Intellectual capital is your company's most valuable asset. It's also under attack. Here's how to exploit and protect it.

Intellectual capital: What is it? It's more than just legally protected property such as patents, copyrights, and trademarks. It encompasses the value in a company other than tangible assets sitting in a factory, on a shelf, or in a bank. It's your brand image, your employee expertise. It's your business models, the technology that separates you from competitors, your customer and supplier relationships. All those things have value.

Just like physical assets, your intellectual assets required an investment to build, and if harnessed properly they'll help produce ongoing revenues.

The Internet offers new ways to do that. At the same time, the Net brings unprecedented new risks to the intangible assets you have.

This special report presents an intellectual capital survival guide for the days ahead.

Money from nothing
Use the Net to exploit the intangible.

At risk online: your good name
The Web presents 3 billion places where someone might besmirch your most prized asset

Money from nothing

It is ridiculous to say that humans have no value, that in the current period they're expenses and that's all they're worth.

Barry Libert is pacing around the hotel conference hall like a college basketball coach, telling his audience of local business managers that they're worth nothing. And this is what they came to hear. "Those chairs you're sitting on, they're worth more than you are," the principal from Arthur Andersen, the world's largest accounting firm, tells the crowd. "They're assets. You're expenses."

Libert has been on a vision quest that has taken him to 80 cities around the world in the last six months, lecturing businesspeople on the inability of normal accounting methods to assess the real value that most companies contain. Forget fixed assets such as furniture, equipment, and buildings. We're talking about the worth of intellectual capitalâ€"intangibles like people, ideas, reputations, relationships, and legally protected intellectual property such as patents, trademarks, and copyrights. Intellectual capital usually goes unaccounted for on financial statements. By some calculations, as much as three quarters of the value in today's companies doesn't show up on their balance sheets.

"I asked [one organisation], How much are your people worth? All the relationships, all the knowledge, all the insight, all the intellect, all the patents, all the processes, all the information about every single person and relationship inside and outside the organisation. Got any idea what their answer was? Nothing was the answer," he scoffs. "It is ridiculous to say that humans have no value, that in the current period they're expenses and that's all they're worth."

Of course, the notion that people and ideas are worth something beyond the revenue (and expense) they produced last quarter is neither radical nor new. Early American business advisor Benjamin Franklin said, "An investment in knowledge always pays the best interest," and it wasn't his idea either. What's growing is the belief that an accounting system invented in the 15th centuryâ€"one in which only brick-and-mortar investments count as assets while investments in software, training, or new business methods constitute profit-sapping expensesâ€"doesn't really indicate how companies are doing in today's service economy. It doesn't express how prepared they are for the future. It's hard to appraise what companies have underneath the balance sheets, and Libert claims this contributes to stock market volatility: Investors implicitly understand that intangibles like great technology or happy customers are the cornerstone of many tech companies, yet they have no hard numbers to refer to when nasty-sounding company news rears its head.

Libert says this information vacuum is also why managers everywhere often misapply resources. "Managers, like investors, need to know what assets their companies own and why they own them," he says. As company managers, "we measure it, and therefore we invest in it. If we don't measure it, then we don't manage it." His point is this: Let's think more specifically about which intangibles create value (that is, future revenues) in our companies, and how. Then we can get on with the business that really matters: making them worth even more.

Libert isn't alone in preaching this gospel. Baruch Lev, a business professor at New York University who has become known as the father of intangible valuation, has developed a method of appraising intellectual capital called the Knowledge Capital Scoreboard. This metric isolates "knowledge capital" as a company's earnings that are not directly attributable to its conventional hard assets, then puts a dollar value on that capital (in Lev's latest scoring of hundreds of companies, Microsoft had the most intellectual capitalâ€"US$211 billion worth). In companies across all industries, the value of knowledge capital blew away brick-and-mortar assets: The average ratio was three to one.

A new study from think-tank the Brookings Institution, "Unseen Wealth," concludes that failure to account for intangibles is responsible for stock volatility, bad public policy, uninformed business decisions, and an inadequate tax system.

Last year Securities and Exchange Commission chairman Arthur Levitt created a committee to explore financial reporting alternatives, saying, "We have long had a good idea of how to value manufacturing inventory or assess what a factory is worth. But today the value of R&D investment in a software program, or the value of the user base of an Internet shopping site, is a lot harder to quantify."

The big accounting firms are evangelists too. "We've got this ossified accounting system that got us fine through the industrial age but which isn't really adequate for a service economy," says Jonathan Low, a senior researcher at Cap Gemini Ernst & Young's Centre for Business Innovation.

