intellectual property issues for consideration when having a new idea
DESCRIPTION
Demetris C. Hadjisofocli. This presentation is a short heads up on what is important to be aware off when someone has a new idea that it is considered for patent registration in order to protect its intellectual property rights. It also outlines the various valuation methods available.TRANSCRIPT
Intellectual Property Issues for Consideration PLUS Valuation Methods
Demetris C. HadjisofocliExecutive Director, Entrepreneurship Frontier Network, Ltd.Managing Director, Innovade, Ltd.
IP Precautions
Perform patent search before beginning research
Keep careful lab notebooks and write down every possible notation and action from the very beginning
Avoid known/legal issues that will prohibit the registration of a patent
Protect against patent invalidity
IP Valuation Methods
Basic Valuation Methods Cost method
Market method
Income method
Selected IP Valuation Methods 25% rule
Industry standard royalty rates
Real-Options method
Competitive Advantage Valuation
Perform Patent Search Before Beginning Research
Perform Patent Search Before Doing Research
Patent owner’s rights
Exclusive right to make, use, sell and import
Unauthorized use of patent subject matter in research=patent infringement
No general experimental use exemption to patent infringement as in most other countries
Limited experimental use exemption for drugs and medical devices subject to FDA approval
Perform Patent Search Before Doing Research
Beyond avoiding infringement, patent searches can also be helpful
To learn from work of others
To improve on successful approaches
To avoid unsuccessful approaches
To engineer around potential problems
Keep Careful Lab Notebooks
Keep Careful Lab Notebooks
Lab notebooks necessary to determine
Who has priority to an invention
Who is named as an inventor
Keep Careful Lab Notebooks
Who has priority to an invention US patent law; priority goes to first to invent All other countries; priority goes to first to file
Who is the first to invent First person to conceive of an invention and then
diligently proceed to reduce the invention to practice
First person who conceives of an invention (A) will prevail over the first person to reduce the invention to practice (B) if the first person who conceives of the invention (A) is diligent from a date prior to the other person’s (B’s) conception of the invention until his/her (A’s) reduction to practice
Keep Careful Lab Notebooks
Priority Example
A conceives of invention on 1/1/2000
A reduces invention to practice on 1/1/2004
B conceives of invention on 1/1/2001
B reduces invention to practice on 1/1/2003
A will prevail over B, if A is diligent in reducing the invention to practice from a date prior to 1/1/2001 until 1/1/2004
Keep Careful Lab Notebooks
Definitions Conception
Formation of a definite idea for the complete and operative invention
Reduction to practice Actual reduction to practice
Building a working prototype of the invention Constructive reduction to practice
Filing a patent application sufficient to enable one skilled in the art to make and use invention
Diligence Reasonable and continues effort directed toward
actual and/or constructive reduction to practice Fact sensitive determination in each case
Keep Careful Lab Notebooks
Lab notebook are critical to establish Date of conception Date of reduction to practice Diligence during required period of time
Lab notebooks should document all information relevant to the invention (ideas, experiments, instruments, procedures, formulas, calculations, etc.)
Every page should be signed and dated by the inventor
Every page should be witnessed and dated by two non-inventors who understand the work
All entries should be in ink; errors should be crossed out with a single line to remain readable
Electronic lab notebooks (date/time stamp) can be used
Keep Careful Lab Notebooks
Who is an inventor An “inventor” is the person who conceives
of an idea that is included in the patent claims A sole inventor must conceive of all the ideas
included in the patent claims A joint inventor must conceive of at least one
idea included in at least one patent claim A person who reduces an invention to
practice is not an inventor unless during the reduction to practice he/she conceives of an idea that is included in the patent claims
Failure to properly name inventors in a patent application can render the patent invalid
Keep Careful Lab Notebooks
Lab notebooks are critical to determine who is an inventor and who should be named as an inventor in the patent application
Named inventors can be changed after patent application is filed; unless there was a knowing and wrongful omission or inclusion of inventors in the first instance
Avoid known/legal issues that will prohibit the registration of a patent
Avoid Statutory Bar To Patent Issuance
Patent cannot be obtained in the U.S. if Inventory known or used in U.S., or patented
or described in printed publication in U.S. or foreign country, prior to the date of invention claimed by applicant
Invention patented or described in printed publication in U.S. or foreign country, or in public use or on sale in U.S., more than one year prior to patent application date
There is no statutory grace period in foreign countries Strict novelty; any publication, public use or sale
prior to patent application date will bar foreign patent issuance
Avoid Statutory Bar To Patent Issuance
Acts of patent application or third party can bar patent issuance
Acts that can bar patent issuance Public use
Can be very negligible and still bar patent issuance Limited exception for “experimental use”
Experimentation must be technical, not marketing Experimentation must be evidenced by written records
On sale Offer of sale to single person can bar patent issuance Offer of sale can occur prior to reduction to practice License of technology is not an offer of sale
