Tag Archives: IP

3 Free Things to do Right Now to Protect your IP

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Lock up your IP In working with a number of startup and established companies I’m often struck by how unprepared these companies are at safeguarding their Intellectual Property (IP).  So I’ve decided to write this post to outline three of the easiest techniques I’ve learned that can protect your company from having its IP stolen.

What is IP?

Before I begin with the three ideas, let’s do a quick recap of what comprises IP.  Patents, Trademarks and Copyrights are the most well known and comprise the bulk of IP literature.  Lesser known IP products include, but are not limited to, Trade Secrets, Workflow Processes, Customer Lists and Organized Workforces.

Protecting Inventions or Ideas using Patents, Trademarks or Copyrights is a straight forward legal process; depending on the nature of your unique idea will determine which legal protection is best for you.  The other IP types do not have any specific legal protection (although most US states have adopted the Uniform Trade Secret Act of 1985), but they can be generally protected through normal contract law.

IP is about People

Your companies’ IP was probably built from the ideas and thoughts of your team with or without the assistance of third-party vendors.  So my three ideas relate to specifically to clauses you can insert into your company’s standard employment and vendor agreements.

What?  You don’t use employment or vendor agreements?  Or you only have agreements with key personnel.  Shame on you… you are just asking for your IP to be ripped off.

Regardless of their role, every one of your team members (including executives and founders) should sign an employment agreement.  My colleague John Simpson at Shift Law in Toronto explains why in this post.

There are hundreds of styles of agreements available on the web, but you should have a competent employment lawyer draft up a template agreement for your company, because when it comes to employment and IP matters, the local law is most important.  That being said, I found this post on NOLO.com which provides a great overview of the components of an employment agreement here.

3 Things to do Right Now that Protect Your IP

As you might surmise the three techniques relate to clauses to make sure are in your employee and vendor agreements.  Specifically:

1. Assignment of IP Rights Clause

Every one of your agreements should have a clause which states that in the event that any IP is created as a result of this relationships (employment, vendor) that the signee assigns these rights and privileges to your company.  It sounds really simple, but when I execute Due Diligence at companies on behalf of investors, I found that in  99% of cases, this clause does not exist in the employment agreements and 100% of the time in the vendor contracts.

Don’t know how to write this clause, good..that’s not your job.  Keep inventing and have your employment lawyer draft this.

2. Confidentiality Clause

Good new! For those clients who use agreements, almost every one has some kind of confidentiality language in their agreements.  Bad news, is these agreements rarely address trade secrets or other non-legal IP contructs. Instead, they include broad and general ideas relating to confidentiality.

Broad sweeping confidentiality statements have little nforceability in court, but specific statements create  higher level of accountability for your employee and vendor.  As an example, your confidentiality clause could include:

generic levitra usa However, women also experience such lack of sex drive. It is particularly imperative to pay consideration on sudden generic 10mg cialis changes in musings and practices. Kamagra sildenafil 100mg mainly works get viagra prescription to enhance the risk of ED. Headaches soft cialis mastercard affect all ages, from young children to senior adults and symptoms vary from mild, nagging pain to debilitating migraines. You understand and agree that there are trade secrets, customers lists, workflow processes and training programs (“Secrets”) that you’ve received during the term of your employment.  Your further agree to not disclose any of these Secrets to any party outside of the organization without our prior written consent.  Further, you understand that disclosing these Secrets to a third-party without our prior consent will result in significant Damages to the organization to which you will be responsible.

Make sure that this section of your agreement also deals with how employees and vendors will manage your Secrets after your relationship has ended.   For the greatest enforceability, the limitation on disclosure should be a reasonable time period (say 2 years).

3. Non-Solicitation Clause

A Non-solicit clause is different from a non-compete clause in that its focus is on the use of your company’s internal knowledge for non-company related purposes.  A non-compete clause is an attempt by your company to restrict an ex-employee or vendor to operate for a specified period of time (these clauses are rarely enforceable).

So the point of a Non-solicit clause is that you don’t want a current employee to use your company’s IP to moonlight and generate additional revenue or ideas that would otherwise be your property (see Assignability Clause above).  This doesn’t mean that your employees can’t “tinker” or experiment on their own time based on their existing work, but instead means that these same employees shouldn’t be able to receive any commercial benefit from such tinkering if it’s based on your company’s iP.