Internet payoff

Companies are now using the Net not only to assess what they have but also to make the most of it.

OK. So now what? Low doesn't think accounting rules are going to change soon. (The Financial Accounting Standards Board this year may approve a new way for accountants to keep the intangible assets of acquired companies on their books, but this won't affect most businesses.) But, Low says, "companies need to get into the game of analysing their own intangibles now." And the Internetâ€"which got us thinking more about intangible capital in the first placeâ€"is a great mechanism for analysing and exploiting it. Companies are now using the Net not only to assess what they have but also to make the most of itâ€" from wringing more value out of patents, trademarks, and technology, to harvesting employees' ideas and turning them into money.

The "hardest" intangible asset, and therefore the easiest to value, is intellectual property. Patents and trademarks are licensed for real money every day, and the advent of online patent and idea exchanges makes it easier to extract value from this form of knowledge capital. The Patent & License Exchange not only lets companies post patents they want to license and search for technology they need, it also provides a mathematical formula for approximating the value of a patent. The formula is based on the widely used Black Scholes model for valuing options, which, like patents, are assets with an uncertain future value and an expiration date. The Patent & License Exchange is one of at least a dozen online idea exchanges, nearly all less than two years old, meant to serve as dating services for companies and technologies.

Yet2.com, another such exchange, was born in early 1999 and now lets companies shop for innovations like "nanofibre-in-nanopore technology that enhances the electrical characteristics of piezoceramics" and a "new rotating device that can perform as a seal, bearing, or pump." Companies become members of the exchange for up to $50,000 per year for unlimited posting and searching (the entry level for limited use is $4,000). Yet2.com takes 10 percent of any completed transactions, to a maximum of $50,000 per deal. Conrad Langenhagen, Yet2.com vice president of finance and strategy, says the average technology posted on the system is worth about $5 million in R&D.

GE Industrial Systems, which sells more than 100,000 products ranging from voltage regulators to portable buildings, uses several of the online technology exchanges. "The nice idea about exchanges is that you do it once and you can get some really broad exposure for the technologies you're trying to market, with really very little resources expended," says Dave Christensen, manager of intellectual property for that unit. "Typically, technology licensing is a very resource-intensive, expensive process, so you tend to do it only with technologies you're likely to get very large paybacks on." Online exchanges let GE offer a wider range of technologies, at reasonable rates. For example, GE internally developed a system it uses to manage its own intellectual property licensing agreements; now it offers licenses to that software via the online networks.

Procter & Gamble is both a user and an early backer of Yet2.com, seeing it as a new way to monetise intellectual property, says Wally Murray, manager of licensing and external ventures for Procter & Gamble. "We only use 10 percent of our patents, and that isn't unusual for big companies like us. You spend a lot on research, and you invent a lot of stuff that doesn't fit. Over the years we've built a huge inventory of intellectual property assetsâ€"worth an enormous amount of moneyâ€"and quite frankly the whole world just recently figured out it would be a good idea to start selling this stuff."

By Don Steinberg, Smart Business

Internal affairs

What Yet2.com and some of its users discovered was that the network can do more than just help license patents and sell technologiesâ€"it can uncloak the hidden assets that clients already have.

"Companies have this enormous need to understand what they have within their own walls," says Yet2.com's Langenhagen. "At Siemens they say, 'If only Siemens knew what Siemens knows, we'd be a great company.' " Indeed, says Dennis Grubbs, Proctor & Gamble's associate director of global licensing and external ventures, "one of the introduction requests we got through Yet2.com was from a P&G person." That's not shocking. Proctor & Gamble has 19 R&D centers around the world.

"How is somebody going to know if somebody else in Japan just invented what he needs?" asks Procter & Gamble's Murray. "That's not an unusual situationâ€"you get that in any company that's global. When R&D was all in one place, they used to meet in the lunchroom and exchange ideas. We've used the Internet to reconnect these people we've scattered all over the world. It's 12,000 people strong and they've re-created that global lunchroom over the Internet."

Yet2.com may build an intranet version of its software that its members can use. Procter & Gamble in January formed a new company, in partnership with Magnifi, to market enterprise software that will help companies collaborate and develop ideas. Other companies have built their own internal knowledge networks. Using digital connections to nurture and exploit internal knowledge offers huge new opportunities to find revenueâ€"entering the territory of another information-age buzzword: knowledge management. Just as spiffy new factory equipment can bolster profits by making a process more efficient and less costly, so can an intangible asset like knowledge, if harnessed.

