Resource Utilization

Contract Rights Management gains its vitality from the pursuit of excellence in a complex, contradictory and highly collaborative environment where financial stakes are high and administrative budgets are low. The heart of the intellectual property enterprise is the realizable value of its intangible assets , both in the short term and over the entire anticipated economic lifecycle of the property in question. The marketplace can easily price the same asset at a huge surplus or discount from mainstream conservative valuations depending almost entirely upon the quality and quantity of effort put into its promotional development and distribution partnerships.

These fluctuations occur because management does not have practical access to the historical information necessary to properly project the future performance that can be realistically derived from a specific utilization opportunity for an asset. In this information vacuum, decisions are commonly made based upon crude rules of thumb , without regard to unique possibilities particular to the present situation. Thorough investigation and evaluation is deemed to be a waste of scarce management resources. The solution to this dilemma is investment in a contract rights management system that places this type of information at the fingertips of decision support staff. Asset performance is presented in intuitive pie charts, bar graphs and financial summaries. Sales forecasts are generated from detailed historical analysis and known expected revenues.

Crucial to these analyses are a clear picture of the underlying rights, restrictions and participations commitments impacting future economic activity. For example, a specific right may have been withheld in the form of an option, for say video game rights, because the ultimate value of the trademark or characters involved was considered to be impossible to establish prior to worldwide release. Knowledge of this restriction both prevents inadvertent violation of an agreement and sets a straightforward price tag on proceeding with the now contemplated video game license. Copyrighted properties frequently enjoy exceptionally long economic lives that may include a freshening of the franchise through either an updated version or a same-theme sequel release. System 7 provides the consolidated view necessary to pick those opportunities out from among lesser lights in a large roster of mature assets.

Collision Testing is intended to sound important and impactful. Every year, most intellectual property organizations find themselves involved in a critical renegotiation of an important contract. The rights granted either exceeded those available or were in direct conflict with the terms of another agreement. The threat of litigation becomes a powerful tool in the hands of the “wronged” party, no matter how inadvertent the mistake. Collision Testing not only identifies gross errors, it also pinpoints the emergence of overlapping exclusive windows that have appeared as a consequence of subsequent changes in release timing or strategy. These shifts in dates expose the organization to another potential source of friction with their business partners, missed payment dates due to overlooked contingent events within an agreement. Coherent management of event-driven payment dates is essential to maintaining a reputation as a competent and conscientious business partner.

Within legal departments, the biggest unspoken fear is failure to act upon an Option prior to its expiration. Most options pass quietly into the night because events during their term made the underlying opportunity uneconomic. However, a small minority of options prove to be strokes of genius that enable the organization to negotiate a far better agreement on a now proven winner than would have been possible on a level competitive playing field. Option exercise deadlines become administratively challenging when they are established as a set time interval (say, 6 months) beyond an estimated event (hiring of a script writer). The challenge expands when the opportunity is actually just a tiny subset of the rights controlled by the option, easily lost in the shuffle until someone in management asks that dreaded question: “When will?…”, when it already has. Event-driven calendaring that is fully integrated with the source agreement database not only keeps contingent payments under control, it has the power to provide months or weeks of advance warning on deadlines that were envisioned years before, but unknowable until current events turned estimates into actual cut-off dates.

The primary concept of most intellectual property acquisition or sales agreements is an exchange of value, business rights for monetary compensation. Over time, precise definition of those rights has the potential to dramatically shift the economic balance in favor of one party or another by creating the possibility for an additional grant of rights where none would have existed. Licensing a book for publication in a French language group of countries for French rather than all languages can result in a windfall when unexpected success makes an English language version in those same territories a desirable commodity. Similarly, precise establishment of guarantee formulas by asset, territory and possibly right or distribution channel, creates the opportunity to aggressively manage licensee activities , while satisfying their need for flexibility through cross-collateralization.

Contracts, no matter how precisely drafted, must rely on an atmosphere of trust and shared goals in order to achieve their ultimate aims of maximum revenues and balanced success. Fiduciary Responsibility is a legalistic term used to express that philosophy. In day to day operation, this concept translates into an ongoing need to ensure that a corporation's actions are not perceived by its partners as being deliberately harmful to their interests. A general reputation for competence is the most obvious and most challenging aspect of proper stewardship of the interests of all concerned parties to an agreement. Touch point for an image of care and capability is Participations Payable. Suspicion reigns supreme among recipients of licensee royalty reports that information has either been accidentally or purposefully withheld from them that could have increased or accelerated cash payments. A contract-driven, cash-basis system of transaction accumulation, analysis and reporting is essential to overcoming this fundamental obstacle to trust in a long term partnership.

The Achilles Heel of intellectual property operations is their vulnerability to negative audit reports to the tax collector, public corporate governance or key business partners. Auditors rely heavily on the ability to spot check summary numbers by drilling down to their original source transactions. Within most corporate order processing, payment and billing systems, this process is nearly automatic and usually foolproof. In the world of intellectual property contracts, the situation should be the same, but is frequently a haze of undocumented decisions, unreconciled general ledger entries and estimated contract values. Microsoft Excel and Word are the most common culprits. Their terms and calculations are mysteriously incorporated into invoice line items, revenue recognition adjustments, credit memos, revenue reversals, cash revenue estimates, payment calculations, account history records and rights management analysis without conclusive justification. In fact, to date, the one area that auditors never review, but should, on behalf of public stockholders is effective utilization of asset value (looking for holes in the exploitation pattern), simply because the fundamental record keeping involved is typically so arcane as to make the task impossible to accomplish.

