April 1, 2000 | The George Washington University Law School Corporate & Business Law Journal

The Effective Management and Value Maximization of Intellectual Property

24 min


Until recently, chief executives and business managers considered intellectual property issues as merely legal matters best left to their corporate attorneys. The rapid growth of the knowledge economy, however, has spawned a corresponding explosion in the growth in value and scope of intellectual assets in the corporate world. Entrepreneurs and executives alike constantly strive to achieve competitive business advantages and maximize shareholder wealth. Imperative in reaching these objectives is a clear understanding of how to unleash the full value of patents, trademarks, and copyrights.

Companies that strategically manage their intellectual property portfolios, using them as financial instruments instead of just legal instruments, will achieve more commercial success and maximize shareholder wealth. For example, IBM boosted annual patent-licensing royalties by an incredible 3,300%, from $30 million in 1990 to $1 billion a year in 1999, demonstrating the power of an effective intellectual property management strategy.1 Additionally, it is important to note that this $1 billion per year is largely free cash flow constituting a recurring net revenue stream representing one-ninth of IBM’s annual pretax profits.2 Other companies like Merrill Lynch, Xerox, and Pitney Bowes have recently hired high-level patent specialists to help build their intellectual property portfolios and boost long-term licensing revenues. Some companies are taking advantage of technology improvements in software and process automation to streamline the traditionally lengthy patent application process.3 Human Genome Sciences (HGS), a biotechnology company that patents genes for licensing to drug manufacture produces an extraordinary 200 patent applications per month using an automated patent-application process. HGS cuts months off the typically lengthy patent-application process (the average patent pendency period is 2.4 years from application to issuance4) using proprietary software that captures information about genes and fills out the patent applications.

The United States Patent & Trademark Office (USPTO) issues approximately 170,000 patents per year5, and this number will continue to grow due to the recent increase in e-commerce and software patent applications. The pace of applications for electronic business patents surged since the 1998 United States Court of Appeals for the Federal Circuit decision to uphold State Street Bank & Trust Company’s patent on an electronic method of calculating mutual-fund returns. This decision removed the barrier to patenting business methods.6 The Patent Office expects to grant over 300 patents for business methods by the year 2000.7 Many companies now use automated data-mining and 3-D patent mapping software from companies like Aurigin Systems to sort through the myriad of existing issued patents. Patent mapping shows companies where patents are clustered in their respective industries and the identities of the inventors. This information provides companies with a valuable tool in searching for acquisition targets and can be a powerful source of competitive intelligence. Because of the growing importance of intellectual property in today’s knowledge-based economy, corporate executives and entrepreneurs alike, must establish effective strategies designed to maximize their company’s intellectual property value.

This paper provides an overview of the business and legal issues associated with the current corporate trend towards more sophisticated intellectual property management and intellectual property valuation. This paper primarily concentrates on patents as opposed to copyrights, trademarks, or trade secrets.8


A. The First Step: The Intellectual Property Audit

The first step towards developing an effective intellectual property strategy is the conduct of a company-wide intellectual property audit. This requires the coordination of a wide range of players: legal counsel, corporate planners, financial staff, research and development managers, senior management, engineers, scientists, marketing staff, and licensing staff. These groups should operate together in a well-documented and fluid process. Identifying all of the core and non-core intangible assets that currently or could bring value to a company allows management to create an effective intellectual property strategy that appropriately coincides with company objectives and priorities.

The traditional auditing procedure usually evaluates the following assets for inclusion on the company financial statement: land, buildings and improvements; inventories; furniture and equipment; plant and machinery; financial instruments; and accounts receivable. The financial statement of the company will be incomplete and understated if it fails to provide a realistic appraisal of the company's intangible intellectual property assets--trademarks, copyrights, patents and trade secrets and their associated goodwill. Unfortunately, few companies conduct audits of their intellectual property assets that realistically assess their value and ensure that these assets are well-managed and protected.