Lately Xerox hasn't been held up as a model for good business (the company's sagging earnings and stock price recently sent it to the brink of bankruptcy), but the company has done one thing right. Xerox has aggregated the expertise from its global force of 25,000 copy-machine repair engineers and agents, saving about $12 million last year, according to Dan Holtshouse, Xerox's director of corporate business strategy. How? Xerox service engineers make about 1 million repair visits each month to customer sites. About one in 1,000 service calls presents a new problem that isn't in the technical manual. Groping for an answer can put service engineers hours or days behind and escalate labour and parts costs. Xerox built an online knowledge base called Eureka that lets engineers submit repair solutions they discover on the job and share them with others around the world. The database, available via the Web and downloaded to technicians' laptops every day, is translated by software into five languages and lets the engineers search by symptom.

Sam Evans, a 30-year Xerox veteran, says he recently used Eureka to fix a broken high-volume reprographics system that was supposed to be running around the clock for an important customer. Every 50,000 copies or so, the machine would print pages with a grayish background. He typed background into Eureka and found the answerâ€"a reset of some internal softwareâ€"which had been submitted by another longtime repairman in the state of Washington. "That very easily could have taken a week" of trial and error without the database, Evans says.

Eureka is certainly an assetâ€"and it's intellectual capital the company retains even when veteran service technicians leave. How much is it worth? "From one point of view," Holtshouse says, "you could say without the knowledge base we wouldn't be able to solve 300,000 problems and save $12 million a year. Over several years of savings, it could easily be worth over $100 million."

IBM, whose world-leading portfolio of patents and other technology licenses brought in $1.5 billion of its profit last year, has a formalised system that encourages collaboration among global employees to turn ideas into those valuable patents. IBM used its own product, Lotus Notes workgroup software, to build the Worldwide Patent Tracking System. "It takes an invention from its birth right through the issuance of the patent," explains Jerry Rosenthal, IBM vice president of intellectual property and licensing. "It's probably one of the reasons that we're getting more patents these days. We've made it easier for our inventors to do it. Inventors like to spend their time inventing the next thing; they don't like to spend a lot of time on paperwork. They're more willing to use the system and file their inventions."

Indeed, getting people to use such a systemâ€"squeezing potential intellectual capital out of people's minds and into Net-connected databasesâ€"can be a challenge. "How do you get experts to share what they know when there's a mindset that knowledge is powerâ€"and they want to hoard that?" asks Susan Leandri, a partner at Arthur Andersen and managing director of the company's Global Best Practices knowledge database.

Xerox initially tried to induce harried service technicians to type their solutions into Eureka by offering perksâ€"even cash. But that didn't work. The answer? Busy service engineers take pride in being problem-busters, and they gladly type their repair techniques into the knowledge base now that their names are included as authors of the fixes. Eureka, first seeded with 50 repair solutions, now contains nearly 22,000.

Other companies have found that money can be a good incentive. IBM has a patent reward system. "We financially reward our inventors for making inventions when they reach certain milestones, a certain number of patents issued," says IBM's Rosenthal. "Then every year we look at some of the most significant patents from an income standpoint and we give out additional awards. IBM chairman and CEO Lou Gerstner does it at an annual ceremonyâ€"and we give out a significant amount of money."

Publisher McGraw-Hill has set up a Burning Ideas intranet site where employees can submit hot business concepts. "We have venture money put aside to fund those ideas," says Steve H. Weiss, vice president of corporate communications. Through that and other programs designed to foster and reward employee input, "it's tapping potential from much deeper in the organisation than we'd previously been doing," Weiss says. "Because our product is information, creating a culture where employees are encouraged to come forward with ideas that contribute to our business success is crucial." Perhaps not coincidentally, McGraw-Hill has posted seven straight years of double-digit growth.

And that's measuring the company's performance the old way. Meanwhile, Arthur Andersen's Barry Libert and others are busy working on the new way. Libert's method, explained in the book Cracking the Value Code (Harperbusiness, 2000), which he coauthored with fellow Arthur Andersen partners, is called Value Dynamics. Its premise is that tangible assets based on traditional financial measurements are just one of four drivers of value in a company, the others being organization assets, customer assets, and employee/supplier assets. The trick for each company is to find what it does in each of those areas that, when done well, generates profit. Find a metric that measures each of these "key performance indicators"â€"employee retention, customer satisfaction, some measure of product qualityâ€"and keep a sharp eye on it. Software company Hyperion Solutions developed Performance Scorecard software that ties into information systems across a company to give executives an easy-to-read dashboard on company performance in diverse areas. Arthur Andersen is working with Hyperion to incorporate a Value Dynamics-based scoring system into the software.

