October 20, 2009!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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Types of Intellectual Property

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Five main types of IP protection Type of IP What is

Protectable

Examples

Trademark Branding (Nike swoosh)

marks and logos slogans

Copyright Creative, authored works; expressions (not ideas)

software songs, movies web site and its content

Trade Secrets Secrets with economic value (Coke recipe)

non-public technology product roadmap customer lists formula

Contract, NDA As defined in the contract

technology

business information

Patent Inventions new technology

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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

!! 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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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

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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

!! Very strong protection,

even against “innocent”

infringers

!! Prevents others from

patenting the same

invention

- Cons

!! 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

Consider example of a proprietary manufacturing process:

!! Can’t easily know if competitors are violating

!! 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

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Rules and Regulations

!! Industry Specific Regulations •! DCMA Act - web •! 510K - medical devices •! UL/CSA/FCC - consumer electronics

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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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Intellectual Property = Value

!! Valuable intangible property that is protectable

under the law

!! Creates competitive advantage

!!“Build a better mouse trap”

!! Licensable – multiple authorized users at the

same time, creating source of (very high

margin) revenue

!!IBM license revenue example

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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