This document discusses intellectual property (IP) and its relationship to obtaining funding for emerging businesses. It outlines the importance of IP as a value asset that can help minimize investor risk and satisfy their need to see a unique value proposition, market opportunity, and exit strategy. The document provides examples of different types of IP like patents, trademarks, copyrights, and trade secrets. It also discusses strategies for companies to acquire, track, and protect their IP in order to strengthen their case for obtaining funding.

1. IP Funding Strategy:
A Portfolio-Based Perspective
for Emerging Businesses
Anna McCoy
John Russell

2. Outline
• General Introduction
– IP as a value asset - Funding relationship to IP
• From the Funding Perspective
• Minimizing Investor Risk
• Due Diligence of IP for Investment Purposes
• What is IP?
–
–
–
–
Patent – utility/design/examples
TM - examples
Copyright - code
Trade Secret – customer lists and other examples
• Strategy to acquire IP protection
– Internal mechanisms to create value asset IP
– External Protections for IP
•
Conclusion

3. IP Relationship to Funding
• Funding Sources look for:
– Value Proposition
– Large Investment Return
– Exit Strategy
• Success Markers for Funding Source
– Unique Idea/Differentiation
– Market Opportunity
– Management and Leadership Team
– All of these markers are keyed to IP

4. Unique Idea
• Define Company’s Proposition through IP
• Significant technological superiority
– What is the value-add of the company?
• Tangible and Articulable differentiators
– Can the IP be defined?
• Technology break-throughs
– Any barriers to entry? IP barriers?

5. Stages of Commercialization
Product
Development Stage
Risk Of Failure
HIGH
LOW
> Market consolidation
> Market expansion
IP Value at
all stages
> Market penetration
> Product enhancement
VC/
Expansion
IPO/MBO
/Trade Sale
> Sales & distribution
VC/IIF
> Product development
> Marketing & research
Seed
> Prototyping
> Market definition
Tiers 0/1 - Pre-incubation
§ Direction
§ Collaboration
§ Guidance
§ Resources etc
§ Pre-Seed funding
§ IP Creation
R&D
Angels
/3F’s
Tier 0
> Innovation & R&D
Tier 1
Tier 2 - Incubation
§ Mentoring
§ Seed funding
§ Contacts
§ Consulting
§ Clients
§ IP Development
Tier 2
Tier 3
Tier 3 - Post-incubation
§ Funding
§ Structuring
§ Relationships etc.
§ IP Growth
Tier 4
Tier 5
Tiers 4/5 - Commercial
Maturity

6. Minimizing Risk from the
Funding Perspective
• Predicting success in start-up companies is very
challenging.
• In general, all investors attempt to minimize the risk
associated with investments.
• Attempts to minimize risk include assessing quality of
management, business model risk, market opportunities,
and possible returns.
• A better understanding of a target’s intellectual capital and
the value creation it represents helps to manage
investment risk.
• IP considered to identify potential opportunities, developing
strategies, and potential for securing returns.

7. Example VC IP Review Phases
Phase 1: The first or Review Phase is designed to provide a quick
indication of potential investment value. The Intellectual Capital column
represents a need to determine existing or potential assets by type
including: utility patents, process patents, brands, domain names, and a
formal employee knowledge base. Commentary address whether these
items exist with a quick indication of quality.
Phase 2: Review of IP includes a review of key issued patents (and/or
filings) noting particular claims of interest – higher level of quality review.
Claims reviewed in addition to the summary/abstract. A review is further
conducted to understand a potential company's target’s process for
determining which patents to file and the steps taken in the prior art
search. Such an analysis provides guidance as to the breadth and depth
of any IP.
Phase 3: At this stage, many investors retain patent counsel or
other advisors to conduct a deep dive into the potential investment.

8. Due Diligence for Investment of
Intellectual Property

9. Types of IP
• IP Assets derived from a variety of systems
– Patent system (Patent laws and regulations)
– Copyright system (Copyright laws and
regulations)
– Trademark system (Trademark laws and
regulations)
– Common law/case law (trade secrets, etc.)
• When trying to get funding, need to show
assets you have, assets in process, and why
invest.

10. General IP Comparison
Patent
Trademark
Copyright
Trade Secret
Coverage
Ideas
Consumer Recognition
and Goodwill
Expression embodied
in a fixed medium
Business Information
Types
•
Word marks, logos,
trade dress
•
•
Utility (provisional
and nonprovisional)
Design
Plant
N/A
Requirements
New, Useful and Nonobvious
Use in Commerce
(US)
First to File (foreign)
Originality
Valuable, maintained
as secret
Term
20 Years from date of
filing
Indefinite, if used and
maintained
95 years for a
corporation
As long as it remains a
secret
Limitations on Filing
Must be filed within 1
year of public
disclosure in US
Search?
Recommended
Recommended
Period of
Examination
Approx. 2-4 years
(petitions for
accelerated exam)
Approx. 6-9 months
Approx. 1-3 months –
minimal exam.
N/A
Disclosure Required
Yes
Yes
Yes
No
N/A

11. US Patents
• Three types of U.S. patents:
– 1 – Utility patents
• may be granted to anyone who invents or discovers any new
and useful process, machine, article of manufacture, or
composition of matter, or any new and useful improvement
thereof;
– 2 – Design patents
• may be granted to anyone who invents a new, original, and
ornamental design for an article of manufacture; and
– 3 – Plant patents
• may be granted to anyone who invents or discovers and
asexually reproduces any distinct and new variety of plant.

