Intellectual Property

Considerations for Start-Ups –

Spreading the Word Without

Poisoning the WellFebruary 24, 2017

Laurence Naughton & Brian Reese

Choate Team

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Brian Reese, PhD, MBA is an IP attorney who specializes in the life sciences sector.

Dr. Reese has represented a wide range of clients from universities, start-up

companies, non-profit organizations and Fortune 500 companies. Dr. Reese’s practice

is primarily focused on strategic management of IP and patent protection for innovations

in the life science and nanotechnology sectors. One emphasis of his practice includes

assisting clients to best develop and leverage intellectual property as the business asset

it is.

breese@choate.com | 617-248-4755

Larry Naughton, is a partner in the Business & Technology Group. Mr. Naughton is

listed in Best Lawyers, and has been listed in The Legal 500 for middle-market mergers

and acquisitions work, and in Chambers USA on multiple occasions as a leading lawyer

in the areas of corporate law and mergers and acquisitions. Irish America magazine

selected him for their "Top Legal 100," a list of the most influential Irish-Americans in the

legal profession. Mr. Naughton also has been listed as a Massachusetts Super Lawyer

on multiple occasions.

lnaughton@choate.com | 617-248-4878

I have a great idea…now what?

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• Need to understand what you know and what you don’t

• Need to find a team to help fill in the gaps

• Need to raise awareness with potential investors and customers

Tension – how do you make the right people aware of your business without

causing problems with the company’s intellectual property?

Why is this an issue?

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• Intellectual property rights can be lost in an instant if they are publically

disclosed:

• before a patent filing, or

• ever, if protecting via trade secret

• The U.S. is a bit more friendly to inventors (less so since AIA), but the rest of the

world tends not to be

Start Up IP Issues

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• IP Cannot Wait

• Starts on Day One

• Business usually forms around protectable intellectual assets

• IP Ownership

• Who are the inventors? Will they be part of the company?

• What obligations do they have to assign to a company to be formed?

• Do inventors have any obligations to employers/former employers?

• IP Disclosure Tension

• If publicly disclose, then trigger important patent dates/lose foreign patent

protection rights

• If do not tell anyone about invention, then cannot get funding, customers, etc.

• Need funding to do full protection of IP

• Is an NDA enough?

• VCs reluctant to sign NDAs

Strategies for Success

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• First – Have an IP Strategy• Part of your story

• Reduces Risk and builds credibility

• Take Care of Your IP From The Start• Clean IP Ownership/No Lost Protection (company policies, assignment of

invention agreements, etc)

• Communication is key • technical team with legal team – conferences, publications

• business team not talking with legal team – offers for sale, trade shows

• Harder and more costly to deal with downstream

Strategies for Success cont’d

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• Be informed/know the landscape• Cannot manage what you don’t know

• Know the landscape and potential risks (your investors will)

• Builds credibility and provides a smoother due diligence

• Get Advice for Navigating Risk• Business Strategist IP lawyer

Types of Intellectual Property

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• Patents – protects new inventions

• Trademarks – protects symbol, phrase, or logo that distinguishes a company’s

products or services

• Copyright – protects writings and recordings

• Trade Secret – “know how” requires internal systems to protect and also does

not protect from independent discovery by third parties

• Note: Can also use contracts to help protect IP – NDAs, etc

Patents

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• What• 20 year monopoly to exclude others

• Gov’t granted monopoly in exchange for full public disclosure

• Enable one skilled in the art to understand and practice the invention

• Protects the reduction to practice of an idea

• not the idea in the abstract

• Claims are the protection/invention

• not everything in the detailed description

• Eligibility• “Almost” any thing under the sun

• Case law regarding software, business methods, etc. is in a state of

significant flux right now

Patents

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• Non-obvious, meaning:• Standard is one skilled in the relevant technology

• Some motivation to combine or modify multiple prior art references

• Motivations to combine/modify• Predictable variations

• Limited design choices

• Combining two functions that when combined only do the same respective functions

• Design and market pressures

• Standard• Useful, meaning:

• Minimal demonstration of some utility

• Novel, meaning:• Not already described or patented elsewhere, or known, used or available to

others in the US

• Not a single prior reference describing each and every element of the claimed

invention

Reasons for Patent Protection

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• Technology Partnerships• Licensing

• Joint ventures

• Defensive Use• Protection of market share

• Barriers to Entry

• Blocking Patents

• Cross-Licensing

• Counter-Suit in patent

litigation

• Offensive use• Litigation

• Royalties

• Acquisition

• Marketing and Funding• Marketing

• Raising Capital

• Corporate Resume

• Sellable Asset

L E V E R A G E !

Start Ups - Patent StrategyWhy, What, When, and How?