Nobody says this is easy. The challenge is to think in new ways about the value of what you have and what you do. Arby's, the chain of roast beef sandwich restaurants, in November raised $290 million for its nameâ€"selling bonds backed by future franchise fees from its restaurant owners. CAK Universal Credit facilitated a buyout of designer Bill Blass in part by selling a bond backed by revenues from clothing makers who pay to use the Blass name on men's underwear. Creative thinking like this about where your real assets lie may be what the new new economy is all about.

What's it worth?

Not convinced intangible assets really amount to much? Take a look at the dollar values on this short list.

Global worth of the world's most valuable brand, Coca-Colaâ€"$72.5 billion

Ratio of the value of the Yahoo brand to Yahoo's 1999 salesâ€"11.6 to 1

Amount Deutsche Telekom offered per customer in bidding $50.8 billion for VoiceStreamâ€"$22,000

Amount offered per potential customer in VoiceStream's coverage areaâ€"$265

Value of Amazon.com's affiliate programâ€"$1.5 billion

Price Compaq paid for the domain name AltaVista.com in 1999â€"$3.3 million

Price eCompanies paid for the domain name Business.com in 1999â€"$7.5 million

Price Bank of America paid for the domain name Loans.com in 2000â€"$3 million

Asking price for America.comâ€"$30 million

Opening bid for Hell.comâ€"$8 million

Amount Fox paid for exclusive TV rights to Major League Baseball's postseason games from 2001 to 2006â€"$2.5 billion

Amount for which Jennifer Lopez reportedly insured her backsideâ€"$300 million

Amount for which CenterSpan Communications bought bankrupt Scour, whose assets included 20 Internet servers, technology, and 4.5 million usersâ€"$9 million

Amount Michael Jackson paid for the ATV Music catalog of publishing rights, which includes 250 Beatles songsâ€"$47 million

Price Disney paid for ABC in 1996â€"$19 billion

ABC's net worth at that time according to its booksâ€"$5 billion

Amount a Texas man got for his online gaming character account on eBayâ€"$521

â€"Compiled by Chelsea Junget, Renuka Rayasam, and Fiona Ross

The Knowledge Queen

Susan Leandri isn't a know-it-all, but she wants her database to be.

In 1992 Susan Leandri (pictured) was put in charge of an internal knowledge management project at Arthur Andersen, the world's largest accounting firm.

"The idea was to tap into the tacit knowledge of our experts and transfer that across the firm so we could help our clients with their business process performance," she says. With a small staff, she began building Andersen's Global Best Practices knowledge base. The staff interviewed consultants to find out what client companies were doing right, practices that could be adopted by other companies in other industries. Bit by bit, the company's experts began to turn to the electronic database as an everyday tool.

The Global Best Practices knowledge base breaks business into 13 elemental processes, seven of them management functions (like handling human resources) and six operational (such as understanding markets and customers). Each of these is subdivided into more specific tasks, like enhancing customer satisfaction, developing a sales forecast, retaining and motivating employees, and leveraging organisational knowledge. For each process there's a detailed write-up on the benefits of doing it right, with examples from Andersen's client experience, along with tips, tools, and performance measurement ideas.

Leandri is now a partner and managing director of the Global Best Practices unit. Her 70-person staffâ€"one-third of them business writersâ€"continues to update the database, interviewing company experts and standardising the presentation of their knowledge. This has become increasingly important since 1998, when Andersen turned the internal tool into a commercial offering. "Clients asked for access," Leandri says. For an annual subscription feeâ€"from about $50,000 for 10-person access to $150,000 for 100 peopleâ€"outsiders can now get advice.

Today, with more than 20,000 pages of content and benchmarking tools for more than 150 universal business processes, the knowledge base has become "the No. 1 asset in the firm," Leandri says. "Indirectly, it has generated millions" in revenue for Andersen by helping its consultants serve clients.

The Patent King

IBM is king of the hill when it comes to sheer number of patents. And it makes no bones about vigorously enforcing those patents.

In 2000, for the eighth year in a row, IBM was granted more patentsâ€"about 2,800â€"than any other company in the world. In total, IBM holds about 19,000 U.S. patents and 34,000 worldwide. Sitting atop that pile of intellectual capital is Jerry Rosenthal, IBM vice president of licensing and intellectual property, who boasts that IBM's licensing of patents and technologies generated more than $1.5 billion in profits in 2000.

"You can bet that there's one guy at IBM with a swagger, and that's Jerry Rosenthal," observes Conrad Langenhagen, an executive at online patent exchange Yet2.com.

