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Using IP to win over your angels: 10 things every start-up must know
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Using IP to win over your angels: 10 things every start-up must know



On Lu @ European Innovation Academy Summer Session 2013

On Lu @ European Innovation Academy Summer Session 2013



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Using IP to win over your angels: 10 things every start-up must know Using IP to win over your angels: 10 things every start-up must know Presentation Transcript

  • Using IP to Win Over Your Angels: 10 THINGS EVERY START-UP MUST KNOW
  • If you have NO IP strategy, your chance of securing funding from an investor is about 0%. Question 1: T/F
  • • Never seen a startup get funding without a thoughtful IP strategy. – Ok NOT to have IP portfolio if it’s an thoughtful decision vetted by IP counsel • What patent communicates to your investor: – Provisional Patent: • More than just an idea • You understand the IP implications of your business and have invested time and money to protect their innovation – Issued Patent: • Solid stake is in the ground that proves innovation • If potential competitors exist, they are obviously not easy to find, and/or may be behind the current inventor and therefore not innovators. IP Strategy
  • • IP is often the only ‘real’ asset pre-revenue and early stage that companies own • IP = investment to increase attractiveness to sophisticated investors. – Securing market place – Preventing competition – Creating hedge on capital • 9/10 of start-ups fail. • Patents = insurance against capital investment. • How? Patent is an asset, and like any other assets, can liquidated if the business fails. IP Strategy
  • • Case Study: Online gaming application had a thoughtful strategy for their IP. – They used their patents as insurance for investors. – Eventually, the company failed but were able to liquidate the patents and return capital to the investors. – Able to sell off their company because of their IP portfolio. – Reputation of the founders remains intact. • How much for a patent? – Spend $10K on patent application. – If the idea is worth patenting  it’s worth multiples of the costs of patenting. – Typically, even the dumbest ideas sell for $30K. – All done through valuation – look for comparable deals. IP Strategy
  • Intellectual property laws protect your ideas. Question 2: T/F
  • • Why? Because you can’t protect an idea; only the implementation of the idea. – Ex: “Content Mining”: Repurposing online ideas, such as website adding a feature for a daily coupon deal even though Groupon.com popularized the concept  – Includes graphics, brands, logos, wording, and the functionality of new features, a.k.a -- the intellectual property. • PATENTS – Protect the PHYSICAL OBJECT or DESIGN that emanates from an idea. – Ex: Apple secured a patent for a particular screen technology on the iPhone, but it could not patent the very idea of a touchscreen. IP Protects Your Implementation
  • • TRADEMARKS – Protects the REPRESENTATION of a good or service. Examples: • The chime you hear when Microsoft Windows starts; • The Intel bong • The Google logo; • The name "Facebook“ – Non-traditional marks: • Coca Cola bottle • Levi stitching and red tab on pocket • Tiffany blue • Intel bong – Trends • Motion marks in technology and film industries • Scents as trademarks IP Protects Your Implementation
  • • COPYRIGHTS – Protect the EXPRESSION of an idea, usually in creative form. – Protect the description of an idea or even the words used at a website. – Exception: Software is patented rather than copyrighted, (a fact that is the source of many tech lawsuits, patent grabs, and controversy.) IP Protects Your Implementation
  • IP Laws in the U.S. have no teeth. Question 3: T/F
  • • International Trade Commission (ITC) – Stops importation at the border. – In June, ITC ruled that certain Apple products infringe on a Samsung patent for encoding mobile communications. – As a result – the ITC bans Apple from importing or selling the AT&T-compatible models of the iPhone 4, 3GS and 3, as well as the AT&T versions of the iPad and iPad 2. • U.S. Customs & Border Protection (CBP) – Case Study: HDMI + raids in China • Department of Homeland Security (DHS) – Case Study: BCUSA raid IP Laws Have Teeth!
  • Filing a patent in the U.S. protects my rights worldwide. Question 4: T/F
  • • Patent = Legal monopoly – Right to exclude others from making, using, selling, offering for sale, or importing within U.S. – NO such rights if acts carried out in foreign countries. • Patent Cooperation Treaty (PCT) – Provides patent protection in multiple countries. • Non-PCT Countries: Taiwan, Argentina, Hong Kong, Thailand, Venezuela, Saudi Arabia, etc. • Ideal if you plan to file in more than four countries – File ONE application with the USPTO, and have it acknowledged as a regular filing in member nations – 30 months  then file at a national level in countries. – Three years to analyze the strength of patent and evaluate marketing, financial, and commercial data. Worldwide Patent Rights
  • • Which country to file PCT Application is a strategic decision – 2 main advantages • ISA (International Search Authority) – conduct prior art search of your invention and present a written. – USPTO as ISA – great option for solo inventors and those on a budget – EPO as ISA is also a good option • EPO now and USPTO later (when entering national stage)) • But EPO not competent ISA for business method patents. – Korea PTO is about 1/3 of US costs. • PCT app gives you early search – Usually 20 months – Brazil and Mexico  wait 8 years – Europe  5-6 years – US  3 years Worldwide Patent Rights
  • Angels will sign Non-Disclosure Agreements before they hear my pitch. Question 5: T/F