To correct this problem the intellectual property audit should be undertaken to: (1) determine the origin of the intellectual property assets; (2) determine the extent of the owner's interest in the intellectual property rights of these assets; (3) determine the scope of intellectual property rights that any third party may have in the assets; (4) evaluate the company's policies and procedures for creating and protecting its intellectual property rights in its intellectual property assets; (5) reveal defects in existing intellectual property assets that have diminished or may in the future diminish the value of these assets; (6) institute corrective measures to eliminate any defects that affect the value of these assets; (7) provide recommendations that will help restore the full value to any flawed intellectual property assets; (8) recommend new policies and procedures that will provide more expansive protection for the future creation and management of the company's core intellectual property assets; (9) preclude or lessen the potential liability from third party infringement claims that may result from the company's development of a new product; and (10) obtain a realistic financial valuation of the company's intellectual property assets.9

Upon completion of the audit, management should expect a written audit report that contains the following: (1) an intellectual property asset inventory that identifies the company's complete intellectual property asset portfolio; (2) a narrative on the development history of specific products/product lines; (3) an evaluation of the company's intellectual property policies and procedures for the protection and management of its intellectual property assets, along with recommendations for their modification, and, where necessary, the implementation of additional policies and procedures; (4) an evaluation of the company's various intellectual property creation, acquisition and licensing agreements, along with recommendations for the modification and, if necessary, preparation of new agreements; (5) a description and evaluation of intellectual property asset defects discovered during the audit; (6) recommendations for specific remedial action that should be taken to correct intellectual property asset defects; (7) recommendations for new or expanded employee training programs that will better enable the employee to realize the importance of the company's intellectual property policies and procedures and the employee's need to adhere to them; and (8) response to any other specific information needs required by the company requesting the intellectual property audit.10

If the company conducts an intellectual property audit in the context of an acquisition transaction, the audit report should provide the information necessary to decide whether the rights available in the acquisition are actually all of the rights required by the acquiring party. Furthermore the report should provide a basis for valuing the rights acquired.11

B. Management Considerations

After the intellectual property audit, managing the company's intellectual property that protects core products and services requires aggressive and forward thinking. The most important intellectual property management considerations typically revolve around protecting core technologies and business methods, acquiring intellectual property to boost R&D efforts, and anticipating shifts in technology and market demand.12

1. Protecting core technologies and business methods.

Most companies focus their strategies on protecting the proprietary technology that gives their products and services an edge against competitors. Chester Carlson’s xerography patents allowed Xerox to control the copier market for almost twenty years, resulting in double-digit margins and earnings growth.13Xerox, however, had to license the xerography technology under a federal consent decree in 1975.14 As a result, the company saw its market share and industry dominance dissipate.

Some companies, however, focus more on an innovative method of doing business instead of a product line or service. Dell Computer, for instance, attributes its success in the personal computer business to its innovative "build to order" direct-sales business model. Dell’s advantage does not lie in the quality of its computers, but in its unique system for selling, distributing, and servicing Dell computers.15 Likewise, Wal-Mart owes its $138 billion per year retail success to its sophisticated purchasing, marketing, and distribution systems, instead of its products.16 Wal-Mart’s systems enable the company to operate more efficiently, maintain lower prices, and satisfy a higher rate of customers than its competitors.

Despite the great success of Dell and Wal-Mart within their respective industries, there is a difference in how they maintain and use their competitive advantages. Thus far, Dell has secured 42 issued and pending patents on its unique business model.17 These patents, in addition to covering the customer-configurable on-line ordering system, cover the method in which the system integrates with Dell’s "continuous flow" manufacturing, inventory, distribution, and customer service operations.18 Dell, may or may not use these patents in an infringement suit with direct-sales rival Compaq. Dell, however, has already used these patents with potential rival IBM in another way. To strengthen its market advantage in 1999, Dell used its patents as collateral in a $16 billion cross-licensing deal with IBM that provides Dell with lower cost computer components.19 This freed Dell from having to pay IBM several millions of dollars in royalties and further reducing Dell’s cost of doing business. On the other hand, Wal-Mart has not secured patents on its business model. Wal-Mart, however, relies on the protections of trade secret law. Intellectual property experts generally consider trade secret law as an ineffective protection against the loss of proprietary information from past key employees. Wal-Mart, for example, may not be able to prevent former key employees from taking their knowledge of Wal-Mart’s systems to potential on-line rivals like Amazon.com.20

Regardless of whether it’s the technology associated with a product or service, companies must ensure that they protect and maximize use of the technology or business method that provides them with a distinct advantage over competitors.

