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Intellectual Property Issues for Consideration When Having a New Idea
The document discusses intellectual property issues and valuation methods to consider. It recommends performing a patent search before beginning research to avoid infringement. It also advises keeping careful lab notebooks to document inventions and determine priority dates and inventorship. The document outlines several basic valuation methods including cost, market, and income approaches. It then describes some specific IP valuation methods such as the 25% rule, industry standard royalty rates, real options method, and competitive advantage valuation.
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Intellectual Property Issues for Consideration When Having a New Idea
- 1. Intellectual Property Issues forConsideration PLUS Valuation Methods Demetris C. Hadjisofocli Executive Director, Entrepreneurship Frontier Network, Ltd. Managing Director, Innovade, Ltd.
- 2. IP Precautions Performpatent search before beginning research Keep careful lab notebooks and write down every possible notation and action from the very beginning Avoid known/legal issues that will prohibit the registration of a patent Protect against patent invalidity
- 3. IP Valuation Methods Basic Valuation Methods Cost method Market method Income method Selected IP Valuation Methods 25% rule Industry standard royalty rates Real-Options method Competitive Advantage Valuation
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- 5. Perform Patent Search BeforeDoing Research Patent owner’s rights Exclusive right to make, use, sell and import Unauthorized use of patent subject matter in research=patent infringement No general experimental use exemption to patent infringement as in most other countries Limited experimental use exemption for drugs and medical devices subject to FDA approval
- 6. Perform Patent Search BeforeDoing Research Beyond avoiding infringement, patent searches can also be helpful To learn from work of others To improve on successful approaches To avoid unsuccessful approaches To engineer around potential problems
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- 8. Keep Careful LabNotebooks Lab notebooks necessary to determine Who has priority to an invention Who is named as an inventor
- 9. Keep Careful LabNotebooks Who has priority to an invention US patent law; priority goes to first to invent All other countries; priority goes to first to file Who is the first to invent First person to conceive of an invention and then diligently proceed to reduce the invention to practice First person who conceives of an invention (A) will prevail over the first person to reduce the invention to practice (B) if the first person who conceives of the invention (A) is diligent from a date prior to the other person’s (B’s) conception of the invention until his/her (A’s) reduction to practice
- 10. Keep Careful LabNotebooks Priority Example A conceives of invention on 1/1/2000 A reduces invention to practice on 1/1/2004 B conceives of invention on 1/1/2001 B reduces invention to practice on 1/1/2003 A will prevail over B, if A is diligent in reducing the invention to practice from a date prior to 1/1/2001 until 1/1/2004
- 11. Keep Careful LabNotebooks Definitions Conception Formation of a definite idea for the complete and operative invention Reduction to practice Actual reduction to practice Building a working prototype of the invention Constructive reduction to practice Filing a patent application sufficient to enable one skilled in the art to make and use invention Diligence Reasonable and continues effort directed toward actual and/or constructive reduction to practice Fact sensitive determination in each case
- 12. Keep Careful LabNotebooks Lab notebook are critical to establish Date of conception Date of reduction to practice Diligence during required period of time Lab notebooks should document all information relevant to the invention (ideas, experiments, instruments, procedures, formulas, calculations, etc.) Every page should be signed and dated by the inventor Every page should be witnessed and dated by two non-inventors who understand the work All entries should be in ink; errors should be crossed out with a single line to remain readable Electronic lab notebooks (date/time stamp) can be used
- 13. Keep Careful LabNotebooks Who is an inventor An “inventor” is the person who conceives of an idea that is included in the patent claims A sole inventor must conceive of all the ideas included in the patent claims A joint inventor must conceive of at least one idea included in at least one patent claim A person who reduces an invention to practice is not an inventor unless during the reduction to practice he/she conceives of an idea that is included in the patent claims Failure to properly name inventors in a patent application can render the patent invalid
- 14. Keep Careful LabNotebooks Lab notebooks are critical to determine who is an inventor and who should be named as an inventor in the patent application Named inventors can be changed after patent application is filed; unless there was a knowing and wrongful omission or inclusion of inventors in the first instance
- 15. Avoid known/legal issues thatwill prohibit the registration of a patent
- 16. Avoid Statutory BarTo Patent Issuance Patent cannot be obtained in the U.S. if Inventory known or used in U.S., or patented or described in printed publication in U.S. or foreign country, prior to the date of invention claimed by applicant Invention patented or described in printed publication in U.S. or foreign country, or in public use or on sale in U.S., more than one year prior to patent application date There is no statutory grace period in foreign countries Strict novelty; any publication, public use or sale prior to patent application date will bar foreign patent issuance
- 17. Avoid Statutory BarTo Patent Issuance Acts of patent application or third party can bar patent issuance Acts that can bar patent issuance Public use Can be very negligible and still bar patent issuance Limited exception for “experimental use” Experimentation must be technical, not marketing Experimentation must be evidenced by written records On sale Offer of sale to single person can bar patent issuance Offer of sale can occur prior to reduction to practice License of technology is not an offer of sale
