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Due Diligence for Real Estate Sales Transactions

As with any other commercial transaction, “due diligence” is an essential aspect of the sale and purchase of real property.  Each side (the “purchaser” and the “seller”), assisted by counsel, should prepare a due diligence checklist for its own use.  The due diligence checklist serves several important purposes.  The checklist forces counsel (and, to a much more limited extent, the client) to review in advance all aspects of the transaction, including the payment terms, the manner of payment, and the potential environmental or title problems peculiar to the parcel to be purchased.

The due diligence checklist may be as detailed, or as brief, as counsel concludes is necessary.  For the sale of commercial real property, the due diligence checklist should include, at a minimum, terms requiring investigation of a number of different matters, including any potential title defects with the property, and how those defects might be cured; whether a survey has been conducted (or is even necessary) to identify all improvements to the property; an inventory of the personal property where the seller intends to convey personal property along with real property; and a search of the UCC filing records of the Secretary of State of the state in which the property is located.  Depending on the law of the state in which the seller resides, the purchaser may also have to check the records of both the Secretary of State’s office of that state, and the county recorder’s office.

The due diligence investigation is usually conducted before the parties negotiate and sign an agreement for purchase and sale of the property; however, in some cases that agreement will include a detailed list of the information regarding the property that the seller is required to deliver to the purchaser as part of the purchaser’s due diligence with respect to the property.  Items that might be delivered include the following:

  • Copies of any written operating contracts that will survive closing, including all modifications, supplements or amendments, and a list of all unwritten operating contracts;
  • Copies of any leases of the property, lease guaranties, estoppels, and subordination, nondisturbance and attornment agreements, and all amendments and correspondence with respect thereto, and a current "Rent Roll" containing (i) a complete list and description of the leases, (ii) rental rate and deposits paid by each tenant, and (iii) the term of each lease.
  • Copies of the real estate and personal property tax statements covering the property for the three (3) previous tax years and, if received by Seller, the valuation notice issued with respect to the current tax period;
  • Copies of all existing liability, property, rental value and other insurance policies pertaining to the property;
  • Copies of all permits;
  • Copies of any surveys, site plans, and as-built plans and specifications for the property;
  • Copies of all unexpired warranties and guaranties covering the personal property and the roof, heating and air conditioning system and any other component of the improvements;
  • Copies of all utility bills received during the most recent 12 months of seller’s ownership of the property.
  • Copies of environmental reports, soils studies, other engineering inspections and other studies and reports pertaining to the land or improvements or any portion thereof, and information regarding the existence of hazardous substances or underground storage tanks on the property or use or storage of hazardous substances on the property and all reports and audits with respect to compliance of the property with the Americans with Disabilities Act ("ADA") and any plan in existence for compliance with ADA and similar state or local laws with respect to disabled persons;
  • An itemized list of the personal property;
  • Copies of any and all written claims, demands or notices from any third party which concern or otherwise affect the property received by seller during its ownership of the property; and
  • A list of major repairs (excluding tenant improvements) and major casualties occurring during seller’s ownership of the property.

In addition, since the due diligence is being conducted after the agreement is signed the parties should provide for an “inspection period” that would run for a specified period of time after the effective date of the agreement and during which the purchaser would have reasonable access to the property and the opportunity, at its own cost, to conduct reasonable investigations, inspections, audits, analyses, surveys etc with respect to the property.  The purchaser should covenant not to disrupt seller’s business or other activities with respect to the property during any inspection procedures. In addition, the purchaser should be required to indemnify the seller against any damages or losses that the seller might incur as a result of negligence of willful misconduct of the purchaser or purchaser’s agents during the course of any review or inspection of the condition of the property.  Completion of the closing of the transaction hinges upon the purchaser’s satisfaction with the condition of the property as determined during the due diligence investigation and the contract will generally require that the purchaser provide the seller with formal written notice of acceptance of the condition of the property on or before the end of the specified inspection period.

The content in this post has been adapted from material that will appear in Business Counsel Update (March 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.