2. Acquiring intellectual property to boosting R&D efforts.

Although most technology businesses have their own IP assets, nearly all, 88%, also seek synergies by acquiring intellectual property from others, according to a recent study by PricewaterhouseCoopers.21 These businesses view the acquisition of intellectual property from others as a way to improve their odds of success in a highly competitive market. Furthermore, acquisition helps reduce the risks of conducting expensive high-tech R&D development alone. It is often less expensive and more time efficient for a company to buy new technology than to develop it internally.

Companies use several strategies for acquiring intellectual property. Sixty percent of technology businesses license technologies or intellectual assets from others. This includes 65% of large technology businesses and 55% of smaller ones, and is more prevalent among service businesses (65%) and those marketing internationally (63%).22 Among those companies licensing from others, 85% claim this strategy plays an important role in their own new product development efforts.23 An estimated 36% of technology companies are involved in joint ventures where the partners share the risks, costs and profits from development of new intellectual assets.24 Of those companies participating in these joint ventures, 73% claim that they are a growing part of their business.25 Twenty-six percent of technology companies invest in smaller, independent businesses as an extension of their own R&D efforts.26 And, nearly two-thirds (63%) of technology companies expect to increase their involvement in this type of activity over the next year.27

Acquisitions of intellectual property take on a heightened level of importance in the software industry. A software company may have a patent on a product, but its useful life may last only 18 months.28 If new features can be developed by implementing these strategies, acquisitions generally result in both adding value to the patent and extending the life of the product. Additionally, 44% of technology companies say it is more attractive for them to acquire strategic businesses, rather than rely strictly on internal development or licensing as a source of new products.29 One of the main attractions of strategic acquisitions is speed, 66% technology companies say it’s faster to buy than make.30 Speed to market is important to the performance of technology businesses. Nearly half (47%) of the chief executives surveyed by PricewaterhouseCoopers say their business brings new ideas to market faster than competitors.31 Only 15% rated their business as slower, while 38% said their track records are comparable to others.32 Those that are faster expect significantly stronger revenue growth over the next year, 32% versus 20% for all others, a 60% edge.33 Companies point to other benefits as well, 48% say that a benefit of acquiring is being more certain of what they are getting, and 34% say it is less expensive to buy than make.34

3. Anticipating challenges, shifts in technology and market demand

Recently corporations have found that training their executives on managing intellectual property can improve management performance in response to challenging critical events that a company may face. Dennemeyer & Co. recently announced the development of an intellectual property simulation.35This simulation operates like a "war game" format that enables participants to experience the challenges of several company threaten scenarios that test the agility of corporate management. The simulation presents a series of crisis events: competitors rolling out a better product that threatens sales and market position, a Wall Street analyst challenges the company’s quarterly earnings forecast, the company receives a letter from its leading competitor charging patent infringement.36Participating executives get a direct challenge in dealing with the speed necessary to make decisions using knowledge-based systems and tools designed to accelerate their transformation of knowledge to net worth. According to the National Knowledge & Intellectual Property Management Taskforce, co-developer of the simulation, "[i]ntangible assets comprised an estimated 73% of collective net worth in 1999, making intangible asset management a core competency in every department, the executive suite and boardroom…37" Even the most thorough product development plans and market strategies will not prevent loss of market share and margin erosion if a company is not prepared for company-threatening events. Implementing a patent strategy and training management to use the strategy in simulation exercises will ensure that a company can successfully anticipate technology shifts, competitive products, and market demand.