Uppermost in the minds of long term licensors of major properties is maintaining the sustained attention of their licensees to opportunities for revenue generation in secondary marketplaces and product lines. One of the biggest sources of tension and dissatisfaction in a granted rights relationship is the lack of visibility to the licensor of the current exploitation pattern for their asset. In other words, is there an active licensee for Internet rights in Greece? How soon will the book rights in Australia expire? What deals are pending in the United States? Corporations that have an efficient ability to report on historic, active and pending agreements become the most desirable business partners when competitive bids for high profile opportunities are considered by authors and inventors.

Centralized information and asset identification systems create the opportunity for watermarking and versioning of assets that are subject to the risk of piracy through deliberate or inadvertent diversion by business partners. Centralized databases also reach out to external business partners and internal staff members in ways that are impossible in an intellectual property world where isolated information sources and personalized spreadsheets provide most of the operational intelligence. Rights availability, performance history, submissions records, contract status, contact management events and royalty reporting interfaces that generate massive improvements in efficiency, accuracy and satisfaction become obvious opportunities for automation.

Internal or external auditors that uncover areas of concern during their reviews then seek to determine whether apparent inconsistencies are the product of individual incompetence, systemic lack of controls or deliberate fraud. The first step in making that determination is an effort to tie individuals or departments to the suspect transactions or records. A system that automatically records the originating author of every contract, cash receipt, payment authorization, location release, materials requisition…everything, is critical to that capability. Equally important is the assurance that every transaction, no matter how old or seemingly irrelevant to present business activities, has been retained, without exception. Most challenging in achieving 100% retention are transactions whose reference information no longer fits the current business model. All reference fields must be retained in a deactivated, but available state within the system so that transactions are not only retained, but are instantly accessible on a practical basis.

The grim reality at most intellectual property organizations is that there is at best a tenuous hold on internal awareness of current rights availabilities. Contract revisions, contingent term start and end dates, exclusivity windows, inconsistent territory definitions, multiple asset packages, and loosely defined rights all conspire to make even the most diligent efforts at precision rights management no better than 80% accurate. The idea of going back in time to review historic rights utilization efficiency over months or years approaches pure fantasy. This widely recognized lack of management accountability allows sales departments to focus their attention on current revenue hot spots while ignoring run of the mill exploitation efforts that bring in thousands rather than millions per deal (but enough to be the difference between profits and losses in a year without hits). In addition to aiding departmental guideline enforcement, expired contracts, with their associated invoices, revisions and cash collections, have perpetual value as tools in negotiations, employee reviews, performance audits, participations payment challenges and post-mortem contract disputes.

Successful contract administration relies on the availability of a convenient method for examining the details of initial negotiations and subsequent revisions. Current versions of agreements may or may not fully reflect relevant historical information that has the potential to significantly impact pending extensions, amendments or payments. Every significant version of a contract that represents a change in position, by either party, should be available, with notations that represent either planned strategies or reactive comments by corporate negotiators. Word redlining is usually insufficient because of the lack of coherent discussion threads and the uncontrolled creation of parallel or overlapping documents. Negotiators and administrators are thus protected from effective scrutiny of their logic, diligence and initiative in protecting and promoting corporate interests. Similarly, proper revenue recognition planning requires visibility to key terms and conditions that determine availability for initial exploitation, actual release dates, guarantee deadlines and payment schedules. The contingent nature of many of these dates creates an environment of guestimation that is kept carefully suppressed beneath the surface (and out of reach of corporate finance and thus, their control) to the detriment of corporate goals for consistent earnings growth and accurate quarterly revenue projection.

Incremental Revenues

Without system support, Intellectual Property organizations are cluttered by personal databases and buzzing with interpersonal communications. This 18th century approach to collaboration wastes time and limits knowledge transfer. Verification, confirmation, replication, interruption and miscommunication consume the day. Management directives, personal initiative and procedural changes are lost in the shuffle. Staff overtime becomes a permanent solution. Critical information is lost with each resignation.

Disconnects occur between three major functional groups: Sales, Finance and Legal. Each group maintains their own contract databases. Each group prepares their own analytical spreadsheets. Each group declares information provided by other groups to be of suspect reliability. Executives struggle to integrate inconsistent presentations and assumptions from each department into a meaningful statement of the condition of the business. Organizations stagnate.

Expanded Inspections

Fragmented environments block most efforts by senior management to determine whether assets are being properly deployed and personnel assignments accurately prioritized. Glaring weaknesses in strategy and execution are easily hidden within personally maintained spreadsheets and databases.

Shared Services

About Jaguar News

Jaguar News is published periodically for the purpose of maintaining communications with Jaguar’s clients, prospective clients and other parties interested in the field of Intellectual Property Contract Rights Management. Jaguar Consulting was founded in 1985 for the express purpose of designing, developing, installing and supporting Intellectual Property Software Solutions.

Clients include Alliance-Atlantis Communications, Cinar, DIC Entertainment, Explore International, Flextech Television, Goodtimes Video, Hallmark Entertainment, Harmony Gold, HIT Entertainment, Jim Henson Productions, Lions Gate Entertainment, Major League Baseball, MGM, NBA, NBC, National Geographic Society, Nelvana, Sesame Workshop, Southern Star, Warner Home Video and WNBA.

System 7 Universal Rights Management is Jaguar’s seventh generation software product. It is an all-new design created specifically to bring contract rights management technology to all forms of intellectual property, including patents, copyrights, trademarks, trade secrets and permissions. This groundbreaking system features a Universal Contract Database, Multi-Level Rights Inheritance, a fully-configurable Custom Rights Framework, and Integrated Rights and Royalties Management. System 7 is available in the following software modules: Intranet Portal, Contract Administration, Rights and Restrictions, Workflow Management, Revenue Accounting, Royalties Receivable and Participations Payable.

Further information, System 7 Buyer's Guide, and a test drive of System 7 Intranet is available at http://www.jaguartc.com/system7.

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