Transcript Title

Intellectual PropertyCurrency for the Digital
Economy
When Walter Riston, ex-ceo of Citibank says:
“Information about money is more valuable than
money,” it’s time to think about IP.
Presentation to Harvard Start-Up Club
November 29, 2000
Table of Contents
I
Tonight’s Speakers
p. 3
II
Intellectual Property Primer for
Start-Ups
p. 4
III
Intellectual Property – An Investor’s
Perspective
p. 22
IV
Speakers’ Bios
p. 25
V
Quiz
p. 29
VI
Appendix – useful Internet sites
p. 35
2
Tonight’s speakers
• Peter Kelman - attorney with Posternak, Blankstein &
Lund, LLP.
• Rob Cronin - managing parter of Stonebridge Technology
Associates, investment brokers
• Dag Anderson - founder, director of technology of PetRock
Technology, Inc.
• John Puterbaugh - founder and president of Nellymoser,
Inc.
• YOU
3
Intellectual Property
Primer
for the
Start-Up Company
Presentation to Harvard Start-Up Club
November 29, 2000
[email protected]
375 Totten Pond Road, Suite 102
Waltham, MA 02114
www.kelmanlaw.com
Ph: (617) 973-6277
Fax: (617) 367-2315
Table of Contents:
IP Primer for Start-Ups
Intellectual Property (IP):
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•
•
•
•
•
What is it? – p. 6
How does a company acquire it? – p. 12
How does a company keep it? – p. 13
How does a company profit from it? – p. 14
Corporate Events with IP ripples - p. 17
IP Issues for:
– E-Commerce Businesses – p. 19
– Consulting Companies – p. 20
– Software Companies – p. 21
5
IP:
What is It?
• Traditional legal perspective:
Property rights recognized and protected by the law.
Four basic building blocks:
– Copyright
– Trademark
– Trade Secret
– Patent
• Business perspective:
– Any intangible asset of the company which
provides some competitive advantage, e.g. knowhow, methodologies, proprietary information
6
Copyright Rights
• Copyright protects the “expression” of an idea; i.e. its
superficial representation in a medium
• Copyright protection attaches to all suitable creations
without any initiative of the creator; lasts very long
• Copyright permits author to: reproduce, adapt, display,
perform and distribute work
• Work-for-hire doctrine
• Internet issues:
– Digital Millenium Copyright Act (DMCA), American Home Recording
Act (AHRA)
– Napster, fair use, linking
7
Trademark Rights
• Trademark a/k/a service mark is protection granted by
statute to particular words, phrases or designs
• Trademark law is designed to protect the consumer from
confusion among similar marks
• Trademark protection lasts while mark is used
• Trademarks apply to the use of certain marks in certain
contexts, thus one mark can be trademarked multiple times
for different uses. This creates:
• Trademark disputes in the realm of the internet
– Trademark names vs. domain names
– The whole naming issue for companies
8
Patent Rights
• Protect the underlying processes behind inventions
• Compare to copyright which protects “expressions” not
processes
• Patents are granted by the government’s Patent and
Trademark Office (PTO)
• Inventor discloses how an invention works in exchange for
being granted a monopoly to exploit patent for 20 years
• Patent requirements: reduction to practice, novelty, and
advancement of prior art
• Software patents - hot area after State Street v. Signature
• Expensive, slow process to obtain a patent; may be
expensive to defend
9
Trade Secret Protection
• A trade secret is a company’s proprietary information
which gives it a competitive advantage and which the
company protects
• Trade secrets are determined with respect to its content and
the conduct of the company to protect it
• The scope of trade secrets can be large, e.g. employee
know-how
• No regulatory filing to “register” a trade secret
• If your company has a competitive advantage that is not
protectible under copyright, trademark or patent law, treat
it like a trade secret
10
Other Intangible Assets Corporate Smarts
• A company may have valuable IP even if its intellectual
assets don’t fit within the traditional building blocks
• Most company competitive assets are amalgams of the
building blocks
• This competitive advantage can be protected, shared and
profited from through licensing agreements and
partnership agreements with your business customers
11
IP:
How to Get It
• In most circumstances, IP is not an end in itself, but the byproduct of a company’s value-added activities
• Consult with an attorney after you have developed your
competitive assets
• Exception to this rule where process can dictate results:
– Patent applications
– Trade secret information
– Employment agreements
• Develop strategy to perfect IP rights: consider cost, benefit,
time & effort
12
IP:
How to Keep It
• You can protect your IP legally, via:
– Well-drafted license and partnering agreements
– Well-thought employment agreements
• Equally important, protect your IP via good corporate
hygiene
– Computer security
– Physical security
– Good human resource practices
13
IP:
How to Profit from It
• See IP: How to Keep It
14
License Agreements
• License - where one party that owns IP (licensor) permits
another party to use the IP (licensor) under certain
conditions.
• License parameters:
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–
–
–
–
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Scope of use
Scope of disclosure
Ownership of intellectual property
Terms of payment
Allocation of risk
Limitation of liability
15
Partnership (Development)
Agreement
• In all development agreements a balance must be struck
between trust and sharing
– Can we dance and not step on each other’s toes?
• However, you can protect assets through legal means:
– define who contributes to the venture, how jointly developed assets
will be owned, how property will be divided upon dissolution
– try to avoid “joint ownership” arrangements
• Parameters in a joint venture:
– Who owns what at the start; who owns what at the end
– Is ownership dependent on performance?