"IBM uses a stick approach to extract value from their patents," Langenhagen explains. "They go to other companies and say, 'You're infringing on this patent and that patent and that patent.' " Rosenthal makes no bones about IBM being vigorous in enforcing its intellectual property rights. "Protect your intellectual property, be sure you are protecting it," is his No. 1 rule.

Licensing technology pays off in other ways too. Through cross-licensing deals, IBM's patents buy it the rights to use other companies' innovations, Rosenthal says. Making sure other high-tech companies use IBM's technology helps establish it as a standard while advancing the state of the art generally, he says. And licensing gives IBM's developers the impetus to invent the next big thing.

"By licensing the stuff out, it keeps our developers on their toes, constantly having to move ahead to get that technology to the next level because they know we're licensing out the previous levels," Rosenthal says.

And the company has turned its own patent-tracking database into a commercially searchable database on the Web, Delphion.

Meanwhile, IBM uses more of what it invents than many companies. Of the patents it was issued in 2000, more than one-third were already incorporated into IBM products. "We think that's a pretty significant number," Rosenthal says.

At risk online: your good name

The Web presents 3 billion places where someone might besmirch your most prized asset.

Seeking some research from the Brookings Institution for this intellectual capital package, we recently typed brookingsinstitution.com into our browserâ€"and got a grotesque, unexpected eyeful. Instead of the think tank's home page, we saw a graphic photo of an aborted fetus, on a page titled "Abortion Is Murder."

This wasn't Brookings' contentâ€"it's the page you get at the URL abortionismurder.org. The right-to-lifers were cybersquatting, using Brookings' name to bring more eyeballs to their message. And until we alerted Brookings (which is at brookings.edu or brookingsinstitution.net), they didn't know about it.

"Oh, this is lovely," said spokesperson Derek Roseman when we let him know. Then he told his boss, whoâ€"he puts it mildlyâ€"groaned. In short order, Brookings' lawyers issued a cease-and-desist order to the site's owner. "How many other people who tried to find our Web site went to this site instead?" Roseman lamented.

Brookings hoped its cease-and-desist notice would put an immediate end to the grisly scene at Brookingsinstitution.com. It didn't. After the order, the owner of the antiabortion site redesigned it, using stylish fonts and snazzier navigation tools to update its former homespun look. The registrant contacted Brookings by e-mail, admitting it had been waiting for just such a letter from Brookings and denying the antiabortion site capitalized on the institution's good name. "It was rather pompous of you to say that Brookings marks are any form of goodwill," the email declared. "Look we know you could kick our ass in court even if we were right. So we're willing to give up the name, but we expect some compensation to go through the trouble. We registered it before you fair and square."

The Net may offer businesses new ways to leverage their intellectual capital, but it also brings unprecedented new risks to what may be a company's most prized intangible asset of allâ€"its good name. From outrageous lies to damning truths, from illegal Web tricks to First Amendment-protected opinion sitesâ€"assaults from competitors, disgruntled consumers, and day-trading charlatans can hurt brand value, stock prices, and sales.

Cybersquatters are out there buying domain names, hoping to sell them back to youâ€"meanwhile displaying whatever content they want in your name. Porn sites embed the names of more mainstream brands (from Playboy to Disney) within their HTML code as meta tags and hidden text, hoping to get listed when Web surfers seek the established names at search engines. In online financial chat rooms, cybersmears have driven down the stock prices of companies like Dendrite and Titan. Ex-employees and protest groups set up "anti domains" like Homedepotsucks.com to attack company policies and encourage boycotts. Complaint sites like Epinions.com and eComplaints.com exist so customers can rail against rude sales clerks, unscrupulous car dealers, and shoddy productsâ€"or let people bare their personal grudges against you.

So what do you do? If you had to scour through the more than 3 billion pages on the Web, it would be difficult to protect your company's image. Companies can monitor the Net with Web clipping services from CyberAlert and Cyveillance, or limit their scope, choosing to focus on what will hurt them most. How you react to each attack can either protect your good name or drag it deeper into the mud. As our examples here will illustrate, bringing out the heaviest artillery first can backfire. Legal threats and action often work, but they can also escalate a bad situation, encouraging an offender to push things further or drawing more publicity to the problem than the attack alone did.

Verizon Communicationsâ€"the company formed from the merger of Bell Atlantic and GTEâ€"is a veteran of having its names held for ransom by cybersquatters. "The Bell Atlantic brand, before the merger, had been subject to over 1,000 domain name infringements," says Sarah Deutsch, vice president and associate general counsel at Verizon. Bell Atlantic fought these squatters and won back 91 of the domains. Upon becoming Verizon, the company tried to get a jump on the squatters, registering more than 500 domain names to protect each business unit and product. It even registered Verizonsucks.com. "When you have a new brand, a name change, the last thing you can afford is having consumers confused as to who you are," says Deutsch. Yet despite all the planning, during its first month as a new company 400 domains were registered by outsiders using the name Verizon or one of its other brands, says Deutsch. One was Verizonreallysucks.com.