Developing a Marketing Plan

The marketing activities of a company should be guided by some form of formal marketing plan that is initially developed by the managers responsible for marketing activities and reviewed and approved by the chief executive officer and other key members of the executive management team, particularly the executives responsible for sales and customer service.  When a company is first launched a marketing plan is generally not a high priority since the essential activities of the company will be focusing on completion of the development of the company’s initial products and services.  However, even before the company has a finished product or service to show to prospective customers steps should be taken to begin establishing the unique identify of the company and the image the company seeks to have in the marketplace.  By thinking about a company “brand” from the moment the business is launched the founders and senior managers can start creating and reinforcing messages about the company that can be used to garner the attention of opinion makers in the marketplace and even attract new employees who are best suited to embrace and pursue the strategic goals and objectives of the company.


There is no specific standard recipe for developing and implementing a marketing plan; however, the following steps can serve as a useful guide in ensuring the most of the key issues will be addressed:

  • Establish the overall objectives for the marketing activities of the company;
  • Research the characteristics and behavior patterns of the potential target audiences;
  • Define the strategies to be included in the marketing plan to maximize the benefits of the company’s products and services to the potential target audiences and minimize the barriers to purchasing such products and services;
  • Identify, list and schedule the specific tactics to be used during the course of the company’s marketing campaign(s) and the messages that the company wants to convey to its target audiences;
  • Prepare the proposed budget for obtaining the resources necessary for the marketing campaign(s) and conducting the activities included in those campaign(s); and
  • Establish procedures for tracking the results of the marketing activities.

Certain information regarding the overall objectives and important research results, such as the demographic characteristics of the target audience and a summary of current buying behaviors, should be included in the marketing plan; however, the most prominent and detailed sections of the plan should be those that cover strategies, tactics, and the budget.


Obviously the primary target audience for a marketing plan will be prospective purchasers of the company’s products and services; however, the image of the company and its activities will also be important in the company’s relationships with other key stakeholders such as suppliers, distributors, employees, investors and persons and firms resident in the communities in which the company conducts business.  If the strategies included in the marketing plan are successful in overcoming negative impressions that potential customers might have regarding the company and its products this may change the way that the company is perceived in the labor market and open up opportunities to recruit more talented and experienced workers.


Advantages & Disadvantages of Functional Structures

In my last post I described the events that lead to the creation of a functional structure for companies in their early stages of development.  A functional structure has several commonly-recognized advantages for the company and its managers.  First, the natural division of labor associated with the formation and maintenance of functional groups allows the members of each group to become more specialized and productive and creates opportunities for them to continuously learn and improve through their interactions with other group members.  Second, since the members of each functional group are brought together and linked by their common skills, education and training, it is easier for them to supervise one another and control the activities and behavior of all of the members of the group.  It is typical for each functional group to actually develop its own unique set of cultural values and norms that impact behavior within the group.  Third, the consistent interaction and collaboration among group members ultimately leads to a team orientation that makes the group more effective in tackling and completing the projects assigned by the senior managers overseeing all of the functional groups.  Ideally this will eventually result in one or more of the functional groups becoming a true core competency for the company that can be leveraged within the company’s overall strategic plan.  Finally, the functional structure facilitates segregation of company assets and resources into the areas that are most important for the company’s success and thus makes it easier for senior management to identify, manage and control resource deployment during a time when the company is growing rapidly and adding new resources quickly.

On the other hand, a functional structure does ultimately lead to several serious potential problems that will need to be addressed by senior management and others involved in designing the appropriate organizational structure for the growing business:

