75 law & legal cle credit a/v approval #1089773 · • for any acquisition, startup will very...
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.75 Law & Legal CLE Credit – A/V Approval #1089773 Recording Date - December 6, 2018 Recording Availability – December 7, 2018
Meeting Location Date Time Topic
King County Bar Association 1200 Fifth Avenue - Suite 700
Seattle, WA
Thursday, December 6, 2018
12:00 PM to 1:15 PM
Are You Buying a Business? - IP Due Diligence from the
Perspective of a Patent Prosecutor
AGENDA 12:00 PM Introduction 12:10 PM Presentation: ‘Are You Buying a Business? - IP Due Diligence from the Perspective of a
Patent Prosecutor’, by Patrick Njeim, Kilpatrick Townsend 1:15 PM Adjourn
SPEAKER BIOGRAPHY Patrick Njeim, Kilpatrick Townsend – Patrick Njeim focuses his practice on patent preparation and prosecution, due diligence matters, infringement and validity opinions, portfolio analysis, patent litigation, and post-grant proceedings. He represents clients in a wide range of technology areas, including artificial intelligence, virtual reality, augmented reality, computer software and hardware, virtualization and cloud computing, networking, wireless communications, electrical engineering, mechanical engineering, medical devices, and various related technologies.
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© 2018 Kilpatrick Townsend
Are you buying a business? IP due diligence
from the perspective of a patent prosecutor
KCBA
December 6, 2018
1
Agenda
• Introduction
• Business scenario
• IP risk
• Business decision
• General strategy considerations
3
Patrick’s Bio
• Patent Prosecutor– Artificial intelligence, virtual reality,
augmented reality, computer software and
hardware, virtualization and cloud computing,
networking, wireless communications,
electrical engineering, mechanical
engineering, medical devices
• Litigation support
• Post grant-proceedings
• Portfolio analysis– Due diligence
4
Business Scenario
• “Wheels Bot” started in 2005– Software application for a personal
assistant
– Help with booking vehicles
– Grows to about 50 employees
– Has $50M in revenue
5
Business Scenario
• “Super Fast Wheels” also
started around 2005– Direct competitor
– Has similar revenue
• Both companies attend same
trade shows, are aware of
their competing platforms,
etc.
6
Business Scenario
• Fast forward to 2018– “Big Corp” is interested in “Wheels Bot”
– New market
– New knowledge
• “Big Corp” retains a law firm to
assess legal risks
7
IP Risk
• Has “Wheels Bot”
protected its technology– Patent portfolio
– Other IP protections
– Open source software licenses
• Will others sue us for
patent infringement– Previous/existing lawsuit
– Freedom to operate
– Competitor’s portfolio
8
Business Scenario- Patent Portfolio
2005
20052008
Recession
2012
Artificial Intelligence
Artificial Intelligence
Abandon Ride Sharing
Technology:
- AI
- Ride Sharing
Patent Portfolio
- 10 abandoned AI patent
apps
- 0 patents
Technology:
- AI
- Ride Sharing
Patent Portfolio
- 20 patents
- Ongoing patent
prosecution
2012
Ride Sharing
9
How Attractive is Wheels Bot’s IP Portfolio?
• Not so much
• 0 patent protection
• Maybe trade secret– AI algorithm would not be since patent
applications were published
– Ride sharing software could be protected
• Software copyright
• Trademark
• Open Source Software– Grant of patent rights
– Right to use, copy, modify, etc.
10
Patent Lawsuit Risk
• No previous/existing lawsuit– Not a good argument
• Freedom to operate– Siri, Alexa, etc.
– Uber, Lyft, etc.
– But, good news: Wheels Bot do things
differently
• How about potential Super Fast
Wheels lawsuit?
11
Super Fast Wheels Lawsuit?
• Super Fast Wheels Portfolio is strong:– 4 out of the 20 patents cover many aspects of the Wheels Bot platform
• Wheels Bot is too small to sue– Too expensive to sue, not enough gain
– Super Fast Wheels IP Strategy: laissez faire, we will have a better
product
• If Big Corp purchases Wheels Bot– Attractive target, deep pockets
– Super Fast Wheels IP Strategy: if we do not act, Big Corp can put us out
of business
– No patents in Wheels Bot to counter
12
Reporting Back to Big Corp
• On paper, business deal
looks great
• Bearer of bad news:– IP Risk is too high
• Deal hinges on IP– Ways to reduce risk?
