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Agenda
Introduction
Trends in IPR
IPR and VC
Case Study
Conclusion
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Intellectual Property Rights
•
Intellectual property rights are the rights given to persons over thecreations of their minds. They usually give the creator an exclusive right
over the use of his/her creation for a certain period of time.
• Under intellectual property law, owners are granted certain exclusive
rights to a variety of intangible assets
• Modern usage of the term intellectual property goes back at least as far as
1867 with the founding of the North German Confederation
• The World Intellectual Property Organization (WIPO) is one of the 17
specialized agencies of the United Nations which currently has 186 member
states, administers 26 international treaties
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Why IPR?
Financial IncentivesEconomic Growth
Morality
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TYPES OF IPR
• Patent or Utility Model - A patent grants an inventor exclusive rights tomake, use, sell, and import an invention for a limited period of time
• Copyright - A copyright gives the creator exclusive rights to a widerange of creative, intellectual, or artistic forms, or "works“
• Industrial Design Rights - An industrial design consists of the creationof a shape, configuration or composition of pattern or color, or
combination of pattern and color in three dimensional form containingaesthetic value
• Trademark - A trademark is a recognizable sign, design or expressionwhich identifies products or services of a particular source from thoseof others.
• Trade Dress - Trade dress is a legal term of art that generally refers tocharacteristics of the visual appearance of a product or its packaging(or even the design of a building) that signify the source of the productto consumers.
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Global trends in IPR
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Each year, WIPO ( World Intellectual Property Org. ) conducts a survey of
approximately 150 national and regional intellectual property (IP) offices around
the globe to collect statistics on filing activity for trademarks, patents, industrial
designs and utility models
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Applications based on geography
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Application based on Income Levels
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IP and VC
Two important aspects related to any technological innovation
Evaluation of the technology of the start up company
IP which refers to how much the technology is legally protected .
Importance of the IP assets
IP assets are the only significant legal assets possessed by early stage
companies .
These assets provide tools to mitigate business risks to future growth and
in, some cases to, create future business opportunities.
e.g. :The exclusive rights provided by patent address the business
risk of third parties (i.e. the competition) commercializing the technology
under development
The business plans presented to VC firms investing in high technology
areas frequently contain a section entirely dedicated to Intellectual
Property.
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IP Due Diligence
• VC firms typically engage an IP professional to conduct the IP evaluation of
a start-up, an effort commonly referred to as IP due diligence.
• The analysis consists of two stages :
•
First Tier Analyses1) Evaluating Product Potential
2) Evaluating Market Potential
3) Evaluating management and other personnel for leadership and
other skills
• Second Tier Analyses : IP Evaluation
• Before incurring the costs associated with IP due diligence, usually theVC
firm has previously conducted the first-tier analyses. The start-up will have
generally passed those tests to move on to the next stage
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IP Due Diligence
• More of a qualitative analysis ,including instead assessments of how muchthe start up’s IP will help or hinder the execution of the business plan
• To determine the potential for any IP related disputes or conflicts ,whichmay also impede progress under the business plan
Three major areas of IP due diligence
IP Agreements :Scrutiny of the business terms of each agreementlike license agreements ,employment and consulting agreements .
IP Filings :VC firms also want to look at distinct steps taken or will be
taken to protect the IP through legal filings e.g. filing patentapplications, registering trademarks
IP Disputes : The goal is to confirm the absence of any blocking patentsi.e the patents that would be infringed by the start up .
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IP Disconnect
• An IP disconnect between first tier and second tier analysis may impair the
VC firm’s ability to screen for unwise investments
• Potential for IP disconnect in the three areas
IP agreement disconnect
IP Filing disconnect
IP disputes disconnect
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The IP Agreement Disconnect
What IP the license covers ?
Description of the scope in terms of X or Y technology
Which products are covered under that IP ?
May result in incorrect royalty calculations.
the start-up may have multiple products, not all of which require a royalty
payment. The disconnect then leads the VC firm to overestimate the future
royalty obligations.
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IP Filing Disconnect
Should not be restricted to mechanistic procedure of checking whether the
company has dutifully followed patent office procedures
The claims of each patent need to be analyzed with all of the productinformation gathered by to understand and assess
the value of the IP filings.
Analysis to find out if the patents are directed to inventions relevant to the
product development plan.
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IP Dispute Disconnect
The objective of the VC firm to hear that no blocking patent is found that
prevents the execution of the business plan.
But often what IP Professionals provide are conclusions relating to
patentability of the start up’s core technology .
Why?
The individual performing the search is typically the same person performing
other aspects of the IP due diligence such as evaluating the patent portfolio.As a result the individual becomes well versed in the technology .But the
core technology is only one of many things that product will use.
Other aspects of the product should be analyzed to identify for the disputes.
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Common IPR Mistakes during VC Due
Diligence Too late to start filing patent applications
Too narrow legal scope of claiming patentable inventions
Internally mismanaged patent infringement ‘willfulness'exposure
Inadvertently tainting IPR with 3rd party co-ownership rights
Underestimating the importance of trade secrets &confidentiality
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