  • As the company creates more functional groups, and each of those groups expands and develops it own unique hierarchy and system of interaction among members of the group, the chances of communication problems between groups increases substantially.  Not surprisingly, each functional group begins to develop its own orientation toward how the activities of the entire company should be prioritized and these will often conflict with the views of other departments that depend on the group for cooperation and resources.
  • As the company grows and creates new functional groups and adds new products and services it becomes more difficult for senior management to identify and measure the contribution that each employee and functional group is making to the necessary activities of the company and the pursuit of the strategic goals and objectives set by the company leadership.  These measurement problems ultimately lead to poor decisions about the portfolio of company products and services unless steps are taken to collect and properly evaluate all the information necessary to determine how and where the company’s limited resources can be effectively deployed.
  • As functional groups develop and grow, and the range of its products and services expands, an emerging company also experiences new issues arising from the need to conduct activities, and establish offices and other facilities, in different geographic locations around the country and world.  As the company begins to disperse its activities away from a single headquarters office decisions need to be made with respect to each functional group about how to balance the need to centralize authority in order to retain control against the need to decentralize authority to allow offices and other facilities located in specific geographic areas to collaborate with one another to serve the needs of customers in those areas.
  • As the company grows, more and more customers will be drawn to its products and services and demand will begin to grow from the customer base for additional features and support beyond the company’s “standard” offerings that will meet their specific requirements.  A functional-based structure is best suited to creating and supporting products and services that can be offered without customization to a continuously expanding customer base and functional groups such as sales and manufacturing will be challenged to invest time and resources in meeting the special needs of one customer or subgroups of customers with similar requirements while continuing to focus on their primary missions.
  • The expansion of the functional-based structure ultimately becomes a burdensome distraction on senior management that diverts their attention from important strategic issues that impact the entire company.  It is common for the CEO to become immersed on a daily with reconciling communication and collaboration issues between functional groups and, as a result, he or she finds it difficult to focus on and plan for new initiatives such as development and launch of new products.

Continuing growth also creates other problems for a functional-based organizational structure that may not fit neatly into the categories described above.  For example, as the company’s line of products and services expands it becomes increasingly difficult for the sales force to fully understand each offering and be able to effectively convey the benefits and advantages of every product or services to prospective customers.  One result of this “information overload” is that the members of the sales and marketing groups have less and less time to focus on properly launching new products and services.  Similarly, as the company pushes into new markets it becomes more challenging for sales and marketing to fully understand the requirements of new customers while still servicing the company’s existing customer base.  More products and customers also makes things difficult for the manufacturing function since it becomes harder to ramp up and maintain higher and higher production levels while still attaining quality control objectives.  Moreover, controlling production costs becomes more problematic as demand becomes harder to forecast and new equipment is needed to manufacture new products that cannot be accommodated using the company’s existing production technology and resources.  Finally, since fast and continuous growth depends on a consistent stream of new products and technologies, members of the R&D function will be under substantial pressure to continuously improve and upgrade existing products and engage in high-risk efforts to come up with new innovations that open completely new markets for the company.

It is possible to address some of the problems described above while still retaining what is essentially a functional-based organizational structure.  For example, if there are communication and coordination problems between two functions engaged in highly related activities, such as sales and marketing, senior management may modify the organizational structure by combining those two activities into a single functional group, in this case “sales and marketing.”  This increases the integration of the key activities relating to direct contact with customers and allows senior management to continue to exert the necessary level of control.  The functional-based organizational structure does, however, have significantly limitations that will eventually be reached once the company reaches a certain point in its growth and development.  In general, this type of structure can be effectively used as long as the company is only producing a small number of similar products, produces the products in one or just a small number of locations, and confines its sales and marketing activities to one major group of similar customers.  Once these conditions cease to apply—product lines get larger and more diverse, the geographic scope of the business expands into foreign markets and/or customer requirements become more specialized—the problems associated with a functional-based organizational structure become too difficult to manage and consideration needs to be given to alternative structural models (e.g., product-, customer- or geographic-focused divisions with their own dedicated functional resources) that allow managers to regain some degree of control over the activities of the  company while better positioning the company to deal with its rapidly changing business environment.


Bayh-Dole Act—US Manufacturing Requirements

In my last post I discussed the federal Bayh-Dole Act and reviewed the likelihood that federal agencies that have funded inventions that universities have exclusively licensed to private entities to commercialize such invention might exercise their “march-in rights” and grant a competing license to another party.  While I explained that no federal agency has exercised its march-in rights since the Bayh-Dole Act came into effect, investors might still reasonably be concerned about whether a company relying on an exclusive license from a university might suddenly be deprived of the benefits of exclusivity if it runs afoul of the requirement that it must give “preference to U.S. manufacturing”.  The Bayh-Dole Act requires that exclusive licensees of a federally funded invention must manufacture substantially in the U.S.; however, a waiver of this requirement can be obtained from the agency that funded the research if U.S. manufacturing is not commercially feasible or if the owner of the invention (e.g., a university) tried but was unsuccessful in finding a licensee that was likely to engage in US manufacturing.  See 35 U.S.C. § 204, as implemented by 37 C.F.R. 401.14(i) through the Department of Commerce.  Since is now quite common for manufacturing activities in areas such as electronic and consumer products to be done outside of the US, given the substantially lower costs of manufacturing that are available in many foreign countries, the waiver process is often the preferred route for exclusive licensees.  The waiver application should address the specific concerns of the relevant funding agency; however, in general the information in the application should cover the following:

