1. Intellectual Property & Startups Dave Green Assistant General Counsel, IP Policy THE FOLLOWING MATERIALS DO NOT CONSTITUTE LEGAL ADVICE, AND REPRESENT THE VIEWS OF THE PRESENTER ONLY, AND MAY NOT REFLECT THE VIEWS OF MICROSOFT

2. IP Basics Patents - Inventions. New and useful processes, machines, articlesof manufacture, orcompositions ofmatter Trademarks Names and Logos. A word, name, symbol ordevice whichisused in trade withgoods toindicate thesource ofthe goods and to distinguish themfrom the goods ofothers Trade Secrets - Proprietary Information. Information whose value derivesfrom its secrecy: product plans, formulas, algorithms, sales info, customer habits Copyrights Original Expression. Books, music, video, images, source code creative expression fixed ina tangiblemedium. Rights of Publicity Commercial Use of Personality. An individual'sright tocontrol and profit fromthe commercial use of his/her name, likeness and persona 3. IP & Startups Business Case IP Ownership IP Diligence IP Venture Structures 4. IP and the Business BusinessCase How Much Will IP Drive the Outcome? IP Role: Driver or Enabler DRIVER IP Has Life Outside the Venture Few Alternatives Easy to Trace Value ENABLER: IP Diminished Absent Venture Available Alternatives Difficult to Value IPs Role Can IPSurvive onitsown absentthe venture? Who BearsPrimaryRiskfor IPClaims? Available AlternativestoOfferedIP? How Hard to track IPsGeneratedValue? IP Owner has greater concern with controlling improvements, derivatives, scope of license, and exclusivity IP Owner may be required to share risks with licensee Valuation extraction occurs most often with equity/revenue share IP Owner has increased leverage negotiating financial terms IPusers exit strategyfocusedonreplacement, wind down IPOwners focus shifts to controllingextent and basis of royalties/fees. Value extractionoccurs most oftenwith royalties or fixed fee IPrisks usuallyshiftedto licensee IPowner has reduced leverage in negotiating financial terms Challenge: Over Time, Enabler IP can becomes Driver IP IP Owner needs to consider how to recapture increased value 5. Federal Statute Patents (ownership is passively addressed) Copyrights (ownership is actively addressed) Trademarks (ownership not explicitlyaddressed) Domain Names (ICANN contract) State Statute Inventionsand Ideas (RCW 49.44.140 and .150 vs. shop rights) Trade Secrets (Uniform Trade Secret Acts) Limited Copyrights (pre-1972 sound recordings) Publicity Rights (Ownership determined by statute) State Trademarks (Ownership determined by use) Contracts (Ownership determined by agreement) Common Law Inventionand Ideas Trademarks Some Trade Secrets IP Ownership: How It Is Determined By Law 6. How to Think About Ownership Some Considerations Cost to obtain and maintain Rights to use and/or practice Flexibility Risk Management (warranty and indemnity) Enforcement Costs to Maintain Differences b/t IP types Assets & IP Securitization Taxation (Depreciation vs. Expensing) Bankruptcy 7. Ownership & Control Critical Distinction:abilityto control IP which equates to the abilityto register and enforce IP Rights. Without written agreement limiting these rights, IP owners can: Patents Freely Use and license rights without consent or accountingto co-owners (may differ internationally) Cannot enforce against third parties without participationof all parties Bankruptcy:Licensee can retain non-exclusive licenses Copyrights Freely Use and license rights without consent but must account to co-owners May enforce without participationof co-owners (certain rules apply) Bankruptcy:Licensee can retain non-exclusive licenses Trademarks Law looks to senior user as the owner, disfavorsmultiple ownership Cannot enforce rights without joinder of ownership interests Bankruptcy:Licensor can reject non-exclusive licenses 8. Works Made for Hire & Startups Default Under US Copyright Law: Authors own their copyright Employers own for works made for hire 101 (work made for hire): A work madefor hire is (1) a work prepared by an employee within the scopeof his or her employment; or (2) a work specially ordered or commissioned for useas a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructionaltext, as a test, as answer material for a test, or as an atlas, if the parties expressly agree inawritteninstrument signedby themthat the work shall be considered a work made for hire. Dealing with the gaps In written agreement, specify that the product of any work performed is considered a work made for hire, and if not, is hereby assigned. Additional provisions: require party to execute future agreements, consider appointment of power of attorney 9. IP Diligence FormingaBusinessCase Business Case Checklist: What is the product or service? What IP is necessary for that product or service? What IP will be contributed? What IP will be created? How will the IP be contributed?