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IP 101 for Start-Ups
Rob McInnes

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Today’s Content
 Why does IP matter?
 IP basics
 IP in start-ups
 (If time permits) IP management
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Why Does it Matter?
 IP is how competitive advantage is sustained in the
knowledge economy
 Other barriers are falling away as trade is freed, labour is
more mobile, capital is less rationed and customers have
more access to information
 IP is a tradeable asset in its own right
 As businesses move away from in-house R&D towards
outsourcing and in-licensing
 As “virtual integration” increases
 “NPEs” exist solely to enforce patents
 Defensive patent pools
 Patent auctions/patent licences as tradeable instruments
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IP is Big Money
 Apple/Microsoft/RIM paid $4.5Bn for Nortel’s 17,000
patents
 Google paying $12.5Bn for Motorola, with the stated
aim of expanding its patent portfolio
 Apple brand valued at $185 Bn
 IP-based transactions were worth >US$18 billion in
2011-12, compared to US$450 million in 2010-11 (IAM
Magazine)
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What’s Special About IP?
 Capital markets and investment analysts increasingly
focus on intellectual assets
 80% of the value of the S&P 500 companies (not just high-
tech companies) was attributed to intangibles in 2005, up
from 17% in 1975
 There’s more IP around
 < 1million patent applications in 1985 to > 2 million in 2010
 Patents cover more than they did 20 years ago
 But the pendulum is swinging back
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How Does IP Add and
Create Value?
 Inhibits competition against the company’s existing
products
 Helps extract value from technologies not used in
products sold directly
 Allows technologies to be acquired with some
assurance of value
 Codifies the company’s knowledge both internally and
to investors
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Human
Capital
- expertise
- know-how
- skills
- creativity
Intellectual Capital
- processes
- innovations
- methodologies
Physical Capital
Intellectual
Property
IP Within an Enterprise

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IP Rights - Registered
 Patents for inventions
 Utility Models etc. for lower level innovations
 Registered Designs for 3-D articles
 Registered Trade Marks for brands & logos
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IP Rights - Unregistered
 Copyright for literary & artistic works (including
software)
 Confidential Information & Know How
 Goodwill & Reputation
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What is a Patent?
 Reward for an inventive contribution to society’s
knowledge
 Exclusive (20 year) monopoly
 Protection for a technical result, not an abstract idea
 Not a positive right to market (subject to law and the IP
rights of others)
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What Can Be Patented?
 An invention
 Not being excluded subject matter
 That is new
 And that involves an inventive step compared with the
prior art
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What are Patents Granted For?
 Routinely:
 Machines, devices,
hardware
 Processes, techniques,
methods
 Materials, chemicals,
drugs, alloys
 Cell lines
 Not Always:
 Medical treatments
 Yes in AU, US
 No in EP, NZ, JP
 Software
 Not “per se” in EP, NZ
 E-commerce & business
methods
 Pendulum has swung
against
 Gene sequences
 Higher animals

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Typical Steps in Patenting
 Awareness of IP landscape
 Is it an invention? Is it novel and non-obvious?
 File provisional application
 Can order a search to get early indication of problems
 At P+12 months file a PCT application (multi-country)
 Will be examined and an opinion issued
 At P+18 months application will be published
 At P+30 months need to file individual country or
regional applications
 Not unusual to take 5-7 years to grant
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Copyright
 Protection against copying (not a monopoly)
 Long term protection
 Automatic protection (optional registration in USA)
 Does not protect concept or abstract idea
 Infringed by taking a ‘substantial part’
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Confidential Information
 Must in fact be confidential
 Can the information be derived/reverse-engineered?
 Confidentiality should be asserted
 Should be documented
 Of value but not a monopoly
 Value eroded by independent discovery
 Not really ‘property’, so care with licensing and
assignment language
 A licence may permit use but not disclosure
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Trademarks / Brands
 A “sign” can include words, logos, shapes, sounds,
even smells
 Must be distinctive, or capable of becoming so
 Choose a protectable brand
 Register it
 Beware DIY registration
 Control its use
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IP in Start-Ups
 Any professional investor will carry out due diligence on
IP
 Full IP due diligence on a mature company will be a
six-figure job that takes weeks
 Any successful tech company will be subjected to full
IP due diligence whenever an early investor has a
chance to exit
 How do we avoid creating issues that will not pass IP
due diligence?

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Key Questions
 Identify the key technologies of the company and its
key IP rights.
 Do the key technologies fall within the key IP rights?
Will that continue to be the case?
 Does the company actually own its IP? Identify in-
licences that may be relevant.
 Is it contractually free to exploit its IP as desired?
(Having regard to licence terms, funding conditions
etc.)
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Key Questions (cont.)
 How likely are its pending patent applications to
proceed to registration? How likely are the resulting
patents to be valid?
 What will be the effective scope of monopoly afforded
by the IP rights covering key technologies?
 Will its technology will infringe any third party IP rights?
 Generally, does the company manage its IP well?
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Ownership/Control Issues
 Inventors and employment
 distinguishing employees and consultants
 student and academic issues
 Chain of title
 Licence conditions
 Funding conditions

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Acquiring IP
 In-house development
 formal process of IP capture
 Licensing in
 issues of royalty base, restrictions on field, rights of use,
background IP
 Collaborations
 issues of IP ownership, licence rights (beware joint IP)
 Purchase/M&A
 need to do your own due diligence

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Beware Patent Puffery
 No “worldwide” patent
 An application will almost never be granted in the form
applied for
 A granted patent may not be valid or enforceable
 Different national principles apply

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Best Practice IP
Management
 Dealing with staff and contractors
 Dealing with research collaborators
 Dealing with suppliers & customers
 Planning and conducting R&D with IP issues in mind
 Understanding the IP landscape
 Building and maintaining the IP portfolio

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IP Landscape
 To inform business strategy development and R&D
planning
 For competitor intelligence
 To understand the technology and IP position of
prospective licensees/collaborators
 To determine what is available to in-license
 To look for strategic and blocking IP opportunities
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R&D Processes Should…
 Filter projects by IP and market as well as technical
criteria
 Institutionalise IP acquisition in the development of new
products and processes
 Raise the question of how protectable the new product
or process will be
 Analyse at an early stage the avoidance of infringement
of third party rights
 Require consideration of in-licensing technology rather
than developing it in-house
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Different IP Business
Strategies
 Comprehensive product protection by building mutually
reinforcing bundles of rights including patents, designs,
copyright and brands
 Placing roadblocks in competitors’ paths
 Generating cross-licensing currency to deal with
blocking rights of third parties
 Building value for market perception
 “Fit” with technology/IP deficits of prospective licensees
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Any Questions?
Rob McInnes
T +61 2 8233 9556
E rob.mcinnes@dibbsbarker.com

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