  • Do other companies involved in the relevant industry manufacture in the US?
  • Where are actual or potential competitive products manufactured?
  • What are the relative costs of manufacturing the product in the US as opposed to manufacturing the product outside of the US?
  • Will some manufacturing be done in the US(e.g., final assembly) even though it would not be considered to be “substantial”?
  • Does the grant and exploitation of the exclusive license provide other economic value to the US economy apart from manufacturing such as additional US jobs in other functional areas (e.g., R&D or sales) or taxes to be paid by the licensee on sales made in the US?
  • Does the license restrict the sale of foreign-manufactured products to foreign markets and provide that products sold in the USmust still be manufactured in the US?
  • Are there any ancillary considerations that should be taken into account that demonstrate that the license is beneficial to the US public despite the lack of domestic manufacturing (e.g., lower cost for US consumers or the underlying technology is environmentally responsible)?

Practices, procedures and schedules differ among agencies.  In general, the NIH is considered to have a relatively streamlined process; however, the Department of Defense may act more slowly in situations where a waiver is sought to manufacture in a foreign country if the technology involved is considered especially sensitive and investors may want to consider obtaining a waiver in advance before transferring the funding.  While seeking a formal waiver is the preferred approach it should also be recognized that an exclusive licensee that appears to have violated the manufacturing requirement is not in danger of having the license invalidated, or converted to non-exclusive status, unless and until the appropriate funding agency actually exercises its march-in rights.  See Ciba-Geigy Corp. v. Alza Corp., 804 F.Supp. 614 (1992).


The Rise of the Functional Structure

Specialization and horizontal differentiation within a company’s organizational structure begins with the first assignment of a person to perform a specialized role.  As more role assignments are made the company gradually evolves toward a functional structure in which employees are grouped based on common skills or expertise and/or the need to rely on and use the same resources.  For example, scientists and accountants may become part of the research and development and accounting functions, respectively, based on their common skills and the resources that they use in performing their roles on behalf of the company.  Horizontal differentiation based on the creation of functional groups allows companies to be more effective in achieving their primary business goals and objectives—producing the highest quality products and services at competitive prices while still making an acceptable profit—and should ultimately lead to improvement in the skills of the company’s employees to the point where the company develops and maintains a core competency in one or more functional areas. 

The creation of new functions, and the accompanying increase in horizontal differentiation, occurs as the company grows and its activities become more complex and senior management wishes to develop the company’s own internal skills and resources for a crucial functional area.  For example, when a company is first launched it may rely on outside contractors to skilled inputs in certain areas, such as accounting and marketing; however, as time goes by and the company achieves certain growth milestones—completion of development of its first product and/or sale contracts with its initial customers—it becomes more efficient to have employees perform the activities that have been outsourced.  As more and more functions are added to the organizational structure further differentiation occurs within each function as functional sub-groups are formed to carry out specialized tasks and activities.  In fact, each function eventually develops it own specific hierarchy and division of labor.

The path taken by companies to develop their particular functional structure depends on a variety of factors and often seems to be unplanned and reactive to unpredictable events in the company’s organizational environment.  However, the founders and other senior managers can and should be able to develop a general idea of the initial functional structure that will be needed in order for the company to fully launch its activities and then focus on acquiring the human and other resources that are necessary in order for the structure to be effectively deployed.  For example, a company formed to create and operate an online retail “store” will need to have functional groups that cover all of the steps necessary to interact with, and sell and deliver products to, its target customers. This generally means, at a minimum, that the organizational structure will need to include functional groups for software development and testing (R&D), design and maintenance of the website (IT), procurement of products or third party fulfillment of orders (Logistics/Operations), advertising and promotion (Marketing), and processing of payments from customers and to vendors (Finance).  The outline of the organizational structure is determined by stepping back and looking at all of the tasks and activities required in order for the company to create, promote and sell its products and services and then identifying the functional core competencies that will be needed.  The founders can then set about recruiting experienced functional managers to build these competencies and this larger group (i.e., founders and the senior managers overseeing the functional groups) can eventually turn their attention to strategic planning to set the direction for continued future growth.