(License, Assignment) What IP will be reserved? What newly created IP will be retained? How will value for various IP be derived? Who will own Improvements & DerivativeWorks of existing IP? Funding/Responsibilityfor IP Protection and Enforcement Exit and recapture strategy 10. IP Contribution Structures Ownership: Three Eggsamples of Exclusivity 1. Eggs in a Basket: IP Owners assign IP into new venture New venture takes ownership of existing/developed IP IP Owners may take limited licenses for their own uses New Venture OwnsContributedIP OwnsDevelopedIP Grants LicensesBack IP Owner: Assigns IP Takes Ownership Interest in New Venture IP Owner Assigns IP Takes Ownership Interest in New Venture 11. IP Contribution Structures 2. Egg White Omelet: IP Owners grant exclusive licenses to new venture IP Owners retain ownership of derivatives via grantbacks/WFH clauses Roll Up clauses contribute license of derivative IP back to Venture IP owners reserve certain rights for their own uses New Venture Licenses Contributed IP Assigns Derivative IP Owns Developed IP Grants Licenses Back IP Owner: Exclusively Licenses IP Reservation of Rights Retains IP Ownership Retains IP Ownership of Derivatives IP Owner Exclusively Licenses IP Reservation of Rights Retains IP Ownership Retains IP Ownership of Derivatives 12. IP Contribution Structures 3. Egg Substitute: IP Owners grant non-exclusive licenses to new venture Couple a non-compete to the license, barring IP Owner from competing in competing zones IP Owners retain ownership of derivative IP via grantbacks/WFH clauses Roll Up clauses contribute license of derivative IP back to Venture New Venture Licenses Contributed IP Assigns Derivative IP Owns Developed IP Grants Licenses Back IP Owner: Non-Exclusively Licenses IP Non-Compete Retains IP Ownership Retains IP Ownership of Derivatives IP Owner Non-Exclusively Licenses IP Non-Compete Retains IP Ownership Retains IP Ownership of Derivatives 13. IP Transactions Preparations NDA: Does the NDA adequately protect disclosing party? Will pre-disclosure of confidential information for review purposes terminate rights in pending IP? Can you ensure compliance of NDA by vendors/subs/licensors? Will NDA limit receiving party? Taint considerations. IP Audit What is actually being contributed? Consider all aspects and specific issues posed by patents, copyrights, trademarks, trade secrets, domains, & publicity rights What current protections exist for contributed IP? What IP risks exist in the contemplated territory? Can you actually contribute all the contemplated IP? Is any IP subject to ownership, confidentiality, non-compete, or exclusive licenses held by third parties? Logical zone of expansion: have you planned for growth? 14. IP Licensing and Contribution 1. Does the entity contributingthe IP have authority to transfer? Board Approval:Does an entitys bylaws require Board Approvalfor material transfers? SOX Issues: Is the contributionmaterialand will it trigger reporting requirements? Is the IP subject to any joint ownership, liens, licenses, or security interests held by third parties? Will consent or subordinationbe required? Is the chain of title perfected to enable transfer? 2. Valuation:Due Diligence & Business Judgment The MySpace example:Has the IP been properly valued? What alternativesto exclusivity have been explored and reviewed by the Board? Tax Implications(e.g. transfer pricing; is IP contributioncapitalizedor expensed?) 3. Securing the IP Contribution:When and Where to File 15. IP Licensing Basic IP Warranty Considerations - Breach of a warranty triggers morethan a potential indemnity; it triggers contractualremedies including termination, and potential equitable remedies. - Unless disclaimed, an IP warranties may imply a further obligation of due diligence, not simply knowledge. - Request a warranty of claim knowledge: not currently awareof actual or threatened claims regarding IP and ongoing obligation to disclosuresuch knowledge. Patents - Non-infringement: Patents give an exclusion right, not a right to practice. Consider impact of making non-infringementor validity warranties. - Ownership: whatis the authority of the owner to enter into license and grantrights. - Enforcement: warranty thatowner/co-owner willpursueinfringers Copyrights - Ownership: Work is authored and owned exclusively by Author and not subjectto. - Originality: Work is original - Non-infringement: Work, when used as authorized, does not infringe and but for exception covering combinations and newly added materials Trademarks - Ownership: Consider impactof making non-infringementwarranties. Bemark, territory and class specific. - Obligation to Update and Inform: new filings, oppositions and cancellations. 