On October 23, 2013, Knobbe Martens Partners Andrew Douglas and Sabing Lee presented on "Preparing Your Medical Device NewCo for IP Due Diligence" at the OCTANe Medical Device and Investor Forum.

1. PreparingYour Medical Device NewCo For IP Due Diligence
Presentation available at knobbe.com/octane
OCTANe Medical Device and Investor Forum
October 23, 2013

2. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 2
The Panel
• Reza Zadno
– Venture Partner, InterWest Partners, Menlo Park
– Visiogen Inc. (Abbott Medical Optics)
– PercuSurge, Inc. (Medtronic)
• Spencer Schneider, Esq.
– IP Counsel, HealthCare Royalty Partners, Stamford CT
– Dewey & LeBoeuf
– Ropes & Gray
– Cooper & Dunham
• Sabing Lee, Esq., Partner, Knobbe Martens, Irvine
– IDev (Abbott Vascular)
– ev3 Inc. (Covidien)
– Flex-Foot, Inc. (Össur hf)
– Endius, Inc. (Zimmer)

3. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 3
What is Due Diligence?
• Buyer/investor
– Investment in company
– Acquire company
– Acquire or license in IP/technology
• Target
– Company raising money
– Company selling or licensing IP/technology
– Selling the company

4. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 4
Hypothetical Company: LaunchPad NewCo
• Technology: new intraocular lens invented by UCI professor
• Market: $3 billion dollars by 2018
• Market Participants: Bausch & Lomb, AMO, Alcon
• FDA clearance expected in 2016
• Series A round – seeking $5 million

5. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 5
What are
investors/
acquirers
looking for?

6. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 6
Key Issues
• Ownership (Do you own your IP?)
• Patent protection (How good are your patents?)
• Right to practice (Are you going to get sued?)

7. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 7
How does
investor/investor
counsel
approach IP
diligence?

8. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 8
How Does Investor/Investor Counsel Approach IP
Diligence?
• When do you start?
– Term sheet
– Non-disclosure agreements
• How much to spend?
• Who pays?
• How do you obtain information?
• How long does it take?
• How risk averse is the investor?

9. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 9
How do you
prepare a target
for diligence?

10. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 10
What’s Wrong With These Statements?
1. Strong IP portfolio based on innovative University
technology
2. Numerous patents filed worldwide
3. Completely novel technology with no competitors, so
LaunchPad NewCo has freedom to operate

11. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 11
How Do You Make Yourself Attractive?
• Consistency with business objectives and revenue model
• Clear articulation of important patents
• Clear indication of how patents protect market space
• Identification and management of third party patent risks

12. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 12
How Do You Prepare Your IP For Diligence?
• Prepare status reports
• Check assignments
• Perform searching
• Establish patent monitor
• Have positions ready for problem patents
• Make sure file histories have been reviewed

13. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 13
How do you
eliminate
ownership
issues?

14. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 14
Ownership Checklist
• Assignments
– Confirm assignment trails
– Record assignments
• Look for potential ownership “leaks”
– Prior employment obligations
– University affiliations
– Outgoing obligations in NDA and other agreements
• Licensing relationships
• Review standard agreements
• Keep good records of inventions

15. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 15
How do you
evaluate the
strength of a
patent portfolio?

16. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 16
What, When and Where?
• What?
– Are patents being filed to cover specific products or to
exclude competitors?
– Do pending or issued claims cover markets/competitors of
interest?
– Do patents track with business objectives?
– Are claims patentable?
• When?
– Were patents filed before public disclosures?
– In view of AIA, are new patents being filed quickly?
– How old are the patents?
• Where?
– Are patents being filed to cover important markets?
– How do you evaluate patents worldwide?

17. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 17
How Can A Target Company Create An Attractive IP
Portfolio?
• Quantity versus quality
• Issued patents versus pending applications
• Expedited versus normal examination
• Maintaining continuations/divisionals

18. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 18
How do you
give/obtain
comfort on
infringement
risk?

19. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 19
Managing Infringement Risk
• Have infringement searching process
– Periodic searches
– Monitor key competitors
• Have a process for screening patents identified in searching and
monitoring
• Record-keeping of the process
• Process for dealing with problem patents
• Opinions of counsel
• Threats of litigation

20. © 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 20
5 Common IP Diligence Mistakes
• No claims on what the investor believes to be the invention
• An employee agreement that does not require assignment of all
IP
• Not preparing adequately as a team to present the company's IP
story
• Holding back bad information
• Not periodically doing an internal audit

21. Andrew Douglas Sabing Lee
949/760-0404 949/760-0404
andrew.douglas@knobbe.com sabing.lee@knobbe.com
Presentation available at knobbe.com/octane