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An insider's guide to the private IPv4 market

Marc Lindsey, Janine Goodman | May 28, 2015
We've been hearing about the impending depletion of IPv4 addresses for years, but that day is finally upon us -- the free supply of IPv4 numbers in North America will be completely gone within a month or two.

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.

 

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