And if your ex-employee or vendor uses your existing IP to build something for commercial purposes,  then that should surely be restricted in this clause.

Putting it all together

So by including these three clauses in your employment and vendor agreements you’ll not only have a better shot at protecting your company’s IP, you’ll also be able to tell your team, partners and potential investors that IP is important and that you’re prepared to protect it.

So while they’re not exactly free (you need a competent lawyer to draft them so that they can be enforced), once you’ve paid for them once, you can use them over and over again, so they’re almost free.

Call to Action

If I’m helping investors with a Due Diligence or Valuation assignment and I see these three clauses in their agreements then its an indication that the management team has a good handle on the business drivers and is serious about protecting the real value of the business because IP is a Catalytic Asset that an accelerate your business faster than you think.

So here is my challenge to you… look through your agreements and within the next 14 days decide to do something about them if they’re not good enough.  Get serious about protecting your company’s most valuable asset: its IP.

As always, if you have questions, please use the contact us form and I’ll do my best to get back to you.

 

IP as a Catalytic Asset

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I’ve recently been reading and thinking a great deal about Intellectual Property and its value to society, you could say that I’m a little obsessed with the concept. But hey, that’s my passion.

So forget about approaches to value and technical methodologies, let’s ask ourselves the question: If I have something that can multiply the value of my other assets, what’s that worth? I think it’s way more than what you or I could imagine, but since I’m the guy writing this post and who has the actual credentials and smarts to figure it out, I guess I’ll explore these thoughts with you.

As I said in my recent LInkedIn post entitled “Intellectual Property Valuation: The Final Frontier?”  I spent my mental energy setting up the discussion.  Today, I hope to advance it forward a little bit.

How is IP Catalytic?

The term Catalytic is a derivative of the word Catalysis which Wiki describes as “Catalysis is the increase in the rate of a chemical reaction of two or more reactants due to the participation of an additional substance called a catalyst.”  

So if a substance can modify the output of a reaction or combination of several factors then it is a catalyst.  In my time working with private and public companies, I’ve found that with the right mix of physical, human and financial assets, most businesses can grow at around 2x the long term rate of inflation.  However those organizations experiencing sustained hyper growth in their key metrics (subscribers, users, revenue, RevPAR, whatever) are most likely doing so because the combination of their physical, financial and human assets are multiplied by their IP.

Some authors describe these hyper growth companies as being disruptive.  I characterize them as having IP that is so unique that it (the IP) makes the entire entity disruptive.  Think about it, why is Yelp in hyper growth?  It’s not because they’ve done anything special with HTML code or outbound advertising sales processes.  Yelp is in hyper growth because they were first to market with a process that allows consumers to easily find, rate, review and connect with local businesses.  Yelp’s IP is the combination of source code, people and content that connect local businesses to consumers in a meaningful way.  After it’s web interface was completed in early 2007, Yelp’s was one of the first creators of native applications for smartphones,  and I would argue that one of its core IP assets are the agreements it has with phone makers to pre-load its app on their phones (kudos to Jeremy Stoppelman and the Yelp Biz Dev team).  The Yelp native Apps on smart phones created hyper-local business directories in the palm of the consumers hand.

Didn’t Yellowpages do this?  Nope…  Yellow Pages tried to combat the move to hyper-local directories by further segmenting its core products into smaller “neighborhood” books before it even got into the web game, but who wants to carry around a smaller version of the Yellow pages?  Ask any small business owner about how often a Yellow Pages ad salesman came to them in the mid 2000s trying to sell them more product, rather than better product.

Measuring a Catalytic Event
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So if you follow my argument that IP is a catalyst then we need to understand the process of Catalysis.  I go back to high school chemistry to understand the process, so bear with me. Here’s a picture of the Catalytic cycle:

Catalytic Cycle

Catalytic Cycle

Once a catalyst has been entered into a combination of reactants (stuff) the result is something that neither reactant could produce without the reactant.  So it’s not 1+1=2, its more like (1+1) x 2=10.

