An insider’s guide to the private IPv4 market

1 2 Page 2
Page 2 of 2

The brokerage or market services agreement should clearly describe when the intermediary earns its fees and when those fees are payable. The service agreement should also disclose whose interest the broker represents, including whether it receives any form of compensation or fees from counterparties it presents to its clients. Setting and documenting expectations up front will help avoid disputes down the line.

  1. Conduct informed due diligence

Immediately upon initiating discussions involving a possible trade, the prospective buyer or seller should sign a mutual confidentiality agreement and conduct their due diligence. Buyer due diligence begins when it obtains from the seller or its broker the specific designation of the available IP address range. The buyer should first verify that the prospective seller is an active organization in good standing by checking the records of the secretary of state where the company is organized, examining corporate credit ratings and, for publicly traded companies, reviewing recent SEC filings. Buyers should also confirm that the selling entity is in fact the current registrant or a legal successor of the listed registrant by investigating the RIR registration records for the IPv4 space being sold, and confirm that the individual purporting to represent the seller is authorized to act on the seller’s behalf.

A buyer should also require its seller to disclose material facts about the block for sale, including whether any of the numbers are currently in use, if any third-parties have made a competing claim to control the block, or if there are any known inaccuracies in the RIR registration records. More technically sophisticated buyers may even analyze the reputation and prior usage of the numbers in the available block. Thorough due diligence may involve even more comprehensive written questions presented by the buyer to seller.

Seller due diligence is less intensive, but still necessary. Eventually trades become public knowledge when registration records are updated. Corporate sellers care about their reputation, and prefer to conduct business with companies with compatible corporate values. IPv4 transactions are no different.

Sellers should know their buyer’s business before proceeding to the contract phase. Thoughtful sellers establish criteria to filter out potential buyers with whom the seller will not conduct business as part of its go-to-market strategy. In addition, the seller’s due diligence should examine the potential buyer’s ability to fulfill the payment terms of the contract and successfully register the quantity of numbers purchased where registration is a closing condition. This financial assessment will determine when it may be prudent to require an up-front deposit or employ an escrow as part of the payment terms. Sellers should also verify the authority of the people claiming to represent potential buyers.

No transaction is without some risk. The objective of properly conducted due diligence is to identify -- before the agreement is signed -- transactions that present risks that are unreasonable or readily avoidable under current IPv4 market conditions and practices. If due diligence reveals that these risks are within acceptable parameters for both buyer and seller, the parties then can use effective term sheets and, eventually, contract negotiations to fairly allocate reasonable risks between them.

4. Ensure contracts accurately state the transaction

The uncertainty or misperception about the legal rights attached to IPv4 numbers causes some buyers to define in their asset purchase agreements the rights they believe they will acquire, relying on their experience with traditional tangible property-based asset purchase arrangements. Buyers, for example, seek guarantees that they will receive good and clear “title” to the IPv4 numbers. Recognizing that ownership of IP numbers is not settled law, informed sellers, who may otherwise agree that they possess and should be able to convey title to their numbers, will resist contractually committing to convey title -- at least until the question of ownership is resolved by the courts.

Instead, they will structure and consummate transactions based on the conveyance of the exclusive rights to register and use the IPv4 blocks being traded. In most cases, the transfer of the sellers’ exclusive rights of this beneficial use is deemed sufficient consideration.

Going forward

Because the private IPv4 market is currently inefficient and lacks transparency, buyers and sellers face many obstacles. Sophisticated market participants and their advisers achieve their business objectives by employing transactional innovations to circumvent or mitigate these obstacles. Network operators that lack the resources to navigate the challenges of today’s immature market are at risk of being competitively disadvantaged.

An efficient and transparent IPv4 market, buttressed by liberal RIR registration transfer policies, would provide all IP network operators a fair opportunity to grow their IPv4-based networks and make financially sensible decisions on whether and when to invest in IPv6. The Internet community as a whole would have the time it needs for a smooth, deliberate migration to IPv6 -- a migration that leaves no one behind.

Marc Lindsey is President and co-founder of Avenue4 LLC. Marc’s niche IPv4 expertise is widely recognized – he not only advised prospective market participants in the early stages of the market, but became the adviser to the advisers as head of the technology transactions law practice at Levine, Blaszak, Block & Boothby, LLP.  Janine Goodman is Vice President and co-founder of Avenue4. Janine has nearly 20 years of experience serving as a telecommunications and technology sourcing advisor to Fortune 500 companies and lead negotiator for enterprise procurements. They can be reached at MLindsey@Avenue4LLC.com and JGoodman@Avenue4LLC.com.

Join the Network World communities on Facebook and LinkedIn to comment on topics that are top of mind.
1 2 Page 2
Page 2 of 2
Now read: Getting grounded in IoT