Finally, a growing consideration for corporate managers is the threat of management and board of director liability through shareholder lawsuits regarding intellectual property. Directors may be liable for failing to make the best effort to guide research and development away from infringement problems or for failing to conduct a thorough intellectual property audit.38

C. Considerations For E-Commerce Companies

Strategic management of intellectual property allows companies to achieve defensible proprietary market advantages over competitors. Many e-commerce commentators traditionally thought market advantage went to the first company to market. The Internet, however, bring e-companies less competitive barriers, allows for rapid economies of scale, and blurs industry boundaries. This development means that patents may become the most effective and only way of creating a defensible e-commerce market advantage.

Several companies are in a rush to secure patents that involve Internet technologies or business methods, despite criticism that the patents sought after are overbroad and unlikely to hold up in court. Open Market, Inc. obtained patents relating to an electronic shopping cart and real-time payment for Internet transactions.39 These patent cover virtually every e-commerce site already in existence on the Internet that uses electronic shopping carts and incorporates electronic payment systems. If these patents hold up against future infringement and invalidity suits, however, they will prove powerful tools for establishing overwhelming e-commerce market dominance. A patent is expected to issue soon that may give NextCard Inc., a financial services company control over a large share of e-commerce transactions. A recent NextCard press release announced that the company received a "notice of allowance" from the USPTO on an application covering the issuance of online credit. Usually, receipt of this notice is a precursor to likely patent issuance. NextCard immediately claimed on its web site that such a patent could offer up to "a 12 to 24 competitive advantage".40LaunchPad applied for patents for GuaranteedClicks, a method of bringing a computer to a specific Internet address while an e-mail recipient is watching a video file. The web site, at www.guaranteedclicks.com, promises that its clients will "get obscene volumes of web traffic."41 Issuance of these patents would allow LaunchPad and NextCard to establish defensible proprietary market advantage against rivals looking to enter similar markets.

Companies with e-commerce patents especially, can use them offensively against rivals and not just for defending proprietary market share. For example, Amazon.com, the upstart Internet bookseller, recently faced a threat to its online book sales market share from similar online competitors. Amazon received patents for its "1-Click" system for processing customer orders42, which is now widely copied by other Internet retailers. Amazon used that patent as a competitive weapon (to ensure and increase its proprietary market share and advantage), filing an infringement suit against its chief rival, Internet bookseller Barnes & Noble in October 1999. Priceline.com provides another example of offensive patent use in the e-commerce industry. Much of Priceline.com’s shareholder value is based on its highly publicized "name your own price" reverse auction patent.43 The company recently filed an infringement suit against Microsoft for devising a similar auction service, demonstrating the company’s intent to use the patent as weapon to keep rivals from gaining ground in its market.

D. Products And Services That Facilitate Intellectual Property Management

There are a number of software products on the market that can help in intellectual property management activities. To build a comprehensive system that supports the company's management processes requires each company individually to map the activities and users it is trying to link together and then to adjust the software for its specific needs. There is, however, no single computer program or system available that provides an automated solution for every phase of intellectual property management.

Intellectual property management software manufacturers claim that their products can solve nearly all intellectual property management problems. This may not be true. Many of the products available today are complementary; they are very powerful when used collectively. The technology available, however, does not take the place of an intelligent, coordinated, and visionary intellectual property strategy and business plan. Most intellectual property software management systems are most effective when utilized throughout the company, rather than solely in the hands of a few engineers or a few lawyers. There are five major companies that offer software products to support intellectual property management activities: Invention Machine Corp., Aurigin Systems, Manning & Napier Information Systems (MNIS), Computer Packages Inc., and Master Data Center.