Feasibility Studies for New Product Ideas

Once someone comes up with what they think is a great idea for a new product, service or business they often immediately sit down and try and write up a business plan that can be used to obtain funding or other resources.  While a business plan is absolutely essential in establishing the direction for any new venture it should not be written unless and until some sort of feasibility study has been conducted on the idea and the business that would need to be built to execute and support it.  A feasibility study is not simply a test of a product prototype and should instead be thought of a rigorous and objective assessment of several key issues—is it technologically feasible to create, efficiently manufacture and distribute the proposed product in volumes that will be sufficient to capture the projected market share; what is the size of the potential market for the product; what competitive challenges will confront the business; does the inventor (as well as other members of the founder group) have the skills and experience to create and manage the organizational structure necessary for operation of the business; and what is the projected financial performance of the business?

The answers to some of the questions listed above can be found by researching available data and information on industries, markets and average profit and expense percentages.  However, in order for the feasibility study for a new idea to be useful and effective there must be tough and honest feedback from potential customers and other business partners.  The entrepreneur (or new product manager in a larger company) should create a short description of the product or business concept, no longer than a single page, and circulate it to persons that have knowledge of the applicable technologies and markets.  Prospective customers can provide their opinion on whether they would be interested in buying the product or service described in the concept and, if so, how much they would be willing to pay and how much of the product or service they would be willing to purchase over a specified period.  Potential manufacturers should provide feedback on the costs associated with the actual design and manufacture of the product.  In order to expedite the process of obtaining feedback one or more focus groups can be put together quickly by advertising on online services such as Craigslist.  Software packages are also available to assist in navigating the process of completing a feasibility study.


Using Marketing Savvy to Strengthen Your Human Resources

Talented managers and employees are an essential key to the success of any business and this is particularly true for emerging companies seeking to move rapidly to become competitive in dynamic industries and markets.  One of the problems for emerging companies is that the human resources they most covet (e.g., skilled scientists, engineers and software developers) are hotly pursued by a number of other firms and in order to be successful companies must be prepared to integrate sales and marketing into their recruiting strategies.  In fact, this process has been referred to as “employer branding” which means creating and maintaining an image of the company as “a great place to work” in the minds of current and prospective employees as well as other important external stakeholders such as investors, suppliers and customers.

Larger companies may have difficulties in get veterans of marketing and human resources to work together.  Experienced marketers are rarely asked to spice up the look and feel of job postings and human resource professionals have little or no training or experience in actively selling and promoting job opportunities within their companies.  However, smaller companies may be able to forge the link more effectively because they have not yet reached the stage where marketing and human resources have been formally separated and the founders and CEO still have sufficient contact with all of the managers to make sure that they are working together on identifying and fulfilling the company’s essential staffing requirements.

One major problem for smaller companies in creating an employer brand is that they are usually still involved with staking out their niche in the marketplace and often do not even have a finished product or service to use as a centerpiece for explaining their goals and objectives to potential employees.  In fact, traditional recruiting efforts generally do not work very well for many companies during the start-up stage because they are unable to direct candidates to products, services, established customer relationships or a network of strategic alliances.  In that situation the company needs to be smart about the way in which it invests resources in recruiting and this often means going directly to those persons who the company is most interested in hiring.  For example, a software company may compile a “wish list” of skilled, creative developers and send them a specially prepared package of materials that carefully and fully describes the mission of the company and the specific reasons that the recipients should consider joining.  The materials should include instructions on how to get further information, such as by logging into a dedicated part of the company’s website, and should have enough of a “wow factor” that word will quickly travel outside of the initial group of recipients.

