The 106; Feb 2003
1) Acquiring a web based business: From Term sheet to Closed deal (Part One)
One of the most important aspects of any acquisition is understanding the assets that you wish to acquire. This obvious concept is often overlooked. Two important assets in an Internet based acquisition tend to be email addresses and web based content. Ultimately, the goal of this exercise will be to determine value. If these assets are not clearly documented and understood, their value and the value of the acquisition could be shifted downward. In addition, without understanding the potential issues raised by these types of assets, the acquiring party could be in for a pandoras box of problems and liabilities.
Email addresses. One might recall the difficulty that Toysmart http://www.thestandard.com/article/display/0,1151,16718,00.html had in selling its assets when several states Attorneys General enjoined the sale due to a violation of their privacy policy. Notwithstanding that experience, most privacy policies still say the same thing Toysmart said about personal information: We do not sell, rent, loan or transfer any personal information regarding our customers or their kids to any unrelated third parties. It was this exact language that caused the problem. In addition, state Attorneys General were concerned that Toysmart would sell confidential financial information about its users without their consent. Many companies have ran into this problem for all kinds of reasons you should/could avoid: http://www.cnn.com/2000/TECH/computing/10/27/online.privacy.idg
Get consent. Although solutions often depend on state law and on the other terms in your privacy policy, one major step forward is an explicit consent in your privacy policy to allow the sale of information provided by a user in the event of a sale.
Ex) http://privacy.yahoo.com/privacy/us/ysearch
We transfer information about you if Yahoo! is acquired by or merged with another company. In this event, Yahoo! will notify you before information about you is transferred and becomes subject to a different privacy policy.
An acquiring entity should have the consent of each individual whose email address to be acquired prior to taking title. Often, users are asked to consent to the terms of the new privacy policy sent as part of their normal email correspondence with users. Of course, check to make sure that the current terms allow for modification.
Web based content. Images, text, sound, video assets on the Internet are really no different because they were created on the web. For every online asset, make sure the target company or entity has the right to sell that asset. In a recent Gamer related acquisition we did, the target company hired a consultant to develop a web site specific to a particular on-line game. In turn the consultant hosted the site and asked users to contribute mods (e.g. modifications) to the games in the form of images, sound and code scripts. Without a written agreement between the consultant and the target, the target company cannot own the rights necessary to sell the web site to an acquirer. Without an agreement between users of the site and either the consultant (if he owns the site) or the target, the target company will not own the rights to the contributions from the users. You may hear lawyers talk about chain of title to describe this issue. Make sure that for each asset you seek to acquire, you can document the chain of title from the creator to the party selling the asset. Otherwise, you are apt to buy the Brooklyn Bridge.
UCC searches. For about $120, you can order a search of liens on the assets which you seek to acquire. Companies like CSC.com can run the search in a day or so. Not only is it important to understand that the targeted assets are free and clear but UCC searches and searches of litigation help you to know as much about the target company. Spend your resources wisely.
This information and more is covered in Term Sheets to Deals a course provided quarterly. Stand by for more in Part Two.
2) Non-disclosure Agreements: When to use them.
Clients often ask when a non-disclosure agreement (aka nda) should be used. A NDA is not always appropriate for the first meeting. First, it might be overkill at the starting point of your conversation. Second, you must be clear about why you would use an nda. Understand what you or your client NEED to protect (and to communicate first to move forward) and then devise a strategy to protect it. Do you know what you consider your business crown jewels?
One rule of thumb can help. If you derive an advantage from the information, the design, the code, the description, combing two elements together (sugar and carbonated water), then it could be worth protecting. Let us leave aside for a moment whether what you seek to protect is proprietary and just operate on the premise that what is worth protecting should be kept confidential. Powerpoints, written descriptions, oral presentation should all be tailored along the basic rule of disclosure: only disclose what is absolutely necessary to move things forward. If what you absolutely must disclose is a basis for your competitive advantage, then a nda could be appropriate. If the other side thrusts a non-disclosure upon you when you arrive, you might quickly re-tailor your presentation to tell them as little as possible until you have had time to go over the document and the benefits of disclosing to them. As an aside, be prepared for when you go to the Yahoos of the world and their sign in sheet has a non-disclosure attached. Read what you sign! We will cover this instance in a later 106.
