e145 winter 10 session 10 ip and regulation · 2010-03-15 · provisional application...

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Agenda

•  Business Model Review •  Intellectual Property •  Government Regulations •  Stanford Resources for entrepreneurs

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Team Effectiveness

•  Come prepared to work with your team to grapple with issues of team effectiveness and leadership. This is a chance to directly confront issues that you may have run across in the process of the opportunity analysis or otherwise working with your group.

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What is a Business Model?

What’s A Scalable Startup?

-  Broad and deep vision

-  Build an industry not just a product

-  >$100 million/year revenue, profits

-  World-class team

- Use Customer/Agile Development to search for a scalable and repeatable business model

Startups Don’t Last Forever

A Startup is the organization you use to search for your scalable business model

Users

Customers

Purchase &

Distribution

Demand

Creation $  

Product

Resources

$  

$  

Assembly / Manufacturing

3rd Party Integration

$  

$  

$  

What  is  a  Business  Model?  

A  business  model  describes  how  your  company  is  organized  to  make  money  

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How  Do  You  Figure  Out  Your  Business  Model?  

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

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Source: Alexander Osterwalder

27Source: Alexander Osterwalder

28Source: Alexander Osterwalder

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February 4, 2010 Engineering 145

IP Considerations for Technology Entrepreneurs

Dan Dorosin, Fenwick & West LLP

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Overview ■  Introduction to IP Considerations for Technology

Entrepreneurs

■  What is IP?

■  Why does IP matter?

■  Key Ideas for Today

1.  IP creates value

2.  What IP matters depends …

3.  Don’t blunder with your IP!

Please ask your questions!

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Intellectual Property = Value   Valuable intangible property that is protectable under

the law

  Trademarks

  Copyrights

  Patents

  Trade Secrets

  Contract

  Creates competitive advantage

  Licensable – multiple authorized users at the same time, creating source of (very high margin) revenue

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Trademark protects branding and marks

■  Trademark gives you the right to prevent others from using “confusingly similar” marks and logos

•  Indentify source of goods – e.g. Nike Swoosh

■  Trademark protection lasts as long as you are using the mark

■  The more you use the mark, the stronger your protection

■  Trademark registration is optional, but has significant advantages if approved

■  Country by country

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Copyright protects creative works of authorship

■  Copyright gives right to prevent others from copying, distributing or making derivatives of your work

•  Protects “expressions” of ideas but does not protect the underlying ideas

■  (Way) more than just technology: songs, books, movies, photos, etc.

■  Copyright protection lasts practically forever

■  Copyright does not prevent independent development

■  Registration is optional, but is required to sue for infringement

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Trade Secrets ■  Information that is kept secret and has economic

value to the business

■  Coke recipe, customer lists, product road maps.

■  No registration required

■  Can last for as long as you take reasonable steps to keep confidential

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Contract

■  Protection agreed to by contract

■  No registration process

■  You have whatever protection is defined in the contract (e.g., NDA gives you certain rights to protection of your confidential information)

■  The protection lasts for the time period defined in the contract

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Patents ■  A government granted monopoly to prevent others from

making, using or selling your invention

•  Even if the other’s infringement was innocent or accidental

■  Invention must be non-obvious

■  Protection lasts typically for 15-20 years

■  Application and examination is required

•  Typical cost for application and exam is $10-30k

•  Typical time for application and exam is 1-4 years ■  Must file in U.S. within one year of sale, offer for sale,

public disclosure or public use

■  Provisional application alternative (see below)

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What Can be Patented? ■  Just about anything . . .

•  Circuits, hardware •  Software, applied algorithms •  Formulas, designs •  User interfaces •  Applications, systems •  Business processes (sometimes)

■  But not these . . .

