“Currently, the difference between the book value and the market value of companies is so large that some are completely attached to intellectual property.”
On the second day of the IPWatchdog LIVE conference in Dallas, Texas earlier this month, a panel of experts who advise startups and are passionate about the licensing business model discussed the challenges and opportunities presented by intellectual property.
The panelists opened the discussion by sharing their experiences of the biggest mistakes startups make when it comes to patenting.
Ian McClure, associate VPA for Research, Innovation and Economic Impact at the University of Kentucky and chair of AUTM, identified two mistakes made by the roughly 1,200 startups that come out of university research in the United States each year.
From FTO failures to ‘all wrong records’
First, the freedom to conduct searches is so expensive that it will not be conducted until it passes. Instead, there is only a patent search. Can the original discovery be patented? Typically, yes. However, almost all of these early-stage companies must go through an extensive “de-risking process” with many, many, many “pillars” and many improvements — which means many more patent applications must be filed, McClure explained. . Another mistake early-stage deep tech startups are making is failing to include anyone with intellectual property strategy expertise on their board.
Stephen Kee, an inventor and author who advises startups as the founder of InventionRight, explained that founders are putting themselves in trouble with the US Patent and Trademark Office (USPTO) by publicly disclosing their invention after a one-year grace period. . Then, during the patent examination, their own actions are used against them as prior art. The second big mistake startups make is not looking hard enough at the art they’ve been working on, leaving them in the dark in terms of their roadmap. Third, they don’t align their patent claims with their business strategy, which makes your patent essentially worthless.
Efrat Kasznik — president of the Foresight Valuation Group and a Stanford graduate school lecturer for more than 10 years — agreed with Key and McClure that startups need to learn how to better leverage intellectual property. Beginners are wrong in two extreme ways, she said. Either founders are procrastinating and don’t file in time, which means they don’t have enough IP to support their business, or they have too many patents. For example, she describes a company with 300 patents “before anything else” (the advice they received from their patent counsel was to register in all countries).
“We had clients come to us who had 75 patents, 72 design patents and only two or three utility patents,” she says. “You see this a lot. Startups think patents are good. They take the advice of outside consultants and spend a lot of money on the wrong filings,” he said.
She wholeheartedly agrees with McClure: Startups should have someone running their files who really fits their needs, not the needs of an outside law firm.
Licensing and customer discovery
The panel then began to discuss how the licensing business model facilitates the commercialization of intellectual property, which they agreed is often overlooked by startups.
Key identified strategies for adding value to patents, such as the importance of knowing your point of difference from a market perspective and incorporating manufacturing know-how. Adding exceptions and remedies broadens the scope of claims, creating uncertainty about what exactly they cover, which is beneficial from a negotiation perspective.
McClure notes that the general trend among university startups is that they are increasingly becoming “tech companies” — meaning they are “totally dependent” on intellectual property to get started and eventually acquire or license.
He suggests that one way university startups can make patents more valuable is by doing early customer discovery before even filing provisional patent applications. Customer discovery is the process of determining whether customers are interested in the technology and how far it needs to be developed to find it attractive to them.
“The customer acquisition process, in many cases, will completely change where we go with the de-risking process or the technology,” McClure said.
But of course there are barriers to early customer discovery, because university researchers don’t like being told what to do. McClure describes the evolution that is taking place. More and more, scholars want to do “inspired research.”
Working out of patent
Kasznik points out that more unicorns are dependent on patented assets today than when she originally researched this question. Do software vendors need patents? That’s a question many companies I work with ask. Fact: You can raise a lot of money in the software industry with little or no ownership.
Intellectual property is part of that, as startups need to license their technology, Key said. Other assets – including having the right team and creating market demand – are important. He tells the story of how he negotiated a licensing agreement with the largest private packaging company in North America, Fishbone, a sustainable replacement for plastic rings, before any patents were issued.
“I can’t stress enough how important market demand is to getting people to move mountains and invest,” Key said. “At the end of the day, [licensing] It’s really about good business, which requires avoiding risk.
The panelists acknowledged the significant difference between using intellectual property to facilitate a licensing agreement to enter the market after the invention has been accepted at an industry-wide level. A panel titled “The Future of Monetization” on the first day of the conference explored the latter phenomenon.
IP price difference
McClure then published the findings of his research Berkeley Business Law Journal Whether tech-based companies are valuing their non-core intellectual assets when they merge or acquire them. In short, they weren’t – that’s a violation. Revlon duty. Because startups operate iteratively, they typically have at least some non-core intellectual property assets that can be monetized but not.
This prompted Kasznik to explain that intangible assets are not counted on a company’s balance sheet from an accounting perspective, something most people don’t know. When an M&A deal is done, this is the first time that the value of a company’s intangible assets has been disclosed. Currently, the difference between the book value of companies and the market value is so large that some are completely tied to intellectual property.
The panel concluded by suggesting strategies for de-risking new technologies, including pre-selling the benefit of an idea and providing angel investors with capital for university startups’ product development plans. Instead of trying to extract value using patents, universities are beginning to take a more active financial interest in the startups that emerge from their research. That’s where the real value is, McClure says—not the early-stage patents that weren’t licensed to begin with.
In the year The CHIPS and SCIENCE Act, signed into law on August 9, emphasizes the need for intellectual property professionals to contribute to technology transfer offices’ understanding of the complexities surrounding IP.