  • • Seasoned entrepreneurs write plans without describing “secret sauce.” • Investors will eventually want to validate the intellectual property (IP) prior to investing but not just to hear about the opportunity. • If you have intellectual property that has not been patented  best not to disclose when pitching. – Angels most interested in the business behind the technology or idea. – They don't invest in the inventions but in the business models and management teams. – If your company makes it through to final due diligence, Angels will research IP and then sign NDAs. What if Angels Steal?
  • • How can you be sure your idea won’t be stolen? – You can’t. But it’s not likely. – Doesn’t make sense for investor to steal business model when they can fund it and make more money than the entrepreneur. • Tom Alberg  invested $50K in Amazon and made $25M. • Andy Bechtolsheim  invested $100K in Google and made $100M. • Peter Thiel  invested $500K in Facebook and made $2B. – Why would he bother stealing Zuckeberg's idea. If he did, he would have to hire a guy like Zuckerberg to run the business. – Makes more sense to just fund Zuckerberg since he probably would be the most passionate and knowledgeable. – The VC and Angel investing community is very small. – Lot of VC's (like Thiel)  entrepreneurs themselves. What if Angels Steal?
  • Patents make up the most significant part of the IP portfolios of start-ups that are funded. Question 6: T/F
  • • 15% have patents; 15% have copyrights; 33% have trademarks. • Yesterday: Top U.S. Exports = defense, entertainment, information technology. • Today: Top U.S. Export = branding. • Ambassador Levine: “It’s no accident that Estonians have been so successful in the Silicon Valley -- mixing Estonian brain power with U.S. capital and marketing.” Power of Trademarks
  • Forbes Magazine: Top Ten Brands of 2012: 1.Apple ($87.1B) 2.Microsoft ($54.7B) 3.Coca Cola ($50.2B) 4.IBM ($48.5B) 5.Google ($37.6B) 6.Intel ($32.3B) 7.McDonalds ($37.4B) 8.GE ($33.7B) 9.BMW ($26.3B) 10.Cisco ($26.3B) Power of Trademarks
  • • 11-20: Oracle, Samsung, Disney, Toyota, HP, Mercedes-Benz, Louis Vuitton, Gillette, Honda, Nescafe • 21-30: AT&T, Nokia, Budweiser, Wal-Mart, Loreal, Nike, Pepsi, Amazon.com, Visa, Siemens • Of the Top 30  only 9 are non-US. • What does that tell us about U.S. marketing? – Best in the world – Importance of BRANDING (aka trademarks) Power of Trademarks
  • Your trademarks should be cleared for use before you pitch to investors. Question 7: T/F
  • • 5 out of 10X, someone else has TM on your name. • Case Study: Apple paid $60M to Proview. • Case Study: “KitchenMagic” • If you’re going to talk about TM, you want to make sure you have them in the clear. – Why? Embarrassment. Cost to correct. Indemnify your licensees of the mark. – Whenever there is a new product. Nail down marks in 20-30 countries before launch • Tesla, Autodesk, eBay • Intel bong, Intel Inside logo, Intel Ultrabook – We cleared 10 different options - ThinkBook, SkinnyBook, etc. Check Before Pitching
  • • Strategy: File an Intent to Use Application – Do it yourself in an hour online. $325 per classes (class 9 – computer software and hardware; class 42 – software service) – POP FIZZ • PLOP PLOP FIZZ FIZZ – Baer for effervescent tablets. – If brand is part of your pitch  lets get you clearance before tomorrow. • Paris Convention – lets you file in one country + get 6 months to claim priority date. – Strategy: Keep brand secret -- select Jx that no one can see – like CTM (Euro Community TM). Khazhakastan. Central and Island Nations. Check Before Pitching “Electric Lane”
  • If I invented it, I am always the owner. Question 8: T/F
  • • Each country has different rules so difficult to navigate. Each needs to consult with laws of their nation. – Ex: Sweden – company automatically owns it. Also entitled to remuneration for profits derived. – Ex: US – inventor owns unless assigned. Actual assignment not a recitation. • Medical student, your medical school owns the invention. • If you received a grants or scholarship from the school – check to see who owner of invention is. Ownership
  • I have multiple inventors on my team. They can call be listed on my application for a patent without any problems. Question 9: T/F
  • • Before engaging in any foreign filing, ask where the invention was developed. • Case Study: U.S. litigation where plaintiff invented in the U.S. but filed first in Korea. • If a foreign national is listed on U.S.  application make ABSOLUTELY sure that inventor’s country of residence does NOT require clearance before filing. – Some countries may impose criminal penalties. • Requires filing of Foreign Filing License (FFL) before filing in another country – YES: USA, China, France, Germany, New Zealand, – NO: Canada, Mexico, Taiwan, Japan, Australia, Korea & UK (unless national defense or public safety concerns) Multiple Inventors
  • I don’t need a product or service. My pitch to Angels can consist of only IP. Question 10: T/F
  • • Case Study: Rice Business Plan Competition – Cambridge team – Robust patent portfolio and strategy re: coding on detergent. • Lots of interest in buying IP because it’s cheap. Many business don’t have funding for R&D and therefore outsource their R&D by purchasing technology – like yours IP Only Pitch?
  • THANK YOU and GOOD LUCK! On Lu, Partner  Director, Asia Pacific Practice  Litigation – Patents, Trademark, Copyright, Anti- Counterfeiting & Brand Protection  San Francisco & Silicon Valley offices  on.lu@novakdruce.com Novak Druce Connolly Bove + Quigg LLP  6th Largest IP Firm in U.S.  Top Firm in U.S. in working with Start-Ups and Inventors  National IP Practice  San Francisco, Silicon Valley, Washington, D.C., Los Angeles, Boston, Houston, West Palm Beach, Wilmington