Intellectual Property Rights for new ventures

8/13/2019 Intellectual Property Rights for new ventures

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Agenda

Introduction

Trends in IPR

IPR and VC

Case Study

Conclusion



Intellectual Property Rights

•

Intellectual property rights are the rights given to persons over thecreations of their minds. They usually give the creator an exclusive right

over the use of his/her creation for a certain period of time.

• Under intellectual property law, owners are granted certain exclusive

rights to a variety of intangible assets

• Modern usage of the term intellectual property goes back at least as far as

1867 with the founding of the North German Confederation

• The World Intellectual Property Organization (WIPO) is one of the 17

specialized agencies of the United Nations which currently has 186 member

states, administers 26 international treaties



Why IPR?

Financial IncentivesEconomic Growth

Morality



TYPES OF IPR

• Patent or Utility Model - A patent grants an inventor exclusive rights tomake, use, sell, and import an invention for a limited period of time

• Copyright - A copyright gives the creator exclusive rights to a widerange of creative, intellectual, or artistic forms, or "works“

• Industrial Design Rights - An industrial design consists of the creationof a shape, configuration or composition of pattern or color, or

combination of pattern and color in three dimensional form containingaesthetic value

• Trademark - A trademark is a recognizable sign, design or expressionwhich identifies products or services of a particular source from thoseof others.

• Trade Dress - Trade dress is a legal term of art that generally refers tocharacteristics of the visual appearance of a product or its packaging(or even the design of a building) that signify the source of the productto consumers.



Global trends in IPR



Each year, WIPO ( World Intellectual Property Org. ) conducts a survey of

approximately 150 national and regional intellectual property (IP) offices around

the globe to collect statistics on filing activity for trademarks, patents, industrial

designs and utility models



Applications based on geography



Application based on Income Levels



IP and VC

Two important aspects related to any technological innovation

Evaluation of the technology of the start up company

IP which refers to how much the technology is legally protected .

Importance of the IP assets

IP assets are the only significant legal assets possessed by early stage

companies .

These assets provide tools to mitigate business risks to future growth and

in, some cases to, create future business opportunities.

e.g. :The exclusive rights provided by patent address the business

risk of third parties (i.e. the competition) commercializing the technology

under development

The business plans presented to VC firms investing in high technology

areas frequently contain a section entirely dedicated to Intellectual

Property.



IP Due Diligence

• VC firms typically engage an IP professional to conduct the IP evaluation of

a start-up, an effort commonly referred to as IP due diligence.

• The analysis consists of two stages :

•

First Tier Analyses1) Evaluating Product Potential

2) Evaluating Market Potential

3) Evaluating management and other personnel for leadership and

other skills

• Second Tier Analyses : IP Evaluation

• Before incurring the costs associated with IP due diligence, usually theVC

firm has previously conducted the first-tier analyses. The start-up will have

generally passed those tests to move on to the next stage



IP Due Diligence

• More of a qualitative analysis ,including instead assessments of how muchthe start up’s IP will help or hinder the execution of the business plan

• To determine the potential for any IP related disputes or conflicts ,whichmay also impede progress under the business plan

Three major areas of IP due diligence

IP Agreements :Scrutiny of the business terms of each agreementlike license agreements ,employment and consulting agreements .

IP Filings :VC firms also want to look at distinct steps taken or will be

taken to protect the IP through legal filings e.g. filing patentapplications, registering trademarks

IP Disputes : The goal is to confirm the absence of any blocking patentsi.e the patents that would be infringed by the start up .



IP Disconnect

• An IP disconnect between first tier and second tier analysis may impair the

VC firm’s ability to screen for unwise investments

• Potential for IP disconnect in the three areas

IP agreement disconnect

IP Filing disconnect

IP disputes disconnect



The IP Agreement Disconnect

What IP the license covers ?

Description of the scope in terms of X or Y technology

Which products are covered under that IP ?

May result in incorrect royalty calculations.

the start-up may have multiple products, not all of which require a royalty

payment. The disconnect then leads the VC firm to overestimate the future

royalty obligations.



IP Filing Disconnect

Should not be restricted to mechanistic procedure of checking whether the

company has dutifully followed patent office procedures

The claims of each patent need to be analyzed with all of the productinformation gathered by to understand and assess

the value of the IP filings.

Analysis to find out if the patents are directed to inventions relevant to the

product development plan.



IP Dispute Disconnect

The objective of the VC firm to hear that no blocking patent is found that

prevents the execution of the business plan.

But often what IP Professionals provide are conclusions relating to

patentability of the start up’s core technology .

Why?

The individual performing the search is typically the same person performing

other aspects of the IP due diligence such as evaluating the patent portfolio.As a result the individual becomes well versed in the technology .But the

core technology is only one of many things that product will use.

Other aspects of the product should be analyzed to identify for the disputes.



Common IPR Mistakes during VC Due

Diligence Too late to start filing patent applications

Too narrow legal scope of claiming patentable inventions

Internally mismanaged patent infringement ‘willfulness'exposure

Inadvertently tainting IPR with 3rd party co-ownership rights

Underestimating the importance of trade secrets &confidentiality

Intellectual Property Rights for new ventures

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