We’ve all heard the buzz around “Big Data,” large swathes of personal consumer information which can be used to maximise business intelligence while personalising and optimising consumer needs. But despite its entrance into the collective commercial consciousness, companies often fail to acknowledge the significant amount of data which exist within their own business models. For example, when trying to eke out any potentially hidden intellectual property assets within clients’ businesses, we often ask them to list those assets which they believe underpin their company’s competitive advantage. While we often receive varied responses, running the gamut from the quality of a company’s proprietary product to the know-how of a key individual within the business, customer databases is an answer we rarely hear – which is a shame given that databases are, for all intents and purposes, one of the most valuable and overlooked assets a company can have.
Databases seem to be gaining greater traction it seems, as we’ve recently been approached by a number of insolvency practitioners and company directors who have questioned whether their databases have any value and, to that end, we thought we’d briefly talk about database value and protection.
Before delving headfirst into the topic, it is first important to clarify exactly what we mean by “database right,” as this is a wholly separate concept from copyright in a database. As defined by London law firm Birketts, copyright protects originality in the structure of a database rather than its contents. Database rights, however, protect the “investment in the actual creation of a database, i.e. obtaining, verifying or presenting the database.” Critically, it protects what copyright does not – the actual data contained within the database – and acknowledges the significant level of investment, both in terms of money and time, which goes into building it.
Not all databases are created equal, however, and there are a few criteria essential to maximising a database’s value – or claiming it has any value at all. The quality of a database is a critical factor in determining its value, particularly when it comes to prospective purchasers wishing to get their hands on potential new sources of revenue. Databases that are regularly cleansed and kept up-to-date, for example, have significantly more worth than those which contain outdated and irrelevant contact details and information. Equally, databases which are specific to niche business areas might be more valuable than generic databases containing a large quantity of information that doesn’t help a company target a particular type of customer.
Anecdotally, we’ve seen a database consisting of millions of entries sold for a low five-figure sum, whereas a database with 3,000 contacts was sold for a high six-figure sum – the difference, of course, was in the information they contained. The former had a large quantity of business contacts, but it contained only basic information such as a phone number and address. The value proposition was in the effort it took to assemble the list and the time saved for companies who wish to use the contacts but do not have to collect the contact information themselves. The latter, however, had a detailed account of the customer’s order history and accompanying notes that would allow a business to tailor its marketing and services. What increased the database’s value, despite its smaller size, was the fact that the information it contained was not easily ascertainable by other means or competitors.
Depending on the nature of the information, customer databases can even be the subject of a trade secrets policy, given that a detailed list of what some consider to be a company’s most valuable asset is not something you would wish to fall into a competitor’s hands. This is particularly true if the database fulfils the following criteria:
- The information is not easily ascertainable by other means, i.e. via trade directories or a simple online search
- It includes much more valuable data other than names and addresses, such as pricing and special needs
- It takes effort, i.e. time and money, to assemble the list
- It is personal, long-standing or exclusive, as it is special to the particular business and has been collected and in use for a significant period of time
- Effectively, the database must provide a company with some level of competitive advantage, and has to be more than merely inconvenient for a third party to retrieve or replicate the information contained therein.
If you think this may apply to your company’s database – take heed! As we’ve stressed innumerable times before, the first step to protecting a critical IP asset is identifying it as such (you can read more about that in our Trade Secrets blog posts). Without creating a culture around IP protection, employees may not realise that they are (mis)handling key company assets. But even with this knowledge in hand, it is crucial that employee access to the database is limited, and those that do have access must go through user authentication systems.
Peter Drucker, the unwitting usher of the knowledge economy, once said “there is only one valid definition of business purpose: to create a customer.” It can only follow, then, that the manifestation of your business’ purpose is a valuable asset indeed.