Successful Strategies for IP Due Diligence


Published on

Roadmap for companies to prepare for IP diligence

Published in: Business
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Successful Strategies for IP Due Diligence

  1. 1. Successful Strategies For IP Due DiligenceJohn Storella510-501-0567wwwjohnstorellacom
  2. 2. Why IP Diligence? The Investors want to get comfortable … … that your Company will be a solid investment (And their lawyers are nervous …… that they’ll miss a red flag that will embarrass them later) They’re going to scrutinize your IP and focus on the danger zones. So you need to be prepared! © Storella Law Group All rights reserved 2
  3. 3. When Should You Prepare For IP Diligence? Now!Don’t wait until investors ask for it © Storella Law Group All rights reserved 3
  4. 4. How Should You Prepare for Diligence? • Resolve any freedom to operate issues • Build a strong IP portfolio • Clean up title to your IP • Negotiate solid licenses • Get your IP portfolio organized © Storella Law Group All rights reserved 4
  5. 5. Resolve Freedom To Operate Issues Freedom To Operate is the absolute essential of Intellectual Property – Lack of patents can impair your competitive advantage – Lack of freedom to operate can put you out of business! © Storella Law Group All rights reserved 5
  6. 6. Investor Concerns On Freedom To OperateInvestors will ask you to provide copies of any freedom to operate analyses you have performed – And ask you to provide comfort on troublesome third party patentsInvestors will ask if your Company: – Has received threatening letters from third parties – Been sued for infringementInvestors will perform their own freedom to operate analysis – And bring new patents to your attention for explanation © Storella Law Group All rights reserved 6
  7. 7. Freedom To Operate Procedures You should: – Establish freedom to operate procedures from the beginning – Diligently execute these procedures during: • Product concept • Product development • Product launch © Storella Law Group All rights reserved 7
  8. 8. Freedom To Operate AnalysisConduct thorough freedom to operate searches for the product as a whole – Include issued patents and pending patent applications • US and major marketsEvaluate the results: – Patents that require action now – Patent applications you need to follow © Storella Law Group All rights reserved 8
  9. 9. Resolve Freedom To Operate Issues Develop an action plan: – Consider how long until the patent expires – Design around troublesome patents – Obtain licenses on patents that cannot easily be designed around – Obtain opinion letters – Get ready for litigationYou don’t want to be surprised by the Investor’s analysis – But expect them to find some things you didn’t © Storella Law Group All rights reserved 9
  10. 10. Have Your Freedom To Operate Story Ready Prepare a freedom to operate presentation that summarizes the results and analysis – Clarity, not complexity Put potentially problematic patents in the best light – Put the freedom to operate risk in perspective – Explain how you are dealing with possible threats © Storella Law Group All rights reserved 10
  11. 11. Build a Strong IP Portfolio A strong IP portfolio gives you a competitive advantage by excluding competitors from features that make your products attractive to customers Strength is a function of scope and enforceability The Investors want to know whether the IP portfolio: – Excludes competitors from the market – Can be enforced against competitors © Storella Law Group All rights reserved 11
  12. 12. Power to Exclude Develop and implement a patent strategy that is market oriented rather than invention oriented Focus on getting patent claims that exclude competitors from selling competitive products – Rather than covering an “invention” Show Investors how your patents will stop competitors from entering your market – This is more compelling than showing how your patents cover specific technical aspects of your products © Storella Law Group All rights reserved 12
  13. 13. Tiered Patent Strategy The most powerful patents cover the advantage that the invention provides to the customer – e.g., cost, speed, ease of use At the next tier, patents cover the technical feature that provides the advantage – e.g., reduced reagent need, increased efficiency of process, automation At the next tier, patents cover the specific technical aspects of the invention – e.g., microreactors, coordinated subassemblies, improved algorithms © Storella Law Group All rights reserved 13
  14. 14. Patent Enforceability To be useful, a patent must be enforceable Things that call enforceability into question: – Legal challenges to validity • Suits to declare patents invalid • Patent re-examinations • Patent interferences to determine first inventor – Concealing prior art from the Patent Office – Purposely naming wrong inventors If any of these are an issue, you should have a explanation ready to mitigate investor concerns © Storella Law Group All rights reserved 14
  15. 15. Clean Up Title to Your IP Clean title to your IP is essential for a Company to use that IP to exclude competitors. Any cloud on title to IP puts your Company at risk The Investors want to confirm that you have clean title to your IP © Storella Law Group All rights reserved 15
  16. 16. Strong Chain of TitleThere must be an unbroken chain of title from the inventors to the CompanyTitle to IP is held, initially, by the Inventors © Storella Law Group All rights reserved 16
  17. 17. Securing Rights From Inventors You must: – Confirm that no prior employer can claim rights to your IP • Prior employers may have rights in inventions made when the inventor was their employee • Obtain a waiver from the prior employer if necessary– Require every employee and contractor to execute an employment agreement in which he or she “promises to assign and does hereby assign” all inventions to your Company– Obtain written assignments from inventors and record the assignments in the USPTO– Investigate and resolve challenges to inventorship by non-employees © Storella Law Group All rights reserved 17
  18. 18. Other Title Issues Avoid out-licensing exclusive rights that the Company needs to operate Avoid encumberances (e.g., liens and other security interests) and release any encumbrances as soon as possible Comply with reporting and election requirements under Bayh-Dole for inventions made with government funding © Storella Law Group All rights reserved 18
  19. 19. Negotiate Solid Licenses Licenses are an incomplete form of control over IP – They come with strings attached – They can be revoked! So the terms of a license are critical to your successThe Investors will want to know whether there are any undue restrictions that compromise your ability to commercialize the technology © Storella Law Group All rights reserved 19
  20. 20. Solid Licenses You should begin by: – negotiating licenses with good terms, or – amend existing licenses to provide better terms © Storella Law Group All rights reserved 20
  21. 21. License Terms Exclusivity: – Your Company needs to have an exclusive license on foundational technology • Non-exclusive licenses are just freedom to operate licenses Field of Use: – The field of use should be broad enough to cover all uses contemplated by the business plan Restrictions on license transfer: – Restrictions on transfer can handicap “exits” such as M&A – You should limit such restrictions to the “noise” level • For example, payment for transfer rather than prohibition © Storella Law Group All rights reserved 21
  22. 22. License TermsFinancial terms: – You need to make sure that the total royalty burden on its products is low enough so that you can make a healthy profit – Balance royalty burden with gross margin and non- COGS costs “Funny” restrictions: – They come in many varieties – If a restriction smells bad, avoid it! © Storella Law Group All rights reserved 22
  23. 23. Organize Your IP Portfolio Your IP portfolio forms the foundation of IP diligence. The Investors need to understand the extent of the portfolio so they know what to focus on. © Storella Law Group All rights reserved 23
  24. 24. Create An Up To Date List Of IP The list will: – Include all the IP under which your Company operates – Identify whether the IP is owned or licensed – Classify IP as patent, trademark, copyright or trade secret – Provide identifying information such as serial or patent numbers – Indicate IP status (e.g., pending, lapsed, abandoned) © Storella Law Group All rights reserved 24
  25. 25. Conclusion Yes … Due diligence is an intrusive burden. But … A well run IP program will enable you to successfully navigate any IP diligence. Take the initiative by being proactive rather than reactive. Do diligence on yourselfbefore diligence is done on you! © Storella Law Group All rights reserved 25