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Why?• Increase Barriers to Entry - Prevent “Me-2” Companies

• Risk Reducer for Market Share/Revenue

• Support for diligence for funding

• Asset (can be helpful even if you do not plan to/are unable to enforce)

What?• Platform/vertical technology

• Core features vs Point features

• Grab “white space”

• Support Business Model

• Consider who will infringe (competitor, partner etc.)

When?• Prior to Public Disclosure

• Prior to Offer For Sale or Sale

• Before Investor Pitching/Funding

• Before Partner/Collaborative Discussions

• Before Corporate Formation

• As soon as possible to establish an earlier filing date

Start Ups - Patent StrategyWhy, What, When, and How?

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How?• Types of Applications

• Provisional Application (generally helpful, cost-benefit)

• Non-Provisional Application

• PCT Application

• Content Development • End to End by Patent Attorney

• Collaborative Efforts with Inventors/Cost Reduction

Contractual Protection of IP

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• Can be effective in the right circumstances, and if drafted properly

• Sometimes this is the only way to move forward (i.e., very tight

budgets)

• Assignment of Invention Agreements

• Confidentiality Agreements - NDAs/CDAs

Assignment of Invention Agreements

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• Should get where on-boarded/hired/engaged

• Need present assignment language (hereby assigns)

• Need to include downstream filings (divisionals, etc)

• Also want the assignee to sign (EP)

Non-Disclosure Agreements

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• Key Components• can’t disclosure Confidential Info

• can’t use Confidential Info

• Most common agreement for technology companies• Precedes something more involved

• Non-disclosure obligation preserves • Trade secret status of information

• Ability to file patents in the US

• NDAs try to prevent• Implied licenses

• Claims based on reliance

Non-Disclosure Agreements cont’d

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• One-Way / Bilateral• Disclosing / Receiving

• Standard Form / Specifically Tailored to the Type of

Transaction

Non-Disclosure Agreements cont’d

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Typical Carve outs from Confidential Information:

• Pre-Existing• Delivered in documents or samples• Orally disclosed• Notes taken during meetings or based on delivered materials; emails including

other party’s CI; presentations prepared on negotiations

• Developed during Term Using other Party’s Information• Using tangible form• Retained in your head

• Developed Independently during the Term• By employees who had access to other Party’s Information• By employees who had no access

• Developed After the Term of the Agreement• By employees who had access to other Party’s Information• By employees who had no access

Residuals Provisions

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• Differentiates between:• What is in your head and what is on paper

• Tangible embodiment and intangible memories

• Deals with burden of proof in enforcement of use restriction• Shifts burden of proof to Disclosing Party

• Changes issue to proof that defendant retained and used tangible forms of the

data

• Often directly addresses re-assignment of employees

• Usually is not a license, only a limitation on use restriction

• Can be important to avoid “polluting” employees

Feedback Clauses

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• Excluding from the definition of Confidential Information ideas that

you give to me about how to improve my product

• Use and non-disclosure obligations do not limit my ability to use or

disclose the ideas you give me

• Sometimes includes an express license to use the ideas• Sometimes a “license” to trade secret

• Sometimes a copyright and/or patent license

Additional Strategic Considerations

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• Freedom to Operate

• Third Party IP

• Making IP a True Asset

• Preparing for Investment

Freedom to Operate

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• Just because you have a patent doesn’t mean you can actually

practice the invention

• Patents only allow you to exclude others• There is no built in right to practice the invention

• In order to practice the invention you may infringe other’s rights

• Patents in related, underlying or overlapping technology

Examples• You have a patent on a car steering wheel but not to the car

• In order to test your steering wheel need a license to the car patent

• Improvement Patents• You can patent an improvement to a patented technology

• One may not be able to practice the improvement without infringing the underlying

patented technology

Understanding Third-Party IP

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• Identify competitors

• Identify technologies to perform your business

• Search Patent Office databases• Patent Portfolios of Competitors

• Assessment of Technology Patent Landscape

• Scope of protection is the subject matter in the claims!

• Technology purchased/licensed from third party• Indemnification

Making IP a True Asset –

Components of an IP Strategy

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• IP strategy must align with product development strategy and business

goals

• Components of strategy include:• Assessment of patentability of your product or technology platform

• Evaluation of freedom to operate (i.e., can your product be made, used or sold

without infringing the IP of a third party?)

• Determination of how different forms of IP can be used to protect your product or

platform

• Strategy will evolve with the product development program – life cycle

management to maximize market exclusivity

Preparing for Investment –

Due Diligence Perspective

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• IP Due Diligence

• Funding

• Merger/Acquisition

• IPO

• Multiple Levels of Diligence

• First Level: Asset Identification• Identify IP assets and status, quality of filings

• Second Level: Freedom-To-Operate• What are the risks of infringing others IP?

• What are the risks of litigation?

• Third Level: Coverage Assessment• How well does the IP cover company’s products and service?

• Start preparing for this up-front

• Sometimes it is helpful to stage the disclosure of information to investors/acquirers

Questions?

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