Intellectual Property 101 for Start-Ups

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IP 101 for Start-Ups Rob McInnes

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Rob McInnes, one of Australia's leading patent and technology licensing lawyers gives an overview of IP basics and recent developments aimed at startups. This was presented in a recent workshop for the INCUBATE startups.

Transcript of 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 [email protected]

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