It would be difficult to conceive that any chief executive officer, senior manager, investment banker, corporate counsel, accountant, financial adviser, or consultant could or would ignore the unprecedented frequency and staggering proportion of merger and acquisition activity since the late 1990s and well into the twenty-first century, or the ramifications of such unions on their company or clients. In this age of electronic commerce, the marriage of corporate, media, and industrial giants is hastening the realization of a so-called global economy.

Only 10 days after the beginning of the new millennium, America Online announced that it had agreed to buy Time Warner for $165 billion dollars, clearly making it the largest merger in terms of monetary value that the world had ever seen. The shock that so many experienced when this relatively new Internet Service Provider agreed to purchase the worldwide leader in traditional media services served only to reinforce the concept that the global economy is entering a new technology-driven age. The merger was consummated by the end of the year 2000, and revenues from the combined business operations are expected to reach or exceed $40 billion in the first year. [2] Increasingly, the value and importance of intangible assets are the driving forces behind such mergers and are playing a greater role in terms of assets received through mergers, acquisitions, and takeovers. [3]

Although the America Online and Time Warner merger was classified during the height of the tech-stock boom as the Internet Triumph, [4] both Time Warner and America Online viewed the merger as a marriage of necessity. (Time Warner needed access to America Online's estimated 22 million online subscribers and "content" [5] availability and America Online could not ignore its dearth in terms of providing services to consumers through traditional media outlets.) [6] The new combination can provide an Internet audience for Time Warner's television, movie, and magazine operations while America Online has access to speedy Internet cable lines. [7] The combination has created the first true entity with the presence to touch upon all aspects of the converging entertainment and technological industries. [8]

Despite cyclical variances and the fallout from the tech-stock frenzy of the late 1990s, the trend of giant entertainment mergers is not likely to dissipate soon. In fact, when President Clinton signed the Gramm-Leach-Bliley Act (also known as the Financial Services Modernization Act) into law in November 1999, which became effective March 11, 2000, one of its main goals was to eliminate the barriers imposed by regulatory schemes adopted in the 1930s (especially Sections 20 and 32 of the Glass-Steagall Act) and to hasten affiliation among securities, insurance, and banking institutions. Additionally, the Gramm-Leach-Bliley Act allows for the creation of a financial holding company (FHC) that will be capable of creating a wide range of financial services, including securities underwriting, insurance, and loans, services that had been required to be provided separately. [9]

Although this profound new legislation is expected to be a driving force behind corporate combinations for many years, its immediate impact is uncertain. Due to the breadth of this legislation, which sweeps away traditional restrictions and the inherent uncertainty about what functions companies will be allowed to perform, its immediate impact is unclear. In light of this uncertainty, executing alliances among banks, securities firms, and insurance companies will, in all likelihood, be a complex and expensive task. [10]

The traditional relationship between earnings per share and stock price is no longer the primary factor driving market capitalization. In this technology-driven economy, the new paradigm for determining market capitalization is the value of a company's intellectual property. [11] These intangible assets comprise a substantial portion of the underlying value of most emerging new companies. [12] However, established Internet and so-called "new economy" companies are not the only ones that enjoy premium valuation based upon the underlying value of their intangible assets. For instance, Microsoft's intangible assets represent 95 percent of its total capitalization, and Merck's intangible assets represent 82 percent of its total capitalization. [13] It is no secret that both Microsoft and Merck have sought to maximize market capitalization by exploiting their intangible assets to the fullest extent.

In view of the forgoing, understanding why intangible assets are the driving force behind the continuing wave of merger and acquisition activity becomes more critical. First, acquiring a company whose intangible assets are capable of providing expanded global marketing and use of intellectual property is an efficient method of achieving a competitive advantage from assets that are difficult, if not impossible, to reproduce. Brand, image, know-how, and technology are not only difficult to reproduce because they are very often specialized resources but are also tremendously rewarding to reap in terms of market capitalization. [14] In this respect, merging with or acquiring another company can provide instant access to these intangible assets. Second, intellectual property rights survive as the collateral against which many transactions are financed. For example, when Kohlberg, Kravis & Roberts paid $25 billion for RJR Nabisco ($21.7 billion above its book value), intellectual property – particularly trademarks - were pledged as underlying collateral serving to help justify the purchase price. [15] Furthermore, well-recognized intellectual property has enormous potential for new markets. For example, AOL-Time Warner executives identified the content-essentially, the intellectual property rights of Time Warner, as a primary reason for the acquisition. [16]

Among the valuable intellectual property being acquired are the traditional intellectual property assets such as patents, trademarks, copyrights, and trade secrets. More recently included in this category, and of ever-increasing importance, are mask works and Internet domain names. [17] In the event of a merger or other type of corporate restructuring, it is critical that the acquiring party obtains equitable and record ownership of these intangible assets or, at the very least, acquires the appropriate license.

Intellectual property assets need to be properly transferred in the name of the new owner for numerous reasons. For example, with respect to patents, a written instrument conveying ownership should be unambiguous and demonstrate a clear intent to transfer the ownership and right to sue for past infringements. [18] For trademarks, a transfer instrument should expressly include common law rights acquired by the seller's use of the mark and indicate whether this transfer is being made with the goodwill of the business. Additionally, proof of ownership must be provided if the new owner intends to proceed with a cancellation, opposition, or infringement action against a third party. Prompt recording of the instrument will ensure that a central location exists to search the chain of title and avoid the potential loss of rights because of a subsequent transfer by the seller. Furthermore, ensuring proper record title will allow the new owner to file renewal applications and affidavits of use in its name and take all necessary steps to protect the trademark. [19]