Lunch and Learn:Common Pitfalls and Key

Considerations in Getting (and

Keeping) Intellectual Property in

Your Startup

Kevin Lam

September 8, 2017

Overview

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• Navigating Founder IP Creation in Light of University IP Policies

• Licensing IP from a University

• Assignment of IP into Your Startup by Founders

• Good IP Hygiene

• When to File for Patents and Trademarks

• Common Founder Issues

University IP Policies and Acknowledgements

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Patents: University of California Patent Policy and Acknowledgement

• Who is Covered? “An agreement to assign inventions and patents to the University,

except those resulting from permissible consulting activities without use of University

facilities, shall be mandatory for all employees, for persons not employed by the

University but who use University research facilities, and for those who receive

gift, grant, or contract funds through the University.”

• What is Assigned? “I acknowledge my obligation to assign, and do hereby assign,

inventions and patents that I conceive or develop

1) within the course and scope of my University employment while employed by

University, 2) during the course of my utilization of any University research

facilities, or 3) through any connection with my use of gift, grant, or contract

research funds received through the University.”

University IP Policies and Acknowledgements

3

Copyrights: University of California Copyright Policy

• Some nuance, but at a high level:Types of Work Ownership

Work Subject to Contract (e.g., Sponsored Work, Commissioned Work, Contracted Facilities Work, etc.)

See Contract

Personal Works (prepared outside the course and scope of University employment and without the use of University Resources)

Author

Student Works (work produced without the use of University funds (other than Student Financial Aid) and outside any University employment)

Author

Institutional Works (works made by University employees in the course and scope of their employment OR with the use of University resources)

University

University IP Policies and Acknowledgements

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Take Home Messages:

• Know what your IP assignment obligations are to the University.

• If there is any uncertainty, consider working with the University to clarify rights up front.

• Don’t forget to consider whether any Conflict of Interest Policies might apply to your startup activities. If they do, make sure to comply with them.

What to Expect: Licensing IP from a University

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• LOI/Option: Technology Transfer Office will typically permit you to secure an option or LOI for the license

- Usually requires Option or LOI fee and reimbursement of patent costs, but you get key benefit of locking in IP for option or exclusive period

• License Agreement and Grant: Exclusive, sublicenseable license to patents (and potentially know-how) arising from invention disclosure (potentially in a field of use)

• Diligence Milestones: Failure to meet could result in termination, though scope of termination may be negotiable

• Certain Provisions are Sacrosanct: Universities typically do not have much flexibility in negotiating provisions like warranty disclaimers, indemnities, limitations of liability, etc.

- Focus on getting appropriate license/sublicensing rights, termination provisions and economics

What to Expect: Licensing IP from a University

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• Economics:

- Equity Grant

- License Issue Fee

- Milestone Payments (Success Fees)

- Annual Maintenance Fees and/or Minimum Annual Royalties

- Running Royalties

- Sublicense Revenue Share

- Reimbursement of Patent Costs

- Change of Control Fee / Milestone Payment

Top 5 Things to Consider in University Licensing

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1. Does the license include all the IP you need? (E.g., all relevant patent rights, know-how, biological materials, etc.)

2. Do you need rights to improvements?

- Note that Universities are typically resistant to “pipelining” of IP

3. What sublicensing rights are meaningful given your business?

- Also consider the effect of termination of the License Agreement on sublicenses granted prior to termination

4. Negotiate economics that make sense given the nature of your business.

- Remember that the University wants your company to succeed too

5. Pay close attention to performance milestones and consequences of not meeting them.

Assignment of IP into Your Startup by Founders

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Best Practices:

• Form your Company early on, so that the IP has a home.

• Have all founders sign “Technology Assignment Agreements” and “Proprietary Information and Invention Assignment Agreements” (PIIAs) as soon as possible.

• Consider whether any foundational IP needs to be in-licensed by the Company.

Good IP Hygiene

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Necessary Practices:

• All employees sign PIIAs upon employment.