Avoid Statutory Bar To Patent Issuance
Acts that can bar patent issuance (cont.) Printed publication
Any document available to public regardless of location or form is a “printed publication” Doctoral theses are available to public at time they
are properly catalogued in library A document is not available ion public
At time of thesis review and defense At time of submission for peer-review publication If recipient is under duty of confidentiality
Public presentation Papers, slides, posters = printed publication Unless audience is under a duty of confidentiality
Avoid Statutory Bar To Patent Issuance
To constitute a statutory bar, the printed publication must enable one skilled in the art to practice the invention
Reporting what an invention can do, but not how the invention does what it does, is generally not an enabling disclosure
Protect Against Patent Invalidity
Protect Against Patent Invalidity
A patent can be invalidated for inequitable conduct during the patent application process
Two elements of inequitable conduct Patent applicant must misrepresent or fail to
disclose material information to PTO The misrepresentation or failure to disclose must
be intentional Most common misrepresentations
Critical dates; Inventors Most common failures to disclose
Prior art; offer of sale; printed publication Patent Act requires patent application to sign
an oath that applicant believes he/she is the first inventor of the claimed invention
Protect Against Patent Invalidity
The Patent Act requires the patent application to contain a written description of the invention “in such full, clear, concise and exact terms” as to enable any person skilled in the art to make and use the invention
Every element of invention claims must be enabled in the patent application specification
Failure to provide an enabling disclosure will renter claim(s) invalid
Basic Valuation Methods
Basic Valuation Methods
Cost Method
Value of an asset is the cost to replace the asset with an identical or equivalent asset
Can count for physical depreciation and functional obsolescence
BUT…. Cost does not equal value
Nuclear powered aircraft
Small percentage of patents have any value
Basic Valuation Methods
Market method (real estate appraisals)
Value of an asset is price paid for comparable assets
Conditions necessary for market method
Public exchange market
Sufficient number of recent exchanges
Standardized exchange terms
Price of exchanges available to public
None of these conditions exist for IP assets
Basic Valuation Methods
Income Method Value of an asset is the net present value
(NPV) of the future income expected to be received from the asset Discounted cash flow (DCF) Dollar today worth less than dollar tomorrow
Income method useful for IP assets associated with a revenue stream (Licensed patents)
Income method is not useful for IP assets prior to licensing or commercial use
IP Valuation Methods
IP Valuation Methods
25% Rule Licensor should receive 25% of licensee’s
gross profit from the licensed technology 25% rule is not a valuation method, but a
rule-of-thumb for splitting IP value between a licensor and licensee
25% rule does not account for quality of technology, its state of development, additional investment and future risk
25% rule is not useful where the licensed technology is a component part of a product or process
IP Valuation Methods
Industry Standard Royalty Rates The value of an IP asset is determined by the
royalty rates paid for similar assets in past transactions
Some companies provide royalty rate information for different industries for a fee
Two main problems Industry definitions are generally very broad
Health care; computing Industry royalty rate ranges are generally very large
1% to 25% Also problems similar to 25% Rule
Standard royalty rates do not account for quality of technology, state of development, additional investment, future risk
IP Valuation Methods
Real Options Method Value of IP asset is the value of future
options regarding further development of the IP asset Options are a series of “go” or “no go” decisions Each stage of development provides additional
information about technology The decision to proceed with development does
not depend upon the risk adjusted final NPV The decision to proceed with the next stage of
development depends upon whether the risk adjusted incremental gain in NPV, if the next stage of development is successful, is sufficient to justify the cost of undertaking the next stage of development
IP Valuation Methods
Competitive Advantage Valuation (CAV) The value of an IP asset is determined from the IP asset’s
competitive advantage with respect to an average substitute IP asset
Seven basic steps Calculate NPV of total profits in technology’s intended market over time Disaggregate NPV into portion of profits attributable to technical
intellectual property assets Define price/performance parameters that determine success in the
intended market Calculate competitive advantage by comparing IP asset to an average
substitute IP asset on price/performance parameters Extrapolate from IP asset’s competitive advantage to predicted market
share in intended market Calculate value of IP asset from value of technical intellectual property
profits in intended market and predicted market share in intended market
Adjust IP asset value for technical, market and intellectual property risks
IP Valuation Methods
CAV (cont.) Benefits
Links principal value drivers in intuitive way Easy to use and understand Can be used in multiple valuation contexts Scalable for simple and complex valuations Neutral as between licensors and licensees
Limitations Default formulas and values are generalized for all
industries Technical, market and intellectual property risk
adjustments can greatly alter valuation results
ThanksQUESTIONS