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.
Patents
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
Databases
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.
Bankruptcy
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.