NDAs are Contracts. If you disclose what you determine should be treated as confidential by the other side, you might send an email confirming to them that the discussion was confidential. Counsel will be helpful to determine how to handle that situation and what form of non-disclosure agreement you might send off. As you know, non-disclosures are contracts and as they may be the first agreement between your entity and the other party, they should be given careful thought.
If you have not already, take your non-disclosure out (if you have one) and make sure that you can answer the following questions. Not only will it help you determine whether you need to use an nda in a discussion but you can explain yours should your counterpart raise an issue.
Things to think about:
If you do not have a form non-disclosure, you might want to have one handy. Let us know if you would like to sign up for the next course on understanding an NDA.
3) Branding: Search before you name.
All products and services are not created equal. Some products and services aspire to be brands that distinguish themselves in the market place. Brands that are trademarks and service marks can give their owners the right to prevent others from using such brands to peddle their goods in addition to attracting more customers. The owner gets this right as they use the mark. Once registered, it turns into a powerful weapon in the arsenal of the brand strategy.
For little money, you can set a strategy in motion to create a distinctive brand for your new product or service. There are many steps in a branding campaign but one of them might be creating a good trademark or service mark. As you know, a trademark and service mark are protectable words, logos, slogans that distinguish your good (trademark) or service (servicemark) from others in the market. One of the simplest steps in creating a brand is to determine whether it is descriptive of the goods or services. Does your proposed mark describe (one or more) ingredient, quality, characteristic, function, feature, purpose or use of the specified goods or services? If yes, there may be a problem in obtaining a trademark or service mark. One more thing: do a quick search on the US Patent and Trademark site to see if there is a prior registrant to your mark: Search US Trademark office
1) Acquiring a web based business: From Term sheet to Closed deal (Part One)
One of the most important aspects of any acquisition is understanding the assets that you wish to acquire. This obvious concept is often overlooked. Two important assets in an Internet based acquisition tend to be email addresses and web based content. Ultimately, the goal of this exercise will be to determine value. If these assets are not clearly documented and understood, their value and the value of the acquisition could be shifted downward. In addition, without understanding the potential issues raised by these types of assets, the acquiring party could be in for a pandoras box of problems and liabilities.
Email addresses. One might recall the difficulty that Toysmart http://www.thestandard.com/article/display/0,1151,16718,00.html had in selling its assets when several states Attorneys General enjoined the sale due to a violation of their privacy policy. Notwithstanding that experience, most privacy policies still say the same thing Toysmart said about personal information: We do not sell, rent, loan or transfer any personal information regarding our customers or their kids to any unrelated third parties. It was this exact language that caused the problem. In addition, state Attorneys General were concerned that Toysmart would sell confidential financial information about its users without their consent. Many companies have ran into this problem for all kinds of reasons you should/could avoid: http://www.cnn.com/2000/TECH/computing/10/27/online.privacy.idg
Get consent. Although solutions often depend on state law and on the other terms in your privacy policy, one major step forward is an explicit consent in your privacy policy to allow the sale of information provided by a user in the event of a sale.
Ex) http://privacy.yahoo.com/privacy/us/ysearch
We transfer information about you if Yahoo! is acquired by or merged with another company. In this event, Yahoo! will notify you before information about you is transferred and becomes subject to a different privacy policy.
An acquiring entity should have the consent of each individual whose email address to be acquired prior to taking title. Often, users are asked to consent to the terms of the new privacy policy sent as part of their normal email correspondence with users. Of course, check to make sure that the current terms allow for modification.
Web based content. Images, text, sound, video assets on the Internet are really no different because they were created on the web. For every online asset, make sure the target company or entity has the right to sell that asset. In a recent Gamer related acquisition we did, the target company hired a consultant to develop a web site specific to a particular on-line game. In turn the consultant hosted the site and asked users to contribute mods (e.g. modifications) to the games in the form of images, sound and code scripts. Without a written agreement between the consultant and the target, the target company cannot own the rights necessary to sell the web site to an acquirer. Without an agreement between users of the site and either the consultant (if he owns the site) or the target, the target company will not own the rights to the contributions from the users. You may hear lawyers talk about chain of title to describe this issue. Make sure that for each asset you seek to acquire, you can document the chain of title from the creator to the party selling the asset. Otherwise, you are apt to buy the Brooklyn Bridge.
