The Importance of Intellectual Property With Smaller Stocks
Patents, trademarks, and copyrights all play a role in any company. However, IP is especially important with smaller penny stocks, because without legal protections, they can be easily pushed around, stolen from, or trampled. On the other hand, a small company with the right patents suddenly becomes a player that can stand up to the competitive market forces, and recoup any possible losses.
As well, strong IP rights make the penny stocks much more valuable as the underlying technology or information starts to become more significant. In fact, there are several examples of tiny companies with great patents who end up selling the patent itself for more than their entire company was worth.
Just keep in mind that there are a lot of useless patents out there. In fact, many companies will boast about having a patent on some technology, knowing full well that the technology may not be worth patenting, or that the patent itself is too narrowly focused to be meaningful or enforceable. So why talk up the patent? Because it sounds good to prospective investors, soothes current shareholders, and scares off potential competitors.
Make sure that any company you follow has a technology (or drug, or system) worth patenting, and that they have proper, rock solid legal protections on it. To know this for sure is very difficult, and if you ever look into intellectual property rights, or tried having a discussion with the US Patent and Trademark Office, you'll know exactly what I mean. The whole topic is very complicated, and there are a lot of gray areas. In fact, expensive and lengthy legal proceedings are very often required just to find out if company A was infringing on company B.
However, a good test of the legitimacy of a patent, and the quality of the technology it protects, is when the company uses the patent to legally stop another company, or to sue for damages. In this event, you would know that the technology was worth trying to copy, and that patent lawyers are willing to argue the merits of the IP rights in front of a judge.
Another factor that is very important with penny stocks are current and pending law suits. These can derail penny stocks quickly. Even the expense of legal proceedings (whether they are suing or being sued) can be too much to bear for a small company and most penny stocks. That's just in terms of the lawyers' costs, let alone if a major judgment goes against them.
A $50 billion company could easily survive a few dozen lawsuits. Any $5 million penny stocks can not. Be careful of those businesses that have current or looming lawsuits, even if they are the ones suing someone else.
Of course, it's possible that a penny stock survives a legal battle or two. However, all things being equal, avoid companies with legal issues.
The exceptions to this are penny stocks that has a great technology (or drug or system) which is subject to competitor imitation. It is a very wise use of funds and resources to assert their IP rights to legally block the competition. It also speaks to the merits of the technology itself, since their competitors think it's worth copying.
As well, strong IP rights make the penny stocks much more valuable as the underlying technology or information starts to become more significant. In fact, there are several examples of tiny companies with great patents who end up selling the patent itself for more than their entire company was worth.
Just keep in mind that there are a lot of useless patents out there. In fact, many companies will boast about having a patent on some technology, knowing full well that the technology may not be worth patenting, or that the patent itself is too narrowly focused to be meaningful or enforceable. So why talk up the patent? Because it sounds good to prospective investors, soothes current shareholders, and scares off potential competitors.
Make sure that any company you follow has a technology (or drug, or system) worth patenting, and that they have proper, rock solid legal protections on it. To know this for sure is very difficult, and if you ever look into intellectual property rights, or tried having a discussion with the US Patent and Trademark Office, you'll know exactly what I mean. The whole topic is very complicated, and there are a lot of gray areas. In fact, expensive and lengthy legal proceedings are very often required just to find out if company A was infringing on company B.
However, a good test of the legitimacy of a patent, and the quality of the technology it protects, is when the company uses the patent to legally stop another company, or to sue for damages. In this event, you would know that the technology was worth trying to copy, and that patent lawyers are willing to argue the merits of the IP rights in front of a judge.
Another factor that is very important with penny stocks are current and pending law suits. These can derail penny stocks quickly. Even the expense of legal proceedings (whether they are suing or being sued) can be too much to bear for a small company and most penny stocks. That's just in terms of the lawyers' costs, let alone if a major judgment goes against them.
A $50 billion company could easily survive a few dozen lawsuits. Any $5 million penny stocks can not. Be careful of those businesses that have current or looming lawsuits, even if they are the ones suing someone else.
Of course, it's possible that a penny stock survives a legal battle or two. However, all things being equal, avoid companies with legal issues.
The exceptions to this are penny stocks that has a great technology (or drug or system) which is subject to competitor imitation. It is a very wise use of funds and resources to assert their IP rights to legally block the competition. It also speaks to the merits of the technology itself, since their competitors think it's worth copying.