Aurigin Systems, the leading provider of intellectual asset management solutions, created Aureka™, an enterprise and Internet-enabled software solution for organizations to manage their intellectual property. They have created an automated system that can provide a platform (Aureka 7.0 Foundation Server) for organizing, analyzing, and visualizing patents across an industry, for conducting patent audits, and for uncovering competitor’s strategies.44 Patent-mapping efforts that used to take several months can now be finished in hours. More importantly, data from text documents (extensive and lengthy patent applications and records) can now be displayed in 3-D presentations that more clearly illuminate current patterns and relationships in technology developments.


The value that intellectual property brings to a company’s core product or service is the embedded value. It generates revenue for a company through licensing fees and protects part, or all, of the product or service market share from encroaching products or services sold by competitors. Furthermore, because intellectual property assets can be exchanged, sold, transferred, and traded, non-core intellectual property (innovations that do not complement or enhance a company’s core product or service) still has direct value to other companies that may find the technology useful. Companies can improve their financial performance by leveraging their intellectual property assets. To successfully leverage these assets, however, companies must accurately assess the financial value of their core and non-core patents. Furthermore, business-minded intellectual property managers are becoming more focused on using their intellectual property assets to generate more direct value and revenue from non-core patents by using the emerging intellectual property marketplace.

A. Improving Financial Performance

Today, almost all companies’ largest assets are intangible. This occurs not just in technology businesses, but in "old-economy" industrial and manufacturing businesses. As previously discussed, most companies still under-utilize their intellectual assets, despite the pressures today’s economy to maximize shareholder return. Companies can mine their intellectual property portfolios for revenues to improve their financial performance in several ways.

Revenues from licensing patents have risen sharply in the past ten years, increasing from $15 billion in 1990 to more than $110 billion today. IBM, as noted earlier, is an excellent example of a company that benefits from patent licensing. According to some experts the licensing market is still in its infancy and they project revenues to reach a half-trillion dollars annually within ten years.45 Patents can also generate revenue through use as a vehicle for corporate financing. In 1999, a boutique investment banking firm, Global Asset Capital publicized plans to securitize the future royalties of drug company patents and sell the notes to investors.46 Wall Street is also taking heed to the effect patents can have on a company’s earning potential. Some stock analysts have begun looking at company intellectual property capabilities when evaluating earnings potential and competitive prospects. As more investors take this approach, the effect of a well-managed patent portfolio on a company’s market value will only increase.47

B. Determining Valuation

Determining the actual worth of a company’s patents can be difficult. Valuation methods for intangible assets are not very developed and are currently the subject of a lot of debate. There are few market-based guidelines for valuation of core patents because these patents generally are not the subject of licensing efforts, companies do not want to give away (or even sell) their proprietary advantage. These core patents are evaluated based on how much they contribute to the commercial value of the product or business, hence the embedded value. Most companies, however, find non-core patents are easier to value because they can be licensed to others.

Companies use different methods to value their patents. Some companies use the Tech Factor Method (created by Arthur D. Little consultants), a method that quantifies the monetary contribution of each patent as a percentage of the business’s total net present value. A Rand Corporation study sets the value of a patent as equivalent to a research & development cash subsidy rate of up to 25%.48 Moreover, some companies assign a portion of their total market capitalization as a proxy for their intellectual property value. Generally, this value (considered the knowledge assets value) is the difference between a company’s market value and its book value.49 Critics of this approach, however, point out that this method assumes that book assets have no value in excess of their reported cost.50 Further, because a company’s market value is subject to daily stock market volatility, the knowledge asset value will fluctuate in a way that does not correlate to the real underlying value of the company’s assets themselves.51

Several researchers within the economics and finance fields have initiated efforts to track and measure the value of intellectual property at corporate, and even national levels.52Researchers have devised methods for ranking and valuing a company’s patents, that can be used to pick potential marketplace winners and even identify shifts in strategic focus.53Francis Narin, a noted technology firm researcher, devised a method to evaluate a company’s technological strength. Narin analyzes the patents of technology companies based on three variables: 1) the number of times that other patents cite that company’s patents, 2) the number of scientific papers cited in each patent, and 3) the median age of the patents cited in all of the company’s patents. These variables represent how influential a particular patent is within its field, and quantify the innovation of a company’s technology.54 Narin recently teamed with New York University finance professor Baruch Lev and doctoral candidate Zhen Deng to determine whether technological strength itself is an indicator of a company’s future financial performance.55 The study indicated that a company whose portfolio contains highly cited, science-rich patents is likely generating innovative technology, and providing a marketplace advantage that will show up in future stock prices and market-to-book ratios.56