There are two types of catalysts: Regenerating and Sacrificing.  Most catalysts are Regenerating, but those that are sacrificial not only aid in the output from the reaction but also assist regeneration of the main catalyst.   Despite that most “good” catalysts are regenerating and allow the reactants to continue to grow and react over time, they can only continue to affect a reaction if there are reactants.  Eventually the reactants exhaust themselves and new ones need to be put into the mix.  How do we measure this?  Simple, measure the energy or output of the combination produced by the reactants without and with the catalyst.  It’s easier to visualize if you have this diagram;

Before and After Energy Output Involving a Catalyst

Before and After Energy Output Involving a Catalyst

Now that we have an idea as to how to a catalyst affects two reactants we can find a way to measure the impact that the catalyst has on the reaction.  In its simplest terms, the impact of the catalyst is the difference between the two reactions under the same circumstances.  Translating this measurement into an economic framework is a little harder than high school chemistry and instead of boring you for another 800 words, I’ll talk about this over the next few posts.

Do you believe that Intellectual Property (IP) has catalytic properties?  Why or Why Not? I’d love to hear your thoughts.  Please write them in the comment section below, all “normal’ comment will be posted.

 

CrowdingFunding IP

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Crowd, Prior Art

Using the Crowd to Find Prior Art

The USPTO put out a press release this week requesting participants to attend its Roundtable on Crowdsourcing Access to Prior Art at the USPTO offices in Alexandria, Virginia on April 10th.  If you want the nitty, gritty details, click here.

As far I can tell, the point of this little shindig is for patent examiners to be able to talk to real IP people about the process of finding prior art in the creation of the patent submitted to the USPTO.  The press release states that not only will attendees be able learn about crowdfunding prior art resources and legalities of using them in third-party pre-issuance submissions to examiners, they’ll also gain insight so as to make better submissions.

Initially, it seemed to me that this “roundtable” is really just training session for examiners to get up to speed on the current crowdfunding environment and is not what I would call a investor friendly event.  I mean, the press release pretty much says that the primary purpose is for examiners to have an opportunity “It will also help the USPTO update its guidance and training for patent examiners to help them more effectively use crowd-sourced prior art.”

So how can the USPTO make this process more friendly to inventors and attorneys and agents who won’t be anywhere near Alexandria, Virginia on April 10th?  I posed this question (and others)  to Jack Harvey, the Director of Technology at the USPTO. Here’s the just of the exchange:

TJ: Why is the USPTO hosting this Roundtable on Crowdfunding Prior Art?

JH: Under the new America Invents Act section 35USC  1.122E requires that the USPTO be able to receive submissions from third-parties.  This roundtable is an extension of a pilot project called Peer to Patent that the USPTO ran off and on with the NY School of Law from 2007 to 2011, whereby, using a web interface, individuals of the public could submit applications of prior art to the USPTO so as to help examiners find additional prior art that was not available in their existing resources or databases. 

Since the AIA became law (about 18 months ago), the USPTO has collected over 1,200 submissions of prior art from the general public, but they USPTO has had no formal way of managing these submissions and how they will be handled internally and the USPTO is looking at more formal crowdfunding ways to organize and sort through this prior art for its own internal use in ways similar to StackExchange’s AskPatents.com operates.

TJ: Who do you expect to attend this roundtable?

JH: We expect that we will have patent practitioners, corporations that are involved in crowdsourcing, and other interested internet and inventor companies in attendance.

TJ: What about patent examiners?

JH: We have over 6,000 examiners here on staff in Alexandria so we’re limiting the number of examiners that can attend this roundtable.  It’s most likely that those in more senior or supervisory capacity will be in attendance, if anything.

TJ: How do you see crowdsourcing access for prior art to take place?
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JH:  It’s too early to tell how we’ll implement suggestions for using the general public to identify prior art.  We don’t really know what technologies will be used or what the process will look like.  That’s part of the reason for the roundtable.

TJ: Who is going to be speaking at this event?

JH: At present we know that someone from StackExchange will be speaking but are not exactly sure who.  Also Micah Siegel is scheduled to attend at this time.

TJ: How is this roundtable discussion being made available to those who can’t physically attend the event?

JH:  After you sign up for the event you’ll be given a Webex registration link so that you can watch the live feed in real time.  While you can’t ask direct questions if you ask questions in the webex chat box, myself or someone from the USPTO staff will endeavour to get the questions answered in real-time.

Also you can make comments to the roundtable until April 25th by responding to this notice.