UCC searches. For about $120, you can order a search of liens on the assets which you seek to acquire. Companies like CSC.com can run the search in a day or so. Not only is it important to understand that the targeted assets are free and clear but UCC searches and searches of litigation help you to know as much about the target company. Spend your resources wisely.
This information and more is covered in Term Sheets to Deals a course provided quarterly. Stand by for more in Part Two.
2) Non-disclosure Agreements: When to use them.
Clients often ask when a non-disclosure agreement (aka nda) should be used. A NDA is not always appropriate for the first meeting. First, it might be overkill at the starting point of your conversation. Second, you must be clear about why you would use an nda. Understand what you or your client NEED to protect (and to communicate first to move forward) and then devise a strategy to protect it. Do you know what you consider your business crown jewels?
One rule of thumb can help. If you derive an advantage from the information, the design, the code, the description, combing two elements together (sugar and carbonated water), then it could be worth protecting. Let us leave aside for a moment whether what you seek to protect is proprietary and just operate on the premise that what is worth protecting should be kept confidential. Powerpoints, written descriptions, oral presentation should all be tailored along the basic rule of disclosure: only disclose what is absolutely necessary to move things forward. If what you absolutely must disclose is a basis for your competitive advantage, then a nda could be appropriate. If the other side thrusts a non-disclosure upon you when you arrive, you might quickly re-tailor your presentation to tell them as little as possible until you have had time to go over the document and the benefits of disclosing to them. As an aside, be prepared for when you go to the Yahoos of the world and their sign in sheet has a non-disclosure attached. Read what you sign! We will cover this instance in a later 106.
NDAs are Contracts. If you disclose what you determine should be treated as confidential by the other side, you might send an email confirming to them that the discussion was confidential. Counsel will be helpful to determine how to handle that situation and what form of non-disclosure agreement you might send off. As you know, non-disclosures are contracts and as they may be the first agreement between your entity and the other party, they should be given careful thought.
If you have not already, take your non-disclosure out (if you have one) and make sure that you can answer the following questions. Not only will it help you determine whether you need to use an nda in a discussion but you can explain yours should your counterpart raise an issue.
Things to think about:
- what types of information does it cover and is the definition of confidential information broad? (make sure it covers what you generally would disclose);
- does it cover information disclosed orally as well as in writing?
- whether it cover information you disclose as well as information disclosed by others;
- must you mark or clearly identify information to be confidential;
- whether the agreement limits your use and the use of the other party only to evaluating a relationship or some other use;
- What other restrictions to disclosure exist? (for example, you can only disclose to employees with a need to know and who have signed a confidentiality agreement)
- whether the agreement prohibits your disclosure to consultants (if you use consultants on most jobs this could be a problem);
- when is information not considered confidential under the agreement;
- is there a term when your obligation and/or their obligation to keep information confidential ends?
If you do not have a form non-disclosure, you might want to have one handy. Let us know if you would like to sign up for the next course on understanding an NDA.
3) Branding: Search before you name.
All products and services are not created equal. Some products and services aspire to be brands that distinguish themselves in the market place. Brands that are trademarks and service marks can give their owners the right to prevent others from using such brands to peddle their goods in addition to attracting more customers. The owner gets this right as they use the mark. Once registered, it turns into a powerful weapon in the arsenal of the brand strategy.
For little money, you can set a strategy in motion to create a distinctive brand for your new product or service. There are many steps in a branding campaign but one of them might be creating a good trademark or service mark. As you know, a trademark and service mark are protectable words, logos, slogans that distinguish your good (trademark) or service (servicemark) from others in the market. One of the simplest steps in creating a brand is to determine whether it is descriptive of the goods or services. Does your proposed mark describe (one or more) ingredient, quality, characteristic, function, feature, purpose or use of the specified goods or services? If yes, there may be a problem in obtaining a trademark or service mark. One more thing: do a quick search on the US Patent and Trademark site to see if there is a prior registrant to your mark: Search US Trademark office