Another simple and effective way to bring marketing and recruiting together is to ensure that all prospective employees, regardless of where in the company they may be working, will be interviewed by representatives from the sales and marketing groups as well as by human resources professionals and managers from the group doing the hiring.  This process provides an opportunity to deliver a strong and consistent message regarding the company brand and image to everyone that the company thinks highly enough about to invite in for an interview.  Candidates who receive and accept an offer will join the company with a clear understanding of its employer brand and those who do not join the company may nonetheless have a sufficiently favorable impression of the firm that they will steer business to the company in the future.  In addition, ongoing participation in employment interviews provides sales and marketing personnel with an change to continuously reinforce and refine the “company story” that they want to get out to customers and other business partners.

The important thing to do is to make sure that a “marketing angle” is explored for every contact with potential employees.  Once the company has a product or service and has developed a brand that it is prepared to market to customers information on the brand should be incorporated into the text of every job listing distributed by the company.  Sales and marketing representatives should deliver a short and concise sales pitch during employee interviews and candidates should be provided with samples for their own use and gift cards to give to colleagues who might have an interest in the company’s products.  The marketing department should be closely involved with planning and promoting recruiting events and such events should be given the same level of importance as new product launches and celebrations of other company milestones.  Finally, consistent with the goal of being known as a “great place to work,” companies should regularly sponsor community oriented events in order to create a positive image and provide information about job opportunities.


International Intellectual Property Protection for Industrial Designs—Part II

In my last post I discussed he Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs, which was adopted at Geneva on July 2, 1999 under the auspices of the World Intellectual Property Organization (“WIPO”) to simplify the process of seeking protection for industrial designs in multiple countries.  In this post I summarize some of the major features of the Geneva Act and the regulations accompanying it.

The Geneva Act permits a design applicant from a Contracting Party to file for protection in any of the Contracting Parties, including the applicant’s own country, by filing a single standardized application in either English or French. Pursuant to Articles 3 and 4(1) of the Geneva Act, any person who is a national of or is domiciled in a Contracting Party may file an international design application at the applicant’s national office or directly with the International Bureau (“IB”) of the WIPO.  If the application is filed with a national office it must generally be transmitted to the IB within one month from the date on which the national office receives it; however, if a security clearance is required by law, then an extended period of time will be allowed for transmittal of the application provided that the Director General of WIPO (Director General) is notified.

Article 5(1) of the Geneva Act sets forth the mandatory requirements as to the contents of an international design application. Article 5(2) of the Geneva Act provides additional mandatory contents as to Contracting Parties that have an intellectual property office that is an Examining Office, such as the United States Patent and Trademark Office (“USPTO”).  In its presentation to the Congress recommending ratification to the Geneva Act, the Department of State recommended that the following declaration be included in the U.S. instrument of ratification:  “Pursuant to Article 5(2)(a) and Rule 11(3) of the Agreement, the United States declares that it is an Examining Office under the Agreement whose law requires that an application for the grant of protection to an industrial design contain: (i) indications concerning the identity of the creator of the industrial design that is the subject of the application; (ii) a brief description of the reproduction or of the characteristic features of the industrial design that is the subject of the application; and (iii) a claim. The specific wording of the claim shall be in formal terms to the ornamental design for the article (specifying name of article) as shown, or as shown and described.”

According to Article 10(1) and Rule 15 of the Geneva Act, the IB will register each design that is the subject of an international design application immediately upon receipt by the IB of the application. The general rule under Article 10(2) of the Geneva Act is that the date of the international registration will be the filing date of the application, provided it is complete and complies with the mandatory requirements of the Geneva Act.  The IB will normally publish the international registration within six months of the registration date, unless the applicant requests that the publication be made immediately after the registration.  See Article 10(3) and Rule 17 of the Geneva Act.  In addition, applicants may also request deferment of publication, which shall be granted for a period of less than 30 months from the filing date if such deferment is allowed by the laws of all the Contracting Parties designated in an application.  See Article 11 (1) and Rule 16(1) of the Geneva Act.

