in Orlando, Florida, November 2-3, 2000.  The presentation topic was, "Intellectual Property and the New Economy."

Trademarks and Copyrights

The emergence of the Internet as a business factor makes it particularly crucial for firms to develop effective trademark and copyright protection strategies.

Trademark Strategies

• Adopt a strong, widely enforceable, conflict-free mark and establish priority
• Enforce your trademark rights or you may lose them
• Protect against cyber-squatting and typo-squatting
• Make effective use of meta-tags; police wrongful use of meta-tags
• Guard against—or engage in—ambush marketing

Copyright Strategies

• Ensure you own your own code and other copyrightable subject matter
• Adopt a thoughtful protection scheme that considers the implications of registration
• Be aware of evolving legal actions that may affect the marketability of your product or service

Patents

Patents for intangible assets play an increasingly central role in mergers and acquisitions. To qualify for a patent, the subject matter must be novel, useful, and non-obvious.

A federal statute dictates that only certain types of subject matter are patentable:

• Process
• Machine
• Article of manufacture
• Composition of matter
• Any new and useful improvement thereof

Design and plant patents are also available.

A federal circuit court has found computer programs and business methods patentable under some circumstances. The recognition of business method patents has resulted in litigation, licensing, and the proposed Business Method Patent Improvement Act of 2000.

Organizations considering a merger or acquisition should conduct patent due diligence. An inventory of technological assets must be made. Third parties should be analyzed in relation to patent licenses, potential claims against the target company for infringement of third parties’ patents, and patent litigation settlement agreements.

Transactional Considerations

Intellectual property often drives transactions involving emerging growth companies. IP issues arise in several areas.

IP issues can impact a venture capitalist’s valuation. Both the onslaught of business process patents and the status of development milestones bear on valuation.

For due diligence purposes, representations and warranties as to an emerging growth company’s proprietary rights in intellectual property should likely be secured. Certain key representation and warranty elements should be included to create indemnification rights. Despite some benefits, limitations related to representations and warranties make the devices more appropriate for acquisitions. Also, the use of Application Service Provider models carries the risk of violating existing license rights or infringement of third parties’ copyrights.

Emerging growth companies can benefit from the sophistication of experienced venture funds in several ways:

• Intensive due diligence with experienced investors
• Assistance with IP strategies and milestone development
• Important strategic relationships and recruiting ability

The critical nature of human capital with valuable knowledge and employees’ increased negotiation savvy can affect equity compensation arrangements. Typical equity compensation alternatives include:

• Grants of restricted stock
• Incentive stock options
• Non-qualified stock options
• Phantom stock rights
• Combinations of the above

Many executives are demanding revisions to their existing equity compensation. Revisions trigger many accounting, legal, and shareholder issues, particularly as to option repricing. Potential alternatives to option repricing may be available:

• Issue new options but don’t cancel old options
• Issue restricted stock and cancel old options
• "Permissible" repricing
• Hybrid approach