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A Treasure Hunt Among the DOT-COM Ruins
by Manny Madriaga and Dennis Fernandez

| IP Portfolio | Creating Dot.com Value | Patents | Copyrights and Trademarks | Databases | Bankruptcy |







Nowadays, new economy companies are getting a traditional reality-check and end up using old economy methods: retrenchment, reorganization, or layoffs. More are yet to come. A lot of these startups did not focus on generation of profits coincident with major expenditures, so when financing dries up, there are not a lot of alternatives. But is there a silver lining in this shakeout that undoubtedly will whittle down the number of Dot.com's to a surviving few.

The answer is maybe, but one has to look for the few companies that truly have meaningful portfolios of intellectual properties. Since most do not have any brick-and-mortar assets to salvage, the treasure lies in their patents, trade secrets, copyrights, domain names, trademarks, and databases.

IP Portfolio

Traditionally, ideas and methods were not considered valuable unless converted into demonstrable working devices. However, early developments in patent law allowed an inventor to obtain a patent for a novel idea even the concept was not actually converted into a working model. Lately, developments in patent law expanded this premise when the business method of implementing a system to meet the tax code was allowed as a patent worthy of protection. The proliferation of business method patents surged after the 1998 decision, especially with e-commerce taking on bigger chunks of the consumer's budget. Many point to Priceline.com's patent on reverse selling auction in the Internet as an example of what may be patentable, notwithstanding the recent business problems of Priceline.com. The value of these patents is apparent in the decision of Barnes And Noble, Inc. to modify their website procedure when challenged by Amazon.com, Inc., the owner of the "one click" patent for finalizing an Internet purchase.

Creating Dot.com Value

An ailing Dot.com may have a valuable portfolio of intellectual properties. Properly protected and packaged, this portfolio may open the door to potential sale or at minimum, partnering with other companies. In some cases, the databases may also be of value to other companies willing to abide with court imposed restrictions on the use of the data.


Patent assets fall into three categories, namely, patents filed and allowed, patents filed and pending, and unfiled patentable systems and methods. The category of patents filed and allowed may be of considerable value, especially if it is a key patent in a hot Internet space. For example, a patent for a search engine or an adaptive Internet personalization software would be a tremendous value to a firm planning to build one. Furthermore, a viable software firm may want to package the Dot.com tools with their other software offerings.

Filed but pending patents are equally valuable depending on two factors. First, the patent filing date is critical. In a crowded Internet space, several of the same type of patents may all be pending, and one filed earlier, if eventually allowed, will be effective retroactively to the filing date. Second, a pending application may be invalid because the concepts and methods belong to the public domain or are obvious, an acute problem with Internet firms that marketed their concepts and published their designs long before they built the software to implement them. This concern requires more investigation.

The frequently overlooked category is unfiled patentable systems and methods. Most of the Dot.com founders know if their systems, business methods, or processes are novel since they generally know their closest business competitors. A provisional patent application may be filed by just putting together the specifications of such systems or processes, with a minimum outlay of cash. A provisional patent application must subsequently be converted to a standard application within one year, but even a provisional but strategic product application could be of considerable value when scouting for partners or buyers.

Copyrights and Trademarks

A concept reduced into a tangible form is copyrightable. Web designs and navigation patterns may be tradable assets. Although not necessary, a registration of copyrightable material with the U.S. Copyright Office is a good practice to minimize subsequent legal issues. A lot of Dot.coms spent venture capital to market their products and services accompanied with elaborate designs for firm logos, corporate symbols, and other trademarks. These assets must be inventoried in order to present its value properly to interested partners or buyers.

A recognizable domain name may be worth a significant amount by itself. For example, a Massachusetts technology company liquidated its intellectual property including the domain name "planetrock.com" for $28,000. Pets.com of San Francisco sold its web addresses and related trademarks, including the "pets.com" domain name for an undisclosed amount to Petsmart.com. A London based company, Boo.com, sold its domain name and other assets, including its customer database to Fashionmall.com


The value of customers databases or customer lists is unsettled at the moment, awaiting further developments in landmark court cases. First, data bases that include sensitive customer information such as social security and credit card numbers are not likely to be worth much, to wit the recent ruling of Federal bankruptcy judge on Toysmart.com attempts to sell its confidentially obtained customer list. In a related case, a bankrupt furniture Internet retailer, Living.com, had to agree with the state of Texas to allow a court trustee to remove credit card and social security numbers from its customer database. Online privacy is currently an explosive issue and unless data was obtained with explicit customer consent to collect and pass these data along, these databases have questionable open market value. However, the situation may be less problematic if the ailing dot.com is acquired, as in the case of Street.com acquiring SmartPortfolio.com.


Internet companies usually do not have brick-and-mortar assets, so most of these firms will have to file for a Chapter 7 bankruptcy instead of a Chapter 11 reorganization. And with funds drying up fast, the venture capitalists who backed these ailing Dot.coms will have to move fast to file the provisional patents, register copyrights, safeguard the trade secrets, and present the entire intellectual property package as a superb quality gem available at a discounted price. For a fast-acting treasure hunter, the debris of the imploding Dot.coms may yield a treasure of strategic intellectual properties that can be picked up quickly and cheaply.


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