Verizon's lawyers slapped a cease-and-desist order on that site's registrant, and that made matters worse: the anti-phone-company hacker magazine 2600, owner of Verizonreallysucks.com, took the site live, posted the cease-and-desist order on the site, and said that Verizon was trying to interfere with its right to free speech. Before the cease-and-desist order, Verizonreallysucks.com was an inactive site; now it had become an anti domain, posting content critical of the company. Verizon backed off. According to Deutsch, antidomains are not the telecommunications giant's main concern. Illegal use of its trademarked names is. "Generally we are dealing with cases where we're trying to protect our customers against consumer fraud and confusion or people who are otherwise just stealing our brand to divert traffic" for commercial purposes, she says.

Playing tag

Tags and text embedded in a Web site can draw traffic away from your business and to a competitor. So when it comes to protecting your brand, you're it.

Meta tags are especially effective at diverting traffic. Meta tags, text within HTML code that helps describe the page, are invisible to Web users, but search engines use them to determine what's on the page. Although a simple coding trick, meta tags can be especially damaging, says Todd Bransford, director of product marketing at Cyveillance, an online brand management company.

"Let's say you're doing an offline advertising campaign: You're spending $20 million trying to generate response. A certain percentage of people who respond to that advertising revenue choose to do that online," he says. "If they go online to try and find the site and end up on your competitor's site who meta-tagged you, it's really a double whammy. Not only did it hurt you on your return on your own marketing investments, but you also helped out a competitor."

Verizon has indeed found its competitors using meta tags to lure customers to their own sites. The company simply asks them to stop, and no one has ever refused. "They know that they shouldn't be doing it, especially in a commercial context," says Deutsch .

Direct competitors aren't the only ones that use meta tags. If a company or product name is popular, some sites will want to capitalise on thatâ€"no matter what they're selling. Though these sites aren't stealing potential customers, companies should still be concerned about the content their names are being associated with, warns Bransford. Your target audience could be landing on sites that they don't want to seeâ€"or that they shouldn't see. For Cyveillance client Nintendo, Pokémon characters are a prime target for meta-tagging. By embedding the Pikachu name into their Web sites with meta tags and hidden text, a variety of sites hope to attract eyeballs. Disturbingly, many porn sites are meta-tagging using Nintendo words, Bransford says. Kids "go to a search engine and wind up on a porn site," he says. Exactly the kind of thing Nintendo doesn't need.

How to fight back? It's easy enough to locate some meta taggers. Just type your brand name into a search engine and see what sites come up. Verizon uses Cyveillance to track and analyze abuses of its name in meta tags and hidden text (Cyveillance also identifies unauthorised uses of Verizon's logos on Web sites). Under trademark law, which generally applies to meta tags, if the use of a trademark or logo is likely to cause consumer confusion or, for famous marks, dilute the trademark or tarnish the owner's reputation, it's probably a case of infringement.

The whole smear

Cybersmear campaigns can get you where it hurtsâ€"stock prices. But keeping too tight a grip might be painful too.

Unlike cybersquats and meta tags, cybersmears, antidomains, and Web hoaxes don't assume your identity or steal your name. They just bash it. The quickest of them all, cybersmear campaigns, can bring a company to its knees within just hours, shaving billions off of its market value.

The typical cybersmear campaign affects microcap stocks, companies with market values of no more than $500 million. Because they're thinly traded, these stocks are easily manipulated. Stock jockeys either pump and dump a stockâ€"fabricating a company's "virtues," then selling the stock at its inflated priceâ€"or badmouth the company when they hold a short position so they can sell its stock at a profit when the price falls. This is securities fraudâ€"and the slurred company isn't alone in its desire to get to the bottom of it. When the Securities and Exchange Commission sniffs a chat room scam, it launches its own civil investigation and works closely with the U.S. Attorney's Office and the FBI to issue warrants and bring criminal charges (the SEC itself can file only a civil suit).

Microcap stocks aren't the only ones getting burned. But simple nay-saying in a chat room isn't enough to move a larger company's shares dramatically; that takes more elaborate Internet scheming. In April 1999 an employee at PairGain Technologies tried to counter criticisms of his employer by concocting a story of its buyout by an Israeli company. Gary Dale Hoke wrote a fake press release and posted it on a Web page he designed to look like the Bloomberg site. Hoke used a Yahoo message board to direct investors to the bogus information. Many bought the fake story and PairGain's stock. Before truth prevailed, PairGain's price soared 31 percent. By the end of the day, though, it plummeted back to where it had begun.