Our View: 

As mentioned by Professor Dennis Crouch and Jason Rantanen in their September 19, 2012 blog post (here), the managers at the USPTO are struggling with comply with 35USC1.122E as to how to allow for the public to have an active role in the pre-issuance/submission process.   It seems that the USPTO is hoping that by engaging IP practitioners as to how to collect and assemble prior art from more than its existing databases, it can improve the issuance and pre-submission processes.

When I asked Jack about where such prior art that the USPTO doesn’t have in one of its extensive databased he gave me three interesting examples: a university archive that hadn’t been digitized and made available, a state document that wasn’t in the federal registry or a thesis or research paper that was published by an academic institution that hadn’t been made its way yet into any formal database.

Will Crowdfunding of Prior Art work?  I’m not sure, but I think that harnessing the power of more than just their existing resources can only be beneficial, I am just concerned that by having more data available from crowdfunded resources examiners take more time to issue their decisions because they will have more data to review in a less searchable format.  And that’s the last thing practitioners and inventors need… longer waiting times.

 

 

What’s that Worth?

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As I’ve been making the rounds to various connections discussing the new direction that we’ve taken with our business, I get asked the question, why would I pay for a valuation analysis or report when I can do one myself or my investment consultant/bank will do one for me?  So here’s the short answer: because you won’t know what it’s really worth.

I’m not making a self-ingratiating pitch for my services when I say this, I really mean it.  If you or your investment consultant/banker try to pitch the value of your business to a potential purchaser or investor, they’re going to most likely ignore the work and create their own estimate of value.  I know.. I’ve been that Investor.

While on the buy-side, I recall a case where a family had hired a credible independent consultant to assist them with their extraction of the division that they started from their troubled parent.  Not only did this consultant put together a proper financial package (including a proper DCF model), he completed a valuation and transaction structure that made sense.  My colleague who worked on the deal with me felt that it was the best transaction we had seen all year (and we had seen hundreds by this time).  We didn’t have to go digging for all the problems or challenges with the transaction because they were described to us in the consultant’s valuation report (we of course verified the details).   Our investment committee passed on this deal (arrgghh!), but I ran into the CEO a few years ago and he told me that he got his deal done, the way he wanted and was extremely happy with the transaction and the performance of this consultant.

While it’s true that you and your team have a better sense as to what your business is really worth than anyone, this is not the true fair market value, it’s what we call value-to-owner.   

As for your investment banker, well what can I say, they’re certainly in a better position to expose the fair market value but in most cases, they are paid on the successful completion of a transaction and could be considered biased by whomever you’re seeking funds from.  And frankly, the work I have found from most sell-side investment firms is lacking in depth and clarity.

Here’s something else that I learned from my 109 year old grandfather… you get what you pay for.  So if you’re doing your valuation internally, the output is only as good as your team (which I’m sure is awesome) and if you’re relying on an Ibanker or consultant, who is paid on contingency, then the numbers are harder for skeptical investors to believe.

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A lot of the VCs and PE Investors with whom I keep in touch routinely talk about how their primary criteria for their initial investment are 1) Quality/Credibility of the Management Team and 2) Quality of Assets.  The quality of the market opportunity is a distant third; most of these successful and sophisticated investors know that it takes the Intellectual Property and the smarts of a good team to create long term value.  That’s what they’re really betting on, not a specific product or market opportunity.

So why not have someone take a look at this?  I know, you don’t want to spend any dough.  I get it, I’ve been there.  But you know what? If you’re serious about that transaction or capital raise, you’ll have a lot more credibility to have a proper calculation or opinion of value completed by a competent, independent, third-party.  The actual cost is significantly less than the amount of the capital raise or transaction and can be used for multiple purposes (if you request such).  Oh unless you’re a large multi-national conglomerate, then the cost is certainly less than those success or placement fees you’ll be soon paying.

If you’re dead serious about growing your business with smart money or getting out altogether… the value of an independent assessment of business’ value is worth way more than the actual cost, it gives you a basis to begin negotiations and shows investors that you’re serious about completing this deal.

Don’t believe me?  Go raise your capital or complete your buy-out without an independent valuation and then next time call me, I’ll do the valuation and when you get better terms as result we can talk about how you’ll pay.