Once an international registration has been published by the IB, a copy of the publication will be sent by the IB to each of the countries designated by the applicant in the international design application and those countries will normally have six months within which to advise the IB that the registration does not meet its national requirements and thus will not be given effect in that country.  However, if the national laws of a country provide for examination of design applications for novelty or allow for oppositions, then the country will have one year from the date on which it is advised of the international registration within which to advise the IB that it will not give effect to an international registration.  See Article 12 of the Geneva Act.  Article 14(1) of the Geneva Act provides that the international registration has the same effect in a national office, such as the USPTO, as a regularly-filed application for the grant of protection of the design under national law and that the applicant has the same remedies as if the design had been the subject of a national application.  Article 15 of the Geneva Act provides that invalidation by the competent authorities in a designated Contracting Party may not be pronounced without the right holder having, in good time, the opportunity to defend his rights. Article 16 of the Geneva Act provides that the IB must record changes of ownership and other matters regarding international registrations and that any such change will have the same effect as if the recording had been made in the examining of the concerned Contracting Party.

Pursuant to Article 17 of the Geneva Act, an international registration shall be in effect for a term of five years from the date of international registration. Registrations may be renewed for at least two additional terms of five years in all countries and renewal for longer periods may be possible in respect of designated countries that provide for longer periods of protection under their national laws. Renewal may be effected for some or all of the countries originally designated and requires the payment of fees to the IB as specified in Rule 24 of the Geneva Act.  Invalidation proceedings may be brought against a registration on the ground that it does not qualify for protection against the national law of any of the countries designated in an international application and, if this is found by the examining office in such country to be the case, such office may hold that the registration ceases to have any legal effect in that country.


Effective Marketing—Get Your Story in Front of the Buyers

Companies generally grow their sales numbers by generating additional incremental revenue from existing customers and/or by landing new accounts through referrals from there existing customers.  However, in order for companies to truly increase the size of their business and create opportunities for large new revenue streams an effort must be made to develop an implement marketing strategies that will noticeably increase the size of the customer base.  This process should begin by setting reasonable goals and objectives for the target number of new customers and the annual revenue that the company anticipates will be obtained from those customers.  The company should then establish a budget for the marketing costs associated with achieving the goals and objectives with respect to the new customers.   The budget and goals should be carefully analyzed to ensure that the company is pursuing an appropriate return on its investment.  The amount of funds that should be made available for marketing to new customers depends on several factors including the projected revenue of the company, the costs associated with retaining existing customers, the specific marketing tools commonly used in the company’s industry, and the investment in marketing made by competing companies.  Before proceeding with the marketing campaign thought should also be given to whether the company will be able to effectively absorb the targeted new business with the resources that it will have available and what effect expansion of the customer base might have on providing products and services to existing customers.

Once the company has set aside the funds to be used for marketing to new customers decisions must be made as to how those funds can be most effectively invested. The company should begin by looking at what it is currently doing with respect to marketing and determine whether to continue with those strategies, perhaps even expand some of them, or shift direction.  One decision that generally must be made is how much reliance should be placed on online marketing and advertising activities such as the company website and place online ads on third party sites.  Over time, companies have found that that allocating a large amount of their marketing budget to search engine optimization does not make a lot of sense and that the return on their investment is usually disappointing.  Ironically, even though the Internet has become a dominant feature of the business environment, small growing companies are finding that their best chances for marketing success may lie in creating more opportunities for live, face-to-face contact with prospective customers and others in the industry who are in a position to distribute favorable opinions regarding the company and its products and services.


One method that companies can use to connect with prospective new customers is to host several promotional events in key geographic locations and invite the decision makers from a carefully selected group of prospects in the area.  Presentations during the event should focus on practical and straightforward demonstrations of the company’s products and services and should be supported by interactive participation by attendees.  The impact and effectiveness of the event should be bolstered by extensive due diligence before the meetings begin so that those making presentations on behalf of the company are informed about the specific requirements of the target customers in the audience.  One-on-one meetings may also be scheduled during the event period and at a minimum some form of follow-up discussion should be put on calendar by the end of the event.  In addition to “live and in person” events the company should also take advantage of available technology to produce and conduct Web seminars for prospect unable to attend the live events.  In addition, the company should engage a public relations firm with experience in the company’s industry and markets to place articles in trade journals, arrange interviews with influential journalists that follow the industry, schedule speaking engagements for company managers at industry conferences, and produce and disseminate press releases on a regular basis to increase and maintain the company’s profile in the industry.