In a similar hoax, Emulex saw more than $2 billion lopped off of its market value in about 15 minutes. "Every minute it was dropping $10, $20," says Robin Schnug, the company's manager of public relations. At first the employees at Emulex had no idea why the stock was plummeting. Then somebody in the office checked the Web and found that the company was under siege: Internet Wire and Bloomberg inadvertently posted a bogus press release attributed to Emulex stating that its CEO was resigning and the company was under SEC investigation. Though the stock largely recovered by the end of the day, many investors took big hits, losing an estimated $50 million.

Before the smear campaign against Emulex, the electronics company didn't monitor the Internet. It still doesn't. The company sees no need to search the Web for consumer complaints or trademark infringement because it doesn't depend on its trademark or consumer sentiment to sell its Fibre Channel host bus adapters and hubs.

Though it does care about its stock price, Schnug says Emulex ignores disparaging chat room banter about the company and its officers. "It's almost like being a public figure," says Schnug. "You're open for people to scrutinise you and make those types of comments, and you're not going to make everybody happy all the time, so why buy into their game?"

That's a wise move. Though companies may want to keep tabs on message board and chat room blather, too closely monitoring forums on sites such as Yahoo and Raging Bull may actually make a company responsible for the information in them, says Blake Bell, senior knowledge management counsel at law firm Simpson Thacher & Bartlett and editor-in-chief of online newsletter CyberSecuritiesLaw. If a company establishes a presence on a forum either by linking to it or consistently monitoring it, the SEC may reasonably expect that company to refute all false claims that appear there. Companies should also refrain from responding to allegations in these chat rooms. If they reveal material informationâ€"news that could affect the stock priceâ€"when responding to a cybersmear, they may run afoul of the SEC's Fair Disclosure regulation. "The best thing to do is ignore it," says Bell.

Day in Court

Suing antidomains can be a very bad ideaâ€"unless you want all eyes on your nemesis.

Companies don't have much legal recourse against antidomains or hate sites under intellectual property laws. Unlike the flat-out appropriation of a company name, any domain name that combines the corporate name with the word sucks is not likely to be confused with the real company's Web siteâ€"especially if the site contains information critical of the company. Therefore, unless they defame the company, sites like Homedepotsucks.com and Flamingfords.com are usually protected by the First Amendment.

According to Ronald Lopez, a partner at law firm Thelen Reid & Priest in San Francisco, defamation may be hard to prove and the law varies from state to state. In general, in order for a site or the statements on it to be considered defamatory against a company, that company must show that it suffered actual damagesâ€"like losing sales or having a merger fall throughâ€"from a false statement. Plus, in product disparagement, the false statement has to have been posted with "reckless disregard" for the truth. Those are tough standards. A company's best hope? "You may have more of a claim where the site is trying to make a buck, engaging in some sort of commerce," says Lopez.

Suing antidomains can be a very bad idea though, even if you think you have a strong case. A lawsuit draws more attention to the site, giving the owner a bigger soapbox. If you lose, it gets even worse.

When Web users go to Bridgestone-firestone.net they're greeted with the company's logo. Travel deeper into the site and it's clear that this site is not owned by Firestone. Jack Myers, the owner of the domain and a former employee of the company, posts assertions that the tire company denied him severance pay unfairly, sold millions of defective tires, and "has been under investigation for its role in the devastating civil war in Liberia."

Bridgestone Firestone waged a legal war against Myers last year, trying to win the domain name back. Myers' site gives a blow-by-blow account of the proceedings, posting the cease-and-desist orders and the full World Intellectual Property Organisation decision. Ultimatelyâ€"and surprisinglyâ€"Myers won. WIPO ruled that "although the Domain Name registered by [Jack Myers] is identical or confusingly similar to the trademarks in which the Complainants have rights, [Jack Myers] has legitimate fair use and free speech rights and interests in respect of the Domain Name."

Now, as Web surfers seek information about Firestone's tire troubles, they stumble onto Myers' site, which details not only those problems but also his fight with the company over the domain name, plus his assertion that it treats employees unfairlyâ€"the reason he started the site in the first place.