- 18. Avoid Statutory BarTo Patent Issuance Acts that can bar patent issuance (cont.) Printed publication Any document available to public regardless of location or form is a “printed publication” Doctoral theses are available to public at time they are properly catalogued in library A document is not available ion public At time of thesis review and defense At time of submission for peer-review publication If recipient is under duty of confidentiality Public presentation Papers, slides, posters = printed publication Unless audience is under a duty of confidentiality
- 19. Avoid Statutory BarTo Patent Issuance To constitute a statutory bar, the printed publication must enable one skilled in the art to practice the invention Reporting what an invention can do, but not how the invention does what it does, is generally not an enabling disclosure
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- 21. Protect Against PatentInvalidity A patent can be invalidated for inequitable conduct during the patent application process Two elements of inequitable conduct Patent applicant must misrepresent or fail to disclose material information to PTO The misrepresentation or failure to disclose must be intentional Most common misrepresentations Critical dates; Inventors Most common failures to disclose Prior art; offer of sale; printed publication Patent Act requires patent application to sign an oath that applicant believes he/she is the first inventor of the claimed invention
- 22. Protect Against Patent Invalidity The Patent Act requires the patent application to contain a written description of the invention “in such full, clear, concise and exact terms” as to enable any person skilled in the art to make and use the invention Every element of invention claims must be enabled in the patent application specification Failure to provide an enabling disclosure will renter claim(s) invalid
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- 24. Basic Valuation Methods Cost Method Value of an asset is the cost to replace the asset with an identical or equivalent asset Can count for physical depreciation and functional obsolescence BUT…. Cost does not equal value Nuclear powered aircraft Small percentage of patents have any value
- 25. Basic Valuation Methods Market method (real estate appraisals) Value of an asset is price paid for comparable assets Conditions necessary for market method Public exchange market Sufficient number of recent exchanges Standardized exchange terms Price of exchanges available to public None of these conditions exist for IP assets
- 26. Basic Valuation Methods Income Method Value of an asset is the net present value (NPV) of the future income expected to be received from the asset Discounted cash flow (DCF) Dollar today worth less than dollar tomorrow Income method useful for IP assets associated with a revenue stream (Licensed patents) Income method is not useful for IP assets prior to licensing or commercial use
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- 28. IP Valuation Methods 25% Rule Licensor should receive 25% of licensee’s gross profit from the licensed technology 25% rule is not a valuation method, but a rule- of-thumb for splitting IP value between a licensor and licensee 25% rule does not account for quality of technology, its state of development, additional investment and future risk 25% rule is not useful where the licensed technology is a component part of a product or process
- 29. IP Valuation Methods Industry Standard Royalty Rates The value of an IP asset is determined by the royalty rates paid for similar assets in past transactions Some companies provide royalty rate information for different industries for a fee Two main problems Industry definitions are generally very broad Health care; computing Industry royalty rate ranges are generally very large 1% to 25% Also problems similar to 25% Rule Standard royalty rates do not account for quality of technology, state of development, additional investment, future risk
- 30. IP Valuation Methods Real Options Method Value of IP asset is the value of future options regarding further development of the IP asset Options are a series of “go” or “no go” decisions Each stage of development provides additional information about technology The decision to proceed with development does not depend upon the risk adjusted final NPV The decision to proceed with the next stage of development depends upon whether the risk adjusted incremental gain in NPV, if the next stage of development is successful, is sufficient to justify the cost of undertaking the next stage of development
- 31. IP Valuation Methods Competitive Advantage Valuation (CAV) The value of an IP asset is determined from the IP asset’s competitive advantage with respect to an average substitute IP asset Seven basic steps Calculate NPV of total profits in technology’s intended market over time Disaggregate NPV into portion of profits attributable to technical intellectual property assets Define price/performance parameters that determine success in the intended market Calculate competitive advantage by comparing IP asset to an average substitute IP asset on price/performance parameters Extrapolate from IP asset’s competitive advantage to predicted market share in intended market Calculate value of IP asset from value of technical intellectual property profits in intended market and predicted market share in intended market Adjust IP asset value for technical, market and intellectual property risks
- 32. IP Valuation Methods CAV (cont.) Benefits Links principal value drivers in intuitive way Easy to use and understand Can be used in multiple valuation contexts Scalable for simple and complex valuations Neutral as between licensors and licensees Limitations Default formulas and values are generalized for all industries Technical, market and intellectual property risk adjustments can greatly alter valuation results
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