Making Your Customers Marketing Partners-The Value of Referrals

Obviously one of the most important elements of the “value” of a particular customer is the projected volume of business from that customer during a specified future planning period. Using sophisticated customer relationship management (“CRM”) technology companies can now harvest information about historical purchasing habits and use statistic models to determine when customers will make future purchases, the volume of each projected order and the method (i.e., “channel”) that customers will use to fulfill their requirements.  This analysis allows the company to provide directions to its sales force as to when and how to contact customers so as to ensure that the company is positioned to sell when the customer is ready to purchase.  In addition, if this process is done well, the company will be able to use its database of customer information to determine which customers are most likely to be interested in new products or services that the company may decide to offer in the future.


It should not be forgotten, however, that customer relationships can also be significantly valuable to a company as a source of referrals for new business.  If customers have a good feeling about a company and its products and services they may be willing to provide support in the form of referrals to potential new customers.  Companies should consider strategies for turning customers into marketing affiliates and providing them with incentives to spread the word about the company and its products and services to third parties who might be influence by a favorable opinion from the referring customer.  In many cases, a customer that might not purchase a high volume of products and services for its own account may nonetheless be much more valuable to the company than another customer who buys a significant amount because the first partner is willing and able to introduce the company to a steady stream of strong leads of which a high percentage are turned into profitable new customer relationships.


In order to measure the true “value” of a customer it is necessary to identify, understand and calculate both the customer’s lifetime value (“CLV”) and the customer’s referral value (“CRV”).  Both values are discounted cash flow calculations that take into account profits and costs over a specified planning or forecast period.  The CLV at any point in time is the net present value of projected purchases by the customer over a specified period minus the sum of the marketing costs associated with acquiring the customer in the first place (“acquisition costs”) and the marketing costs associated with retaining the customer long enough for the customer to make all of the projected purchases (“retention costs”).  A CLV is, of course, a projection and its utility is tied to the sophistication and accuracy of various predictions regarding future customer demand, product pricing and margins, retention costs, competition and general economic and market conditions. 

Calculating the CRV is much more complicated and requires estimating the value of successful referrals that can be related to a particular referral incentive as well as the CLV of the new customers landed through the referral program.  While the CRV can be crudely defined as the net present value of expected future business from referred customers less the costs of providing the incentive to refer, several difficult issues need to be considered when determining the CRV.  Obviously, in order for a referral to be “successful” it must result in a profitable new customer relationship.  A customer that recommends the company’s products and services to others that never buy is not creating new value for the company.  It is also essential to determine how many of the successful referrals are tied to the company’s referral incentives.  In many cases companies use a simple rule of thumb and assume that referrals made within a specific period after the incentive is offered, such as six months or a year, should be included when analyzing the efficacy of a referral campaign.  A related issue is coming up with an accurate prediction of how many referrals an existing customer will actually made after being provided with a referral incentive.  Once the referral program has been in place for awhile reference can be made to historical data (which should also identify the “best marketers” among the existing customers); however, at the very beginning it is difficult to determine which existing customers will, in fact, proactively seek out potential new customers for the company. Each new customer should also be evaluated to determine if it would have purchased the company’s products or services even without the referral and if so the value of its purchases should not be included in the referring customer’s CRV although some credit should be given to the referring customer for allowing the company to avoid the acquisition costs for the new customer. 


After taking these issues into account, a customer’s CRV is the net present value of the profits and costs over the measurement period associated with new customer relationships formed solely because of the referral plus the net present value of acquisition costs that the company saved with respect to new customer relationships that would have been formed whether or not the referral was made.  In determining the value of new customer relationships formed solely because of a referral one must compute the profit generated from the customer’s purchases over the measurement period, add the savings in acquisition costs for the customer, and then subtract both the cost of the referral incentive and the retention costs for the customer.  Since a major element of the CRV is the projected CLV for the new customer referrals it is subject to the same caveats described above including the predictability of the new customer’s demand—something that is particularly problematic since there is no prior purchase history with the company to rely on when making predictions.