•  Scientific principles •  Pure mathematical algorithms

■  And, pending Supreme Court Case raises concerns regarding patentability of “methods” inventions

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Start Up Company IP Strategies

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Key Idea #1 – IP Creates Value ■  Innovative IP can create company value

■  How carefully you have:

•  Acquired your IP

•  Protected your IP

•  Exploited your IP

Will be crucial to your ability to realize on value, whether from investors, customers or acquirer

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Key Idea #2 – IP Needs Company Dependent

■  What type of IP matters to a venture, and what it should do to protect IP, is highly company/industry dependent

■  Every company has unique business and IP needs and considerations, requiring unique analysis and/or protection

•  Medical device company -- patents

•  Web 2.0/social network start up – trademark, copyright

•  Enterprise software company – copyright, trade secret

•  Industry dynamics (need portfolio to trade?)

•  Stage of the company’s development/resources

•  Etc.

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Proactively Develop IP Strategy ■  Important for start ups to develop an IP

strategy to map out:

•  Key players and technologies in its market(s)

•  Expectations of where the market is going

•  Opportunities for strategic advantage

■  Strategy will evolve over time, including b/c of changes in available company resources, changes in marketplace, technological advances, etc.

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Common Goals for a Patent Portfolio

Assuming patents “matter” for your business …

■  Build a portfolio

■  Increase valuation of company

■  Future protection of market share

■  Future counterstrikes against a competitor’s patents

■  Future revenue stream from licensing

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Different Roles for Patents in the Portfolio

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Typical Start Up Patent Timeline

Core (Provisional?)

Important Guard/Applications

Incorporation Initial Funding

Specification Completed

Alpha Product

FCS

Secondary Guard/Applications

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Typical Start Up Portfolio, 2 years out

Applications or Guard (4-10)

Core (1-3)

Numbers, Counterstrike

(2-4)

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Provisional Patents ■  Full utility patent applications takes time and $$

■  Provisional application “alternative” to full utility

•  Get into queue quickly and cheaply

•  Automatically expire after one year

•  No patent rights are granted

■  Provisional applications require the same level of detail as utility applications

■  Be careful of pitfalls; not a substitute for full utility

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Patents vs. Trade Secrets: A Common Start Up IP Strategy Question

+ Pros for Patent

■  Very strong protection, even against “innocent” infringers

■  Prevents others from patenting the same invention

- Cons for Patent

■  Will take years to acquire patent rights

■  Expensive

■  Eventually must give up trade secret protection

■  There may be an interim period with no protection

You have an invention; how protect it?

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Patents vs. Trade Secrets: A Common Start Up IP Strategy Question (con’t)

Consider example of a proprietary chip manufacturing process:

■  If it is the case that you can’t easily determine whether competitors are violating

■  Then, may make sense to maintain as trade secret, rather than file public patent application . . .

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Common IP Blunders by Start-Ups

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1. Founders Don’t Make Clean Break with Prior Employer or Research Institution

■  Under CA law, employers may own inventions that are “related to employer’s reasonably anticipated R&D”

•  Very subjective standard

•  Start ups don’t often have resources to litigate

■  Process important — “take only memories”

•  Does prior management think “good luck” or “good riddance”??

•  Hire cautiously from former employers

■  University patent policies apply, too

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2. Company Cannot Clearly Show That it Owns its IP

■  Take the time to create a well documented, clear chain of title to your IP

■  Written assignments of IP by founding team

•  Well documented?

•  Are there issues about ownership of what is being assigned? (See blunder #1)

■  Independent Contractors

•  Need written agreements assigning work created

•  Copyright law; patent law

■  Employee Invention Assignment Agreements

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3. Company Loses Patent Rights due to Filing Delays/Invention Disclosures

Event

Disclosure in a printed publication

Offer for sale in the U.S.

Public use in the U.S.