12. Patent Basics
What:
A U.S. patent is a negative right. It entitles the holder, for a
limited time, to prevent others from making, using, selling or
offering to sell the claimed invention in the United States
How:
File application; Demonstrate to the Patent Office that the
invention is: (1) new, (2) useful and (3) non-obvious
Why:
(1) Sue for $ and/or injunction
(2) Generate licensing revenue
(3) Cross-license
(4) Enhance defensive posture
(5) Deter competition /
construct barriers to entry
(6) Obtain financing
(7) Build portfolio assets with
eye toward acquisition
(8) Develop alliances

13. Example of Method Patent

14. Example of Method Patent
Utility patent example claim (Amazon one-click online shopping method ):
A method of placing an order for an item comprising:
under control of a client system, displaying information identifying the item; and
in response to only a single action being performed, sending a request to
order the item along with an identifier of a purchaser of the item to a server
system;
under control of a single-action ordering component of the server system,
receiving the request;
retrieving additional information previously stored for the purchaser
identified by the identifier in the received request; and generating an order
to purchase the requested item for the purchaser identified by the identifier
in the received request using the retrieved additional information; and
fulfilling the generated order to complete purchase of the item
whereby the item is ordered without using a shopping cart ordering model.
(US 5,960,411)

15. Example of Design Patent

16. Example of Design Patent

17. Trademarks
Word, phrase, symbol or design, or a combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of the
goods of one party from those of others.

18. Trademarks
• The owner, assignee or licensee of a trademark
has the right to exclude others from using that
trademark.
– In the U.S., rights in a trademark can be obtained
through commercial use of the trademark.
– In Foreign jurisdictions, rights can be obtained merely
by filing.
• A trademark right can last indefinitely as long as
the trademark is in use and the registration is
renewed regularly.
• Global strategy may be important!

19. Domain Names
• Can be trademarks if domain name
operates to indicate source
• Separate registry and ownership system

20. Copyright
• Documents, art, music, motion pictures, software, etc.
are automatically copyrighted when the document is
created.
• Can register copyright with the government – minimal
fee.
– Must be registered before filing any infringement lawsuits.
• Duration:
– the life of the author plus 70 years; or
– If it was a work for hire: 95 years from publication or 120
years from creation.
• US Copyright Website:
– http://www.loc.gov/copyright/

21. Trade Secrets
• Specialized secret company knowledge
– Examples include data, formulas,
compilations, programs, customer lists, etc.
• Can be used where patents may not have
a long enough term or be possible.
• Trade secrets are kept under lock and key,
with restricted access and publications.

22. Strategy to Acquire
Value-Add IP Protection
• Portfolio-Based Strategy: Portfolio is greater than the
sum of its parts
• Avoid putting all your eggs in one basket
Identification of all aspects as potential asset and
value generator
• Two-Step Strategy

23. Two-Step Strategy
1. Track and Identify
• IP Tracking and Summaries
• Invention Disclosure Forms
• Non-Disclosure and Assignment Back
Agreements
• White Spacing and Competitor Searching
2. File and Prosecute

24. HOW TO TRACK AND IDENTIFY?
• IP Audits
• Establish IP team leaders and have regular
meetings
• Raise IP awareness among all team members
– Uses / value / role of patents to company
– Key rules – bar dates, consequences of disclosure
• Create processes and infrastructure that support
innovation
– Brainstorming meetings
– Invention Disclosure Forms
– Internal education

25. IP Audits
• Professional review of IP assets
• Mandatory for any funding round, but don’t
wait until you need one to think about it
• Function:
• Identify value in current IP assets
• Identify gaps in IP coverage
• Preemptively prepare portfolio for funding due
diligence

26. Internal IP Housekeeping Agreements
• Non-Disclosure/Confidentiality Agreements
– Invention Assignment Clause
• Employment Agreements (Trade Secrets)
– Employment Agreements typically are a condition at hiring
– Often include trade secret & confidentiality language for a
term that exceeds termination from the company.
– Includes IP ownership information (assignment
requirements)
– May include non-compete language to prevent employee
from working for a competitor for a period of time.
• Independent Contractor Agreements

27. Field Awareness - Whitespacing
•
•
•
•
Competitor 1
Competitor 2
Partner?
Licensee?

28. Invention Disclosure Forms
an important piece of IP infrastructure
• A mechanism for capturing and
recording potentially valuable IP
• A checklist that functions to repeatedly
reinforce key patent law concepts, such as
the consequences of public disclosure
• A tool for improving communication
among all team members, including
outside counsel
• Good invention disclosures improve the
quality of patent applications and reduce
preparation/filing costs

29. Step 2: Filing and Prosecuting
• Filing for IP Protection
– Provisional Patent Filings
• NOTE: new patent law went into effect in 2013 – FIRST TO
FILE
– Design filings
– Trademark filings
– International filings – don’t forget utility models
• Prosecuting IP
– Continual tracking and reevaluations at decision points
– Don’t fear changing direction

30. Provisional Applications
A method of establishing an early priority/filing date
First (1) nonconfidential disclosure
or (2) actual/attempted
commercialization
Must establish
priority (file app.)
U.S. / NAFTA
one-year grace
period
t(0) --------------------------------------------- one year
Interested in preserving opportunities for
foreign patent protection?
If so, file and establish priority before first
disclosure/commercialization
Most Other
Countries
“Absolute
Novelty” (no grace
period)

31. Utility Applications
• What is a utility application/non-provisional
application?
• Key question: How does the application fit within the
portfolio
• Drafting and filing
• Examination Process
• Timeline
• Issuance

32. Patent Foreign Filings
• Different types of foreign filings:
– PCT Filings
– Utility Model Filings
– Paris Convention National Phase Filings
– Design Filings
• Selection based on business drivers, not
one size fits all

33. Thank You
Questions?