During the Narin-Lev-Deng study, the researchers used an approach called the Knowledge Capital Scorecard to find companies intellectual property value.57 To determine the value of a company’s intellectual property, subtract the company’s earnings from tangible and financial assets from the company’s annual normalized earnings.58 The remainder is the earnings generated by knowledge assets. Dividing this amount by the knowledge capital discount rate (the expected rate of return for assets in the software, biotech, and pharmaceutical industries is 10.5%) results in the value of the company’s intellectual property.59

Alternatively, a Pasadena, California web-based company called the Patent & License Exchange (pl-x.com) promotes the creation of a new standardized way of valuing intellectual property. Patent & License Exchange equates patents to call options – rights to future cash flow from an asset that may or may not have value. Using the Black Scholes equation60 to value a patent, Patent & License Exchange replaced a call option’s variables with the price and volatility of the patent’s underlying technology, the development costs and time remaining, and baseline capital costs. To determine the price of technology that has yet to be commercialized, Patent & License Exchange looks at small-cap, pure-play companies with similar technology, whose enterprise value is already known on the market.61 This method, however, does have weaknesses. Small-cap, pure-play technology companies are often illiquid or volatile themselves and may not provide an accurate value for patents.62Further, it is difficult to accurately value one-of-a-kind breakthrough technologies. The financial value of such unique advances may be more accurately determined on a case-by-case basis by experts who can assess whether a technology could actually create an entire new industry.63 Despite this imprecision, the price given by using the Black Scholes method does give a viable starting point in negotiations between parties in any transaction involving patents.

C. The Emerging Intellectual Property Marketplace

Currently, markets for trading patents (or other intellectual property assets) are still nascent and have yet to provide reliable valuation benchmarks. Companies like (the aforementioned) Patent License & Exchange, Patentauction.com, Ipex.net, Yet2.com, and Ipnetwork.com post information about patents and licenses for sale on the Internet. Some provide a limited degree of transaction support. Patent License & Exchange, Yet2.com, and IPnetwork.com are racing to become the world’s first major open marketplace for buying, selling, and licensing intellectual property. Both Patent License & Exchange and Yet2.com have received a lot of initial support from several major companies. More than 460 companies, universities, and research centers have become Patent License & Exchange subscribers. Yet2.com has the backing of corporations like Du Pont, 3M, Boeing, Dow, Ford, Polaroid, Siemens, Toyota, and Toshiba. Corporations, motivated by the prospect of making money on patents "that are just sitting on the shelves", have begun to list several of their patents for sale on Internet-based intellectual property marketplaces. Furthermore, the efficiency of acquiring technology online reduces the transaction costs usually associated with buying or licensing intellectual property from other companies. Because of these benefits, more and more companies will participate in the intellectual property marketplace. As the intellectual property market inevitably matures, it will provide more reliable benchmarks for intellectual property valuation.


Today, old and new-economy companies can not afford to view intellectual property as strictly a legal issue. Effective management of a company’s intellectual property assets directly correlates to business success in a knowledge-based economy. In some cases, particularly with e-commerce companies, securing a patent covering the company’s business model is paramount for survival. Most companies around the globe have yet to unlock billions of dollars in unused intellectual property. According to the consulting firm British Technology Group, just 3% of global intellectual property’s commercial potential was realized in 1999. Within the US, that translates into roughly $110 billion out of a $3 trillion total commercial potential.64 More companies, however, will seek to maximize the unrealized value of their intellectual property portfolios through licensing, selling, or acquiring technology. As more companies leverage patents, a more mature intellectual property market will develop and provide a more reliable valuation benchmark for the eventual securitization of intellectual property assets. Intellectual property promises to be the driving force behind commercial success in the future, companies that do not effectively manage their intellectual property assets risk failure to competitors that do.