• Indemnification
• Insurance
• New Deal– Big Corp reaches out to Super
Fast Wheels for acquisition
13
General strategy considerations
• IP due diligence process is well established
• For any acquisition, startup will very likely be subject to
this exercise
• If your plan is to sell, have an IP strategy (otherwise,
sale may fail)
• If your plan is to grow, have an IP strategy for defensive
reasons
• IP strategy: – Assess whether patent protection is needed
– File at least on core technology, even if technology/market changes
over time
– Even after receiving patent, keep some patent applications pending at
least for core technology
DUE DILIGENCE CHECKLISTS
PATENTS
# Subject Date
Requested
Date
Received
Doc. in
Data
Room?
Comments
for follow-
up
1. Obtain schedule and copies of all U.S.
and foreign issued patents and
pending applications, both utility and
design, used in or associated with the
target company (“target”).
2. List maintenance and annuity fee
status for each patent application.
3. Obtain copies of all ownership and
assignment records for patents and
applications. Confirm recordation with
U.S. and other patent offices.
4. Confirm whether foreign patents
been “worked” in countries
requiring working.
5. Identify all opposition, reexamination,
interference, reissue, confirmation of
scope, nullity, inter parties and post
grant proceedings and status or
disposition of each. Provide information
and documents.
6. Identify R&D which may be
appropriate for future patent
protection. Confirm trade secret
status of each.
7. Identify patent claims that
correspond to product(s).
8. Identify key patents and their
respective inventors. Identify
employment status of each inventor.
Confirm assignment of patent rights.
PATENTS
# Subject Date
Requested
Date
Received
Doc. in
Data
Room?
Comments
for follow-
up
9. Obtain and review copies of all
agreements dealing with patents, e.g.,
licenses or interference settlement
agreements, and identify revenue
streams or royalty obligations
associated with each agreement.
10. Obtain copies of all prior art
searches, conclusions, reports and
opinions, whether internal or
external, that target possesses
concerning the validity of its
patents, the infringement of its
patents by others, the infringement
of third party patents by its products
and the validity of such third party
patents. Confirm that material prior
art has been cited to patent offices
that have duty of disclosure.
11. Obtain copies of all correspondence
relating to patent disputes, cease and
desist letters, letters alleging
infringement, warning letters, service
of notice, letters threatening lawsuits
or other legal notices received or sent
by target.
12. Does target conduct product clearances?
Provide copies of clearance procedures
and any results and/or opinions.
13. Obtain all correspondence to or from
target inquiring about a possible
license or the status of a patent or
patent application.
14. Schedule any action to be taken
during the transition or due diligence
periods to protect the patents, e.g.,
PATENTS
# Subject Date
Requested
Date
Received
Doc. in
Data
Room?
Comments
for follow-
up
paying maintenance fees or
responding to Office Actions?
15. Will bar dates or disclosures of new
products necessitate imminent filings
in order to avoid loss of rights?
16. Have patent term extensions been
applied for and obtained for where
appropriate?
17. Have reporting requirements been
met for applications supported
with federal grants?
18. Obtain copies of any valuation analysis.
19. Obtain copies of all patent term
extension applications for U.S.
and foreign marketed devices and
drugs.
TRADEMARKS
# Subject Date
Requeste
d
Date
Received
Doc. in
Data
Room?
Comments
for follow-
up
1. Obtain schedule of all federal, state
and foreign trademark registrations and
pending applications used in or
associated with the target and their
renewal fee due dates.
2. Obtain copies of all ownership,
assignment, and lien records for
trademarks and applications.
TRADEMARKS
# Subject Date
Requeste
d
Date
Received
Doc. in
Data
Room?
Comments
for follow-
up
3. Obtain copies of all Section 8 and 15
filings.
4. Obtain copies of all opposition,
cancellation, inter parties, concurrent
use and registration proceedings.
5. Cross-reference products on
which each trademark is used.
6. Identify any non-use of any
trademarks. For what periods of
time?
7. List and schedule all non-registered
trademarks, the products on which
these trademarks are used, and the
breadth of such trademarks. Are these
trademarks used in interstate
commerce?
8. Obtain copies of all agreements
dealing with trademarks, e.g., consent
letters, mutual use agreements,
licenses or opposition settlement
agreements, identify whether target is
licensee of licensor, and identify
revenue streams or payment
obligations associated with each
agreement.