16. IP & Licensing General Indemnity Considerations - Breach of an indemnity does not always presentthe same remedies as breach of a warranty - Tailor the indemnity to specific intellectual property claims or warranties - Balance the obligations of enforcementvs. defenseobligations/costs/burdens/risks Patents - Indemnity should address defenseof ownership /title claims, breach of exclusivity - Consider implications of covenants to enforce - Territory and other limitations Copyrights - Indemnity should address claims of ownership, infringement, and failure to enforceexclusivity - Consider If proved true limitations for fair useand DMCA defenses - But for limitations for claims involving derivatives, compilations Trademarks - Indemnity should be tied to authorized use, limited by class, territory, and product - Distinguish oppositions/cancellations fromclaims: impact of failureto prosecute/defend marks 17. IP & Aereo A decade of mostly tech-friendly legal decisions Kelly: Ok to display thumbnail images in search results Perfect 10: displaying inline links to images within search results Amazon: providing online services to vendors who may turn out to sell infringing content Veoh: hosting and modifying UGC videos that may be infringing YouTube: allowing users to upload and distribute online videos CableVision: providing remote cloud-based DVR, not licensed by studios Google Book Search: mass digitizing of books, portions made public for transformational uses, not licensed by publishers 18. What Was Aereo? Subscriber A Subscriber B Subscriber C (unlicensed) LEGAL ADVICE - PRIVILEGED & CONFIDENTIAL 19. Litigation with Broadcasters Fox: Aereo infringes copyright because they transmit . . . a performance [of TV]. . . to the public. they have not paid for a retransmission license like cable companies Aereo: We do not infringe copyright because: We dont transmit anything; we rent equipment to subscribers who transmit TV to themselves Each transmission is private, from a dedicated antenna to a dedicated storage space to only one subscriber. No different than an online DVR, where a cable companys cloud DVR streamed discrete cloud copies of TV at each users direction. 20. Supreme Courts Holding Aereo is like a cable company and Congress meant to stop cable companies from transmitting TV signals without a license Aereos multi-antenna and multi-copy technical architecture does not functionally distinguish it from being like a cable company Aereos technical architecture does not make a difference to users / UX Multiple discrete private streams of the same work could be aggregated as a performance to the public. 21. Noise After Aereo Mike Masnick (TechDirt): More I reread Aereo, more ridiculous it seems. Had hoped for a narrow ruling. SCOTUS thinks it is. But it's not. James Grimmelman(U Maryland Law): Breyer's Aereo decision is functional rather than focused on technical details. But it doesn't draw a clear line on ok/prohibited uses. Timothy Lee (Washington Post): the Supreme Court just blew up the Cablevision rule, endangering cloud storage services. Eric Goldman, Forbes,Four Unanswered Questions From Aereos Supreme Court Loss: intermediaries who think they are just user-driven technology providers might now find that their actions are legally significant. Indeed, the implications of the whodunit question ripple throughout Internet Law. John Bergmayer, Public Knowledge, Uh oh, Aereo: [T]he Court uses reasoning that could apply very easily to any number of online servicesfile hosting, cloud lockers, even VPNsas well as services that no one has even come up with yet. It then simply declares that Aereo is different, because it looks so much like cable. 22. Aereo Takeways Expect that Rights owners will try to expand Aereo beyond TV retransmissions (e.g. Fox v. DISH and Sling technology) Rights owners will fight to limit reach of prior tech-friendly cases Courts will grapple with how narrowly to apply Aereo Tech companies (or their investors) will shy away from solutions designed solely to exploit perceived IP loopholes Tech companies wont be deterred from innovation enabling access, use, and sharing of content