1 David Kline, Discovering New Value in Intellectual Property, HARV. BUS. REV., Jan.-Feb. 2000, at 55. 2 Id.3 Pamela L. Moore, For Sale: Great Ideas, Barely Used, BUS. WK., April 3, 2000, at 80. 4 Victoria Slind-Flor, The Biz-Method Patent Rush, NAT'L L. J., (Feb. 28, 2000) . 5Pamela L. Moore, For Sale: Great Ideas, Barely Used, BUS. WK., April 3, 2000, at 80. 6 State Street Bank v. Signature Financial Group, 149 F.3d 1368 (1998). 7 United States Patent & Trademark Office . 8This paper concentrates on patents because, excluding entertainment and media companies (where copyright and trademark considerations prevail), patents have the most significant impact on a company's market value in today's knowledge-based economy. Patents receive the most legal protection and are the most tangible form of intellectual property.9 Lloyd R. Rich, Why An Organization Needs An Intellectual Property Audit, 25-FEB COLO. LAW. 37 (1996). 10Id. at 38. 11 Id. 12 David Kline, Discovering New Value in Intellectual Property, HARV. BUS. REV., Jan.-Feb. 2000, at 56, 58. 13 Id. at 56. 14Id. 15Id. 16Id. 17Id. 18 Id.19 Id. 20 See Aileen Crowley, Lawsuit brings focus to noncompete contracts, Wal-Mart v. Amazon.com, PC Week, Apr. 19, 1999, at 115. 21 The Technology Barometer (PricewaterhouseCoopers), Dec. 1, 1999, at 2. 22 Id. 23> Id.24 Id. 25 Id. 26Id. 27 Id. 28 Id. 29 Id.30 Id. 31 Id. 32 Id.33 Id. 34 Id. 35Business Wire, April 10, 2000. 36Id. 37 Id. 38 See Steven Bochner and Susan Krause, Intellectual Property Management and Board Liability, 1065 PLI/Corp 453 (1998). 39 U.S. Patent Nos. 5,715,314 and 5,724,424 40NextCard Inc. February 2000 Press Release, see . 41 See . 42U.S. Patent Nos. 5,715,399 and 5,727,163 43 U.S. Patent No. 5,794,207 44 PR Newswire, Aurigin Systems Inc., Press Release, Sept. 21, 1999. 45 David Kline, Discovering New Value in Intellectual Property, HARV. BUS. REV., Jan.-Feb. 2000, at 58. 46Id. at 60. 47 Id.48 Id. at 64. 49 Id. 50 Id.51 Id. at 65. 52 In 1998, Professors Michael Porter of Harvard Business School and Scott Stern of MIT devised the National Innovation Index, an analysis of intellectual asset development in twenty-five nations. The index takes into account variables like the number of international patents filed, amount of R&D spending, and the share of gross domestic product spent on higher education. See Robert Buderi, In Search Of Innovation, Technology Review, Nov.-Dec. 1999, at 42. 53Robert Buderi, In Search Of Innovation, Technology Review, Nov.-Dec. 1999, at 44. 54 Id.55 Id. at 46. 56 Id. 57 David Kline, Discovering New Value in Intellectual Property, HARV. BUS. REV., Jan.-Feb. 2000, at 65. 58Id. 59 Id. 60 The Black Scholes equation for option pricing was created in 1973 by Myron Scholes and Fisher Black. The equation factors in the price and volatility of the underlying stock, the option's exercise price, the time to exercise and the baseline risk-free cost of capital. 61Michael Stroud, Invisible, Inc., Business 2.0, Apr. 2000, at 287.62 Id. at 291. 63 Id. 64Invisible Inc., Business 2.0, April 2000, Michael Stroud, p.285.