~ ests of people with manydifferent viewpoints and objec- tives, which would lead to better standards that are more readily accepted.

There are guidelines that are less formal than standards, such as those developed by industry consortia, but they sometimes are not readily accepted because their develop- ment process is not viewed as sufficiently rigorous.

In fact, some agencies, such as the Federal Communications Commission, must reference accredited standards (or the successful completion of a standards-

like process) when mandating regulations for various products. In addition, other agencies, such as the US Department of Defense and the European Union, will not purchase some products unless the specifications have been approved by a standards-producing body

We must make sure that standards do not create secu- rityproblems as side effects. However, we can use the stan- dards process to analyze critical security concerns related to portable Web applications. These concerns can be addressed with conformance and interoperability tests of implementations, applications, and installations.

In addition, recommended practices produced by the IEEE standards-development process may help software engineers or system managers determine how to minimize security threats.

Standardization process Portable-Web-application standardization will begin

with a project authorization request (PAR), which will, for example, define the technology elements that will be con- sidered for standardization. This will be a primary objec- tive of the study group that will meet in July.

The project’s PAR will also identify holders of relevant intellectual-property rights, including copyrights, whose active support is needed to expedite the process. Ideally, companies that have defined a technology‘s specifications will provide a technical editor to put them into proper stan- dards format. Multiple PARs may be initiated for each lan- guage or for each byte code within a language.

A tentative timetable calls for PARs to be approved by December 1996. Aworking group will produce and review draft documents, and voting could begin on proposed standards by early 1997. The results of the final round of voting could be announced by September 1997.

The working group will be open to anyone interested in portable-Web-application standardization. Working group members and interested Computer Society and IEEE mem- bers will be able to vote on proposed standards.

J im Isaak is director of information-infrastructure standards f o r Digital Equipment Corp., where he works i n the corpo- rate standards group. He is also the Computer Society’s vice president for standards. Readers can contact h i m a t j.isaak@computer.org.

Computer

lrah H. Donner; Lowe, Price, LeBlanc, and Becker, Suite 300, 99 Canal Center

Plaza, Alexandria, VA 22314; phone (703) 684-1 11 1; fax (703) 684-1 124;

idonner@ipfirm.com.

Steven G. Tepper, corporate attorney Arnold and Porter

Irah H. Donner, patent attorney Lowe, Price, LeBlanc, and Becker

fter a quick lunch, FrederickFranklin returned to the office of his new corporate attorney, Mark Appleman, to discuss Fred’s plan for an initial

public offering (IPO) of stock. Fred wanted to sell stock to raise money for his software

company, whose products let users connect to the Internet and download baseball-card price information. An invest- ment house, Top Dollar Securities, wanted to handle the IPO and wanted Fred to decide on its offer soon. Fred wanted Mark to explain in depth how IPOs work so he could make an informed decision.

Fred and Mark had spent much of the morning discussing how to prepare for an IPO. For example, they discussed the hiring of attorneys, underwriters, and other key players on the IPO team. Now, they were going to discuss the ways a company can get its house in order and make itself more appealing to investors, which is critical to an PO’s success.

Business plan Finding a good underwriter is important to an IPOs suc-

cess. The underwriter, an IPO’s basic investor, is responsi- ble for introducing the issuing company to the public and attracting enough additional investment to make the offer- ing a success.

Good underwriting firms are very selective. They fre- quently base their decision whether to handle an offering on the issuer’s business plan. Therefore, it is crucial to pre- sent a well-prepared business plan to a selected group of underwriters.

The business plan should briefly and clearly describe the company and its operations. The plan should also discuss the company’s future, including its expansion plans and the way it intends to use the IPO’s proceeds.

In addition, the plan should provide information about the issuer’s officers and board of directors. Most under- writers want to see a board that includes independent direc- tors (people who are not company officers) and high-quality managers who have long-term relationships with the com- pany, perhaps in the form of contracts.

0018-9162/96/$5.00 0 1996 IEEE

Finally, the business plan should include audited finan- cial information for the previous three years, including fig- ures for the most recent quarter. There should also be quarter-by-quarter projections for the coming fiscal year or two, including explanations of how the projections were made.

Once one or more underwriters express interest in an IPO, the issuer will begin negotiations designed to select one firm and set the offering’s general terms, such as the amount and price of the stock that will be offered.

