intellectual property 101 for start-ups
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IP 101 for Start-Ups
Rob McInnes
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Today’s Content
Why does IP matter? IP basics IP in start-ups (If time permits) IP management
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Why Does it Matter?
IP is how competitive advantage is sustained in the knowledge economy Other barriers are falling away as trade is freed, labour is
more mobile, capital is less rationed and customers have more access to information
IP is a tradeable asset in its own right As businesses move away from in-house R&D towards
outsourcing and in-licensing As “virtual integration” increases “NPEs” exist solely to enforce patents Defensive patent pools Patent auctions/patent licences as tradeable instruments
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IP is Big Money
Apple/Microsoft/RIM paid $4.5Bn for Nortel’s 17,000 patents
Google paying $12.5Bn for Motorola, with the stated aim of expanding its patent portfolio
Apple brand valued at $185 Bn IP-based transactions were worth >US$18 billion in
2011-12, compared to US$450 million in 2010-11 (IAM Magazine)
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What’s Special About IP?
Capital markets and investment analysts increasingly focus on intellectual assets 80% of the value of the S&P 500 companies (not just high-
tech companies) was attributed to intangibles in 2005, up from 17% in 1975
There’s more IP around < 1million patent applications in 1985 to > 2 million in 2010
Patents cover more than they did 20 years ago But the pendulum is swinging back
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How Does IP Add and Create Value?
Inhibits competition against the company’s existing products
Helps extract value from technologies not used in products sold directly
Allows technologies to be acquired with some assurance of value
Codifies the company’s knowledge both internally and to investors
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Human Capital
- expertise - know-how
- skills - creativity
Intellectual Capital - processes
- innovations - methodologies
Physical Capital
Intellectual Property
IP Within an Enterprise
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IP Rights - Registered
Patents for inventions Utility Models etc. for lower level innovations
Registered Designs for 3-D articles Registered Trade Marks for brands & logos
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IP Rights - Unregistered
Copyright for literary & artistic works (including software)
Confidential Information & Know How Goodwill & Reputation
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What is a Patent?
Reward for an inventive contribution to society’s knowledge
Exclusive (20 year) monopoly Protection for a technical result, not an abstract idea Not a positive right to market (subject to law and the IP
rights of others)
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What Can Be Patented?
An invention Not being excluded subject matter That is new And that involves an inventive step compared with the
prior art
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What are Patents Granted For?
Routinely: Machines, devices,
hardware Processes, techniques,
methods Materials, chemicals,
drugs, alloys Cell lines
Not Always: Medical treatments
Yes in AU, US No in EP, NZ, JP
Software Not “per se” in EP, NZ
E-commerce & business methods Pendulum has swung
against Gene sequences Higher animals
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Typical Steps in Patenting
Awareness of IP landscape Is it an invention? Is it novel and non-obvious? File provisional application
Can order a search to get early indication of problems
At P+12 months file a PCT application (multi-country) Will be examined and an opinion issued
At P+18 months application will be published At P+30 months need to file individual country or
regional applications Not unusual to take 5-7 years to grant
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Copyright
Protection against copying (not a monopoly) Long term protection Automatic protection (optional registration in USA) Does not protect concept or abstract idea Infringed by taking a ‘substantial part’
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Confidential Information
Must in fact be confidential Can the information be derived/reverse-engineered?
Confidentiality should be asserted Should be documented Of value but not a monopoly
Value eroded by independent discovery
Not really ‘property’, so care with licensing and assignment language A licence may permit use but not disclosure
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Trademarks / Brands
A “sign” can include words, logos, shapes, sounds, even smells
Must be distinctive, or capable of becoming so Choose a protectable brand Register it
Beware DIY registration
Control its use
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IP in Start-Ups
Any professional investor will carry out due diligence on IP
Full IP due diligence on a mature company will be a six-figure job that takes weeks
Any successful tech company will be subjected to full IP due diligence whenever an early investor has a chance to exit
How do we avoid creating issues that will not pass IP due diligence?
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Key Questions
Identify the key technologies of the company and its key IP rights.
Do the key technologies fall within the key IP rights? Will that continue to be the case?
Does the company actually own its IP? Identify in-licences that may be relevant.
Is it contractually free to exploit its IP as desired? (Having regard to licence terms, funding conditions etc.)
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Key Questions (cont.)
How likely are its pending patent applications to proceed to registration? How likely are the resulting patents to be valid?
What will be the effective scope of monopoly afforded by the IP rights covering key technologies?
Will its technology will infringe any third party IP rights? Generally, does the company manage its IP well?
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Ownership/Control Issues
Inventors and employment distinguishing employees and consultants student and academic issues
Chain of title Licence conditions Funding conditions
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Acquiring IP
In-house development formal process of IP capture
Licensing in issues of royalty base, restrictions on field, rights of use,
background IP Collaborations
issues of IP ownership, licence rights (beware joint IP) Purchase/M&A
need to do your own due diligence
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Beware Patent Puffery
No “worldwide” patent An application will almost never be granted in the form
applied for A granted patent may not be valid or enforceable Different national principles apply
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Best Practice IP Management
Dealing with staff and contractors Dealing with research collaborators Dealing with suppliers & customers Planning and conducting R&D with IP issues in mind Understanding the IP landscape Building and maintaining the IP portfolio
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IP Landscape
To inform business strategy development and R&D planning
For competitor intelligence To understand the technology and IP position of
prospective licensees/collaborators To determine what is available to in-license To look for strategic and blocking IP opportunities
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R&D Processes Should…
Filter projects by IP and market as well as technical criteria
Institutionalise IP acquisition in the development of new products and processes
Raise the question of how protectable the new product or process will be
Analyse at an early stage the avoidance of infringement of third party rights
Require consideration of in-licensing technology rather than developing it in-house
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Different IP Business Strategies
Comprehensive product protection by building mutually reinforcing bundles of rights including patents, designs, copyright and brands
Placing roadblocks in competitors’ paths Generating cross-licensing currency to deal with
blocking rights of third parties Building value for market perception “Fit” with technology/IP deficits of prospective licensees
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Any Questions?
Rob McInnes T +61 2 8233 9556 E rob.mcinnes@dibbsbarker.com
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