Step 5. Determine the Existing Scope of Intellectual Asset Protection.    To complete this step the future entity’s management team must examine the scope of technical know-how, trade secrets, patents, copyrights, trademarks, and existing licenses. Each assessment requires expert opinion and is described in very general terms below:

Technical know-how. The scope of protection afforded by an intellectual property asset is a function of the procedures taken by that contributor to protect the intellectual property as it was created or exploited. The contributor or one of his employees may have intimate and valuable knowledge and insights on a new product manufacturing method or related process. To the extent possible such technical know-how should be identified by the future entities management team and information recorded in delivered to that team. Technical know-how is generally non-proprietary. However, the buyer should obtain the advantage of the skill developed over the years by the contributor or its employees as an intellectual asset.

Trade secrets. Adequately protecting trade secrets requires that a contributor employees adequate procedures to practically and legally guard that secret. The future entity’s management team should review the procedures put in place to determine if trade secret status will be afforded to an intellectual property asset. Factors that the future entity’s management team should look at include the number and identity of employees who know the trade secret information, procedures taken to keep the information secret, the existence of nondisclosure and not-to-compete agreements and other agreements with employees. The future entity’s management team should also verify that the provisions of such agreements extend to the future entity on transfer of the intellectual asset. Trade secret analysis is particularly important because once a trade secret is lost, is gone forever and cannot be recovered.

Patents. Patents offer one of the strongest forms of intellectual property for processes, machines, manufacturing, compositions of matter or improvements thereof. Determining the scope of protection offered by patent is an important step in evaluating an intellectual asset. Because of this importance this topic will be covered separately in more detail later in this chapter.

Copyrights. The copyright exists in a work at the time it is fixed in any tangible medium of expression now or later developed from which the work can be perceived, reproduced, or otherwise communicated. The future entity’s management team should review the materials that are subject matter of copyright. In evaluating the scope of copyright protection, buyer should consider that copyrights extend only to the expression for the original work of authorship.

Trademarks. The value of the trademark lies in its association in the minds of the public with particular goods and services. In order to value the Mark, the receiving entity’s management team should conduct a search to determine if any third parties use the same or similar mark for similar goods and services. If so, the mark is less valuable than it is it is distinctive in the minds of consumers. Registered trademarks are substantially more valuable than unregistered ones.  When marks are unregistered the future entity’s management team should determine that they do not infringe the marks of others.

Licenses. The future entity’s management team should determine whether licensees are required to conduct business or transferable to them. Failure to transfer a needed license effectively precludes the future entity’s management team for making, using, or selling the product. Likewise a future entity’s management team would need to invest heavily to establish an independent reputation were the same goods are marketed and sold under different mark.