• All consultants sign Consulting Agreements (largely containing similar provisions as those in PIIAs) upon engagement.

- Express, present assignment of IP to the Company

- Background License

- Confidentiality

• All disclosures to others are made under NDA (that protects the Company).

• Have all contracts that touch the Company’s IP reviewed by sophisticated legal counsel.

• Know what code is being included in the Company’s software (including Open Source Software).

When to File for Patents and Trademarks

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Patents

• As soon as possible! (Remember: First to File system)

• Ideally, prior to any public disclosure.

• Consider provisional application if cost is an issue.

Trademarks

• Could potentially wait until funding is available.- “Common law” trademark rights can accrue through usage.

• More important inquiry is whether trademark or brand can be used.- TM searches can be performed relatively cheaply.

• But still important to pick a good trademark early on.

Common Founder Issues

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• Concurrent employment by founders (including University personnel) –now or when IP was first developed.

- Need to evaluate and address issue early on.

• Lost founders- Need to clarify assignment or waiver of rights early on.

• Founders with multiple entities- Need to assign all relevant IP into the correct entity and/or clarify IP

rights between/among entities.

• Possible entanglements with prior employers – e.g.:- Non-competes (generally not enforceable in CA but there are

exceptions)- Non-solicits (easy grounds for a lawsuit…)- Trade secret risk

Social MediaWebsite LinkedIn@goodwinlaw

Contact Us

Social MediaWebsite LinkedIn@goodwinlaw

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goodwinlaw.com

klam@goodwinlaw.com

+1 650 752 3210

135 Commonwealth DriveMenlo Park, CA 94025

Partner

Kevin Lam

AppendixSurvey of University License Agreements

Overview of Survey

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Type Percentage Count

Biology 62.86% 66

Other Technology 16.19% 17

Chemistry 7.62% 8

Medical Device 5.71% 6

Materials 3.81% 4

Software 3.81% 4

Number of Unique Universities: 46

Number of License Agreements: 105

IMPORTANT: This Survey is presented for information purposes only, and does not purport to be a scientific or conclusive survey of University License Agreements as a whole, or a normative statement regarding provisions that sometimes appear in University License Agreements.

IP Type

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Type Percentage Count

Patents & Know-How 48.57% 51

Patents 44.76% 47

Know-How 3.81% 4

Copyrights 0.95% 1

Patents & Copyright 0.95% 1

Patents, Know-How & Trade Secrets 0.95% 1

Equity Percentages from Survey

16

Yes53%

No47%

Equity Equity % (Maximum) Percentage

≥ 25.00% 2.86%

10.00% - 24.99% 0.95%

5.00% - 9.99% 7.62%

2.50% - 4.99% 16.19%

1.00% - 2.49% 4.76%

< 1.00% 50.48%

Royalty Percentages from Survey

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Net Sales Royalty % (Maximum) Percentage

≥ 8.00% 3.81%7.00% - 7.99% 1.90%6.00% - 6.99% 1.90%5.00% - 5.99% 20.00%4.00% - 4.99% 8.57%3.00% - 3.00% 16.19%2.00% - 2.99% 18.10%1.00% - 1.99% 16.19%< 1.00% 13.33%

Net Sales Royalty % (Minimum) Percentage

> 5.00% 0.95%5.00% 4.75%4.00% - 4.99% 11.42%3.00% - 3.99% 15.28%2.00% - 2.99% 21.90%1.00% - 1.99% 23.80%0.50% - 0.99% 9.52%< 0.50% 12.38%

Annual License Maintenance Fees from Survey

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Annual License Maintenance Fee (Maximum) Percentage> $200,000 0.95%$100,000 - $200,000 18.10%$50,000 - $99,999 12.38%$25,000 - $49,999 9.52%$10,000 - $24,999 14.29%$5,000 - $9,999 5.71%$1,000 - $4,000 3.81%< $1,000 35.24%