Red flags

White paper

Journal/conference article

Web site

Any disclosure to outsiders

Start of sales effort

Price list, price quotation

Trade show demonstration

Any demonstration not under NDA

  In U.S. patent rights forfeited if wait > 1 year after:

  There is no one year grace period in most foreign countries

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4. Company Grants “Challenging” Licenses to IP Limiting Value Created by IP

■  Early licensing terms can impact value of IP

•  Grant of exclusive rights to IP in key verticals, territories, etc.

•  Grant of “most favored nations” license terms or other licensee-favorable economic terms

•  Key value creating agreement not assignable in acquisition (or, alternatively, not terminable upon acquisition)

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Key Idea #3

■  Don’t commit a blunder!

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Types of Rules and Regulations

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Rules and Regulations

■  General Regulations (Federal/State)

•  Securities Regulations

•  Employment Regulation

•  Health & Safety Regulations

•  Sarbanes-Oxley

•  Antitrust Laws

•  409A (Tax)

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Rules and Regulations ■  Industry Specific Regulations

•  DCMA Act - web

•  510K - medical devices

•  UL/CSA/FCC - consumer electronics

•  Privacy Regs

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Questions/Discussion

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Back Up Slides

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Requirements for a Patent Application

In order to get patent protection for your invention

•  Your invention must be non-obvious

•  You must be “first”

•  You must include a certain amount of detail about your invention in the application

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Non-obvious Given the prior art at the time of the invention,

would a typical engineer

■  Identify the problem, and

■  Solve it with the invention

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“First” ■  U.S.: “first to invent”

•  Keep good records

•  File early

■  Outside U.S.: “first to file”

•  File early

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Required Level of Detail ■  Written description – You identify the invention

■  Enablement – Others will be able to duplicate your invention from your description

■  Best mode – You did not “hide the ball” with respect to critical techniques

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Provisional Pitfalls ■  Broad concepts of the invention are not described

■  Unnecessary admissions

■  Unnecessary limiting language

■  Provisional does not contain as much information as the inventor thinks it does

■  Provisional does not meet the written description requirement

■  Provisional does not meet the enablement requirement

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When Should Provisionals Be Used?

■  No time/$$ to prepare a utility application

■  Provisional is 90% completed version of utility application, but last 10% may take a while

■  Buy one year of decision time

■  Not a substitute for a utility application

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Examples of IP   Core “technology”: source code, hardware

designs, architectures, processes, formulas

  Brand, logo, domain name

  Business processes, know how, customer information, product road map

  Content: music, books, film

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General IP Model   You create something that falls within a class protected

by the law

  For some classes, you get protection automatically

  For other classes, to get full protection, you should/must go through a registration, application or examination process

  “Protection” is a negative right

  The law gives you the right to stop others from using your creativity

Stanford Resources for Entrepreneurs •  How do I set up a legal entity? (C-Corporation,

S Corporation, sole proprietorship, Partnership, LLC, non-profit, hybrid (B-Corporation).

•  Enter E challenge. Go to Law firm Office Hours. •  Call an entrepreneur-friendly law firm, such as:

–  Fenwick and West: http://fenwick.com/ –  Wilson Sonsini Goodrich & Rosati http://wsgr.com –  Cooley Godward Kronish LLP: http://www.cooley.com –  Morrison Foerster: http://www.mofo.com/ –  Orrick: http://www.orrick.com/ –  White & Case: http://www.whitecase.com

•  Do it yourself (not recommended in SV) 69

Stanford Resources for Entrepreneurs How do I protect Intellectual Property (IP)? •  Contact Office of Technology Licensing (OTL)

–  http://otl.stanford.edu/flash.html •  Take a course from Professor Schox: ME 208:

–  http://www.stanford.edu/class/me208/ •  Call a Lawyer:

–  Full Service firm, such as… –  Wilson, Sonsini Goodrich & Rosati –  http://wsgr.com/WSGR/Index.aspx –  Fenwick and West http://fenwick.com/

–  Boutique IP firms, such as… –  Dechert LLC: http://www.dechert.com/index.jsp –  Schox Patent Group http://www.schoxplc.com/

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