BUSINESS METHOD PATENTS AND EMERGING TECHNOLOGY COMPANIES

I will discuss the business side of business method patents, especially in relation to emerging growth companies in the information technology field. From a capital-raising perspective, an emerging growth technology company’s success will depend on a variety of factors.
One factor is the management team – especially whether the company has skilled, knowledgeable and experienced individuals performing key functions such as research and development, sales and finance. What are these individuals’ reputations and backgrounds? If the company is missing any of these folks, what will be the cost to obtain them?

A second factor for a young company is going to be the market that it is in, or that it hopes to get in. Is that market emerging or developed? What is the potential size? And what portion of that market will this company eventually own?

A third factor is the company’s overall risk profile. Matters to be considered include the stage of the company – is it young? Is their product about to be released? A lot of investors, principally venture capitalists, just will not consider investing in a company in a very early stage or in a very late stage, at least in the corporate finance field.

Part of the overall risk profile of a company is going to be the state of the financial markets, which went up funding marginal companies and are down. As we are seeing now, the capital even for good companies has dried up. It is not surprising that with the NASDAQ at about 50% of where it was last year, venture capital investing in the state of
Washington has dropped 70% in a quarter-to-quarter comparison. Other factors important to capital raising include the company’s competition and any barriers to market entry that may exist.

At some point in the capital raising cycle, a great deal of due diligence will be spent on assuring that the company actually owns or has licensed its intellectual property. Much inquiry will be made into the company and into its licensing and intellectual transfer agreements. Principle among these inquiries, at least for the earlier-stage companies, will be making sure that the founder has actually transferred his intellectual property.

Additionally, the founder’s status prior to joining the company must be examined to determine whether his old employer actually has rights to the IP.

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