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


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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

    1. 1. Using IP to Win Over Your Angels: 10 THINGS EVERY START-UP MUST KNOW
    2. 2. If you have NO IP strategy, your chance of securing funding from an investor is about 0%. Question 1: T/F
    3. 3. • 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
    4. 4. • 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
    5. 5. • 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
    6. 6. Intellectual property laws protect your ideas. Question 2: T/F
    7. 7. • 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 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
    8. 8. • 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
    9. 9. • 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
    10. 10. IP Laws in the U.S. have no teeth. Question 3: T/F
    11. 11. • 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!
    12. 12. Filing a patent in the U.S. protects my rights worldwide. Question 4: T/F
    13. 13. • 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
    14. 14. • 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
    15. 15. Angels will sign Non-Disclosure Agreements before they hear my pitch. Question 5: T/F
    16. 16. • 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?
    17. 17. • 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?
    18. 18. Patents make up the most significant part of the IP portfolios of start-ups that are funded. Question 6: T/F
    19. 19. • 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
    20. 20. 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
    21. 21. • 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,, 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
    22. 22. Your trademarks should be cleared for use before you pitch to investors. Question 7: T/F
    23. 23. • 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
    24. 24. • 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”
    25. 25. If I invented it, I am always the owner. Question 8: T/F
    26. 26. • 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
    27. 27. 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
    28. 28. • 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
    29. 29. I don’t need a product or service. My pitch to Angels can consist of only IP. Question 10: T/F
    30. 30. • 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?
    31. 31. 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  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