Faced with a similar situation, the Coca-Cola Company handled things a bit better. It knows it can't argue with free speech so it doesn't go after hate sites. Greenpeace protested Coke's use of hydrofluorocarbons in refrigeration units on Cokespotlight.com, a site that parodies its signature style by morphing the stylised "Coca-Cola" logo into one that says "Climate Change." Coke respondedâ€"but not with a cease-and-desist order. Instead, it worked with Greenpeace, actually changing the refrigeration of its vending machines. "If they're raising issues about the company, then we try and take a look at what the issues are and if we should be doing something," says Kari Bjorhus, director of interactive communications at Coca-Cola. "We don't look at the problem as the Web site. The problem is the issue."

Meanwhile, at the Brookings Institution, pressure against the Brookingsinstitution.com cybersquatter finally paid off. "We've got our good name back!" the Institution's Roseman trumpeted to us in an email, a few weeks after the initial heated message from the interloper. "The person who registered it gave it up without a fight. We didn't have to file any sort of grievance. And we didn't pay any severance fees." If only all online headaches went away so easily.

The parasite

According to this self-proclaimed First Amendment champion, most of corporate America "sucks."

"I just got letters from Victoria's Secret and Penn State," says Dan Parisi in his rapid-fire New Jersey tongue. "I own Victoriassecretsucks.com and Pennstatesucks.com and they want me to transfer it over to them. All these letters are the same. They are from some lawyer and they say I've got their client's property and I should transfer it to them, and then they include a transfer form. I got one from Merrill Lynch for Merrilllynchsucks.com, but then I never heard from them again."

Indeed, Parisi estimates he has received at least 50 "sucks"-related lawyer letters so far, but at press time just one of them had gone past the warning stage. "They all know that if this goes to court they will lose," he says. However, it is aviation giant Lockheed's gripe with, what else, Lockheedsucks.com that Parisi believes will be the key case in establishing him as a First Amendment champion or trademark villain.

Meet Dan Parisi, the 40-year-old former asbestos-removal contractor-turned-corporate complainer and, um, profitable purveyor of online porn. In his corporate gadfly role Parisi is the holder of 500-odd "sucks" domain names, from Microsoftsucks.com ("my most popular one," he says) to Boeingsucks.com. Some of the other companies to which Parisi has appended "sucks" and then registered the domain name include American Express and Delta Airlines, and for good measure there's the omnibus Corporate America Sucks address. All of them link directly to Sucks.com, a veritable "sucks" portal where Parisi hopes wronged consumers will complain, complain, complain. But why? "I've always been interested in free speech," says Parisi, who funds Sucks.com with the proceeds from his online porn site Whitehouse.com, which he says made about $2 million in profit last year.

Corporate America gets prickly when its brands are joined to the word sucks. But Parisi usually wins. Lockheed took its case to the World Intellectual Property Organisation to get Parisi to give up Lockheedsucks.com. In January a WIPO panel sided with Parisi, 2 to 1. "The dissent was the Boeing guy we tried to get off the panel," Parisi says. "What a surprise he would vote against us."

â€"John Galvin

The Bounty Hunter

Here's one cybersleuth who tries to put names behind accusations. Not everyone's happy about it.

John Doe has made a name for Bruce Fischman. The attorney's experience at tracking down pseudonymous Internet posters who blast companies and their executives on message boards has earned him a reputation as one of the nation's top cybersleuthsâ€"and a bane for free-speech advocates.

Fischman's firm has handled around 100 so-called cybersmear cases in the last two years and receives about two new ones each week. In October he scored a victory over the American Civil Liberties Union in one of the most closely watched Internet anonymity cases yet. A Florida federal appeals court upheld a state court's decision that ordered America Online and Yahoo to reveal the identities of eight John Does who criticised Fischman's client, a former CEO of Hvide Marine, on financial message boards. The judge in the case did not issue an opinion on the ruling, however, and therefore passed on the opportunity to set a precedent. Nonetheless, Fischman thinks it's good news for corporations. "It's a rubber stamp from an appellate court that says courts are not going to let anonymous posters run hog wild, do what they want, and have no responsibility for their actions," he says.

Free-speech advocacy groups such as Public Citizen, the Electronic Frontier Foundation, and the ACLU are fighting back. In November, a month following the Hvide case, free-speech advocates countered with a victory of their own when a New Jersey Superior Court judge refused to unmask four posters accused of libeling a software company and leaking its secrets.

"The early trend was, you file [to learn the identity of an anonymous poster], you get, and more recently it's been, you file, and you may face opposition," says Paul Levy of Public Citizen.

According to Fischman and other lawyers, national law in this area will have to come through either legislation or a ruling from the Supreme Court. With no apparent urge from Washington to step in, and few cases in federal court, that isn't likely to happen soon.

â€"Andrew Longstreth

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