Corporate housekeeping An issuer’s documents and records will be closely exam-

ined during the IPO process. US securities laws include strict disclosure requirements and provide penalties for mis- leading disclosures. Therefore, corporate records should be maintained on an ongoing basis.

Important documents include the minutes of board or shareholder meetings, material contracts to which the com- pany or its subsidiaries are a party, financial documents, and documents involving company-owned real property and intellectual property. Foreign companies must trans- late into English their more important documents, such as their articles of incorporation and key supply or sales con- tracts.

Material agreements and relationships Issuers should carefully review their material agree-

ments, such as those with suppliers, customers, creditors, and landlords. The terms of material agreements will be disclosed to the public and will sometimes be filed with the US Securities and Exchange Commission, the key regula- tory agency in the process. If important agreements are scheduled to expire soon after the offering, the issuer may want to extend their terms to demonstrate stability in key areas to investors.

A company must review its agreements and relationships with affiliated parties. Privately owned companies often have business relationships with their principal owners or other entities under common ownership. The disclosure requirements regarding transactions with these affiliates are particularly rigorous. Investors often don’t like issuers with many of these relationships because this makes their IPOs very complex. The issuer and its controlling share- holders may have to restructure such relationships before the IPO.

Intellectual property An issuer should also review its intellectual-property

assets. This is critical for many high-tech companies. Issuers must determine how to protect their own intellectual- property assets and how to avoid infringing on other com- panies’ intellectual-property rights.

Both aspects are important because US courts have upheld intellectual property rights, such as those protected by patents, more frequently in recent years. For example, before 1982, courts determined in about two-thirds of patent-infringement cases that patents either were not infringed or were invalid to begin with. Since the advent in 1982 of a federal court with exclusive jurisdiction over appeals of patent cases, courts have decided in about two- thirds of such cases that patents were infringed.

Protect your own intellectual property. A com- pany must determine, with the help of legal counsel. whether to use trademark, trade secret, copyright, or patent protection, or some combination of these methods, to pro- tect its intellectual-property rights. Considerations include the market potential for selling products in the US and abroad. Key managers and product developers will have tc be educated to identify projects, products, or services that should be protected.

An intellectual-property audit can reveal weaknesses that might compromise protection for certain products. For example, a company may discover that lconfidential infor- mation was accidentally leaked to the public. An issuer may also discover that it did not properly get employees to assign to the company their intellectual-property rights to certain key technologies or that it did not correct1 y procure key tech- nologies from outside vendors.

These matters can frequently be resolved early in the IPO process without disturbing the offering’s momentum or investor interest.

Avoid intellectual-property infringement. A company can be badly hurt if a court finds that it has infringed on another company’s patent. In some cases, a patent owner can get an injunction that prevents an infring- ing company from making, selling, or using its own prod- ucts. If a court finds that a companywillfullyinfringed on a patent, the patent owner can sometimes force an infringer to pay enhanced damages and legal fees Similar remedies are also available for trademark and copyright infringe- ment, as well as trade-secret and unfair-competition viola- tions.

Companies can minimize the potential for intellectual- property infringement, although they can’t eliminate the risk entirely.

A product clearance search can minimize the chance that a court will someday find that an issuer has willfully infringed on another company’s intellectual-property rights. An issuer should search US Patent and ‘Trademark Office records for similar patented products and trademarked product names to determine whether a potential conflict exists.

A company can try to obtain a clearance opinion, which states that its counsel believes no conflicts exist. This would demonstrate to potential underwriters and investors the integrity of the company’s intellectual property. If the clear- ance opinion is issued early in the design process, a com- pany may be able to change its product design or name to avoid problems. A clearance opinion also provides a written, dated record a company can use to defend itself against alle- gations that it intentionally infringed on another company’s intellectual-property rights.

“So you see, Fred, there are many important issues in an IPO,” Mark said. “As for whether you should hire Top Dollar Securities, you’ve got to ask yourselfwhether they have the qualifications we’ve discussed, whether they’ve indicated they will explore the issues we’ve raised, and whether they’re confident they can attract the right investors.”

“I guess the ball’s in my court now,” Fred said. “I’ve got a big decision to make. Thank you for giving me information that can help me make that decision.”

June 1996