9. Obtain copies of all searches,
conclusions, reports and opinions,
whether internal or external, that target
possesses concerning the validity of its
trademark registrations, the scope of
rights, geographical limitations,
expansion restrictions, the infringement
of its trademarks by others, and
TRADEMARKS
# Subject Date
Requeste
d
Date
Received
Doc. in
Data
Room?
Comments
for follow-
up
infringement of third party trademarks
by its activities.
10. Obtain copies of all correspondence
relating to trademark disputes, cease
and desist letters, letters alleging
infringement, letters threatening
lawsuits, or other legal notices received
or sent by target.
11. Obtain copies of all correspondence to
or from target inquiring about a
possible license or the status of a
trademark registration or application.
12. Does any action need to be taken
during the transition or due
diligence periods to protect the
trademarks, e.g. paying renewal fees
or responding to Trademark Office
correspondence.
13. Obtain copies of any valuation analysis.
COPYRIGHTS
# Subject Date
Requested
Date
Received
Doc. in
Data
Room?
Comments
for
follow-up
1. Schedule all copyrighted materials,
particularly software and mask works,
used in or associated with the acquired
business.
Provide copies of applications and
registrations, assignment documents, and
security agreements.
2. Schedule and copies of all agreements
dealing with copyrights, e.g., licenses,
identify whether target is licensor or
licensee, and identify revenue streams or
payment obligations associated with each
agreement.
3. Obtain copies of all searches,
conclusions, reports and opinions,
whether internal or external, that target
possesses concerning the validity of its
copyright registrations, the scope of
rights, the infringement of its
copyrights by others, and infringement
of third party copyrights by its
activities.
4. Obtain copies of all correspondence
relating to copyright disputes, cease
and desist letters, letters alleging
infringement, letters threatening
lawsuits and other legal notices
received or sent by the target.
5. Schedule any action that needs to be
taken during the transition or due
diligence periods to protect copyrights.
6. Obtain copies of any valuation analysis.
TRADE SECRETS
# Subject Date
Requested
Date
Received
Doc. in
Data
Room?
Comments
for
follow-up
1. Schedule all trade secrets and know-
how used in or associated with the
acquired business. Identify confidential
information that target licensed or
otherwise acquired from a third party.
2. Obtain copies of all agreements dealing
with trade secrets, e.g., license, secrecy,
or non-analysis agreements, identify
whether target is licensor or licensee,
and identify revenue streams or
payment obligations associated with
each agreement.
3. Obtain copies of all correspondence
relating to trade secret disputes, cease
and desist letters, letters alleging
misappropriation, letters threatening
lawsuits and other legal notices received
or sent by target.
4. Obtain copies of any valuation analysis.
IP GENERAL
# Subject Date
Requested
Date
Received
Doc. in
Data
Room?
Comments
for
follow-up
1. Obtain copies of all litigation and
claims threatened or asserted against
the target involving any alleged
infringement by the target of any
patent, trademark, copyright, trade
secret or other proprietary right of any
other party.
2. Obtain copies of all litigation and
claims threatened or asserted by the
target involving any alleged
infringement by any third party for
violation of any patent, trademark,
copyright, trade secret or other
proprietary right of the target.
3. Obtain copies of all agreements with
directors, officers, employees and
IP GENERAL
# Subject Date
Requested
Date
Received
Doc. in
Data
Room?
Comments
for
follow-up
agents of the target and independent
consultants relative to non-disclosure of
trade secrets, development and
assignment of inventions, non-compete
and similar matters.
4. Obtain copies of all joint venture and
joint development agreements or any
other agreements that contain
intellectual property clauses.
5. List prospective agreements
currently in negotiation that contain
intellectual property clauses.
6. Obtain copies of all sales, distributor,
or other agreements that contain
general or special warranties and/or
indemnifications against any form of
intellectual property infringement.
7. Schedule and describe products
manufactured and/or sold by the target
and the geographical market where
each is made or sold.
REPORTING ISSUES UNDER SARBANES-OXLEY
# Subject Date
Requested
Date
Received
Doc. in
Data
Room?
Comments
for
follow-up
1. Do annual and quarterly SEC filings
accurately and timely report on IP assets,
including a valuation of trade secrets ?
2. Have periodic and compliant audits
been conducted to ensure compliance
with IP- related license agreements?
3. Have appropriate IP-related freedom
to operate searches been conducted?
4. Does the target have internal controls to
account and monitor IP? Are internal
controls in place to monitory
infringement of its rights and the
infringement of third parties rights?
5. Have material events been timely
reported to shareholders ?