16
Events with IP Ramifications
• Corporate start-up
– Choice of name
– Choice of domain name
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Hiring practices
Termination procedures
Employee policy manual
Joint ventures
Over-reaching non-disclosure agreements
Receiving outside investors
Going public
17
Employment Practices
• Employment agreements which address ownership of IP
with: founders, subsequent employees, contractors
• Letters of hire which set forth company’s IP policies
• Termination procedures which reinforce companies IP
policies (e.g. reminders about trade secrets, confidentiality,
etc.)
• Employee confidentiality agreements; assignment
agreements
• Where trade secrets are involved, appropriate measures of
corporate protection
18
IP Issues for:
E-Commerce Business
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Ownership of domain name; relationship with ISP
Ownership and use of customer data
Ownership and relationship with website developers
Linking to other sites; framing
Metatags
Content of website
Patentable business processes?
19
IP Issues for:
Consulting Companies
• Ownership of work-product; alternatives to work-for-hire
doctrine
• Reusability of work-product
• Reusability of know-how and competitive data acquired on
client assignment
• Reproduction of third-party information in presentations
• Restrictive scope of confidentiality agreements
• Restrictive scope of non-competition agreements
20
IP Issues for:
Software Companies
• Maintaining competitive advantage through reasonable
employment policies (confidentiality, non-compete)
• Forming appropriate alliances without giving away
company’s crown jewels
• Patentability of software?
• Checking for infringement of third-party IP
• Open software licenses - GNU Copyleft, Linux
21
Intellectual Property
An Investor’s Perspective
Presentation to Harvard Start-Up Club
November 29, 2000
Rob Cronin
Stonebridge Technology Associates
10 Post Office Square
Boston, MA 02109
www.stonebr.com
IP: Practical Business Issues
• VC’s Views on IP
• Understanding Your IP
• Communicating the Value of Your IP
• The Business Plan
• The Management Presentation
• Licensing
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•
•
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Avoid “Exclusivity Provisions”
Limiting Time and Scope
Remember to Think About Support/Maintenance Issues
Business Model and Minimums
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IP: Practical Business Issues
• Due Diligence (financing, IPO, M&A): Hope is Not a
Method
• Name Selection/Branding
• Policing Your Brand (Infringements and Misuse)
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Speaker Bios
• Peter Kelman is an attorney with the Boston law firm of Posternak,
Blankstein & Lund, LLP. Peter practices corporate law, with an
emphasis on technology companies. Peter is a frequent contributor to
Mass High Tech, Boston Digital News and the Boston Business
Journal, where he writes about legal issues affecting today's digital
economy.
Posternak, Blanksetin & Lund is a mid-size full-service Boston law
firm that has a substantial corporate practice with numerous internet
and high-technology clients. The firm represents its corporate clients
in all phases of corporate life, from start-up to mergers and
acquisitions. In addition, the firm represents several venture capital
groups that invest in technology companies.
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Speaker Bios
• Robert Cronin is a founding member of Stonebridge Associates, LLC
and Managing Partner of Stonebridge Technology Associates. Mr.
Cronin focuses exclusively on raising private capital and providing
merger and acquisition advisory services to early and emerging stage
technology companies. Mr. Cronin joined the firm after receiving an
M.B.A. from the Amos Tuck School of Business Administration at
Dartmouth College where he was named an Edward Tuck Scholar. Mr.
Cronin received a B.A. in economics from Dartmouth College. Mr.
Cronin is a Director of Smart Storage Incorporated.
Stonebridge Technology Associates is a Boston-based investment
banking group that focuses exclusively on addressing the unique
corporate finance needs of early stage and emerging Internet,
hardware, software and other technology product and services
companies.
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Speaker Bios
• Dag Anderson is the Vice President in charge of Consulting Services at
PetRock Technology. Incorporated in 1999, PetRock Technology
provides their customers with technology-driven solutions to their
business problems. Mr.Anderson has 15 years experience in the
consulting industry, and has participated in the design and
development of custom systems for a wide variety of industries:
Manufacturing, Banking, Finance, Telecommunications,Travel, Law
Enforcement, Insurance, etc. The solutions designed and deployed by
Mr. Anderson have been built on a wide variety of technical platforms,
including Thin-client, client-server and three-tiered architectures.
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Speaker Bios
• John Puterbaugh received his Ph.D. from Princeton University, where
he focused on auditory models for timbre classification. Before
founding Nellymoser, Inc., Dr. Puterbaugh was Director of Software
Operations at Voxware, Inc. Most recently, he was responsible for
managing the design, implementation, and deployment of their
VoiceLogistics Platform - a handheld speech recognition device
containing a VoiceXML browser and accompanying server software.
Additionally, he has done research and development for the Music,
Mind, and Machine Group at the Nijmegen Institute for Cognition and
Informatics involving vibrato extraction. Prior to Princeton, he
received an M.A. from Dartmouth based on his work involving neural
networks for sound generation. At Oberlin, in the Technology in Music
and Related Arts program, he applied fractals to the generation of
music and developed interactive music-generation systems.
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Quiz
•
Courtesy of Henry Dinger, Esq.
Hypothetical:
Assistant Professor Alvin Alkemy teaches cellular biology in the biology department at the state university. The focus of
his research has been the biology of cancer cells. He is an expert in the physical and geometrical properties of cancer
cells and studies ways in which cells can be targeted to receive drugs and other chemicals. His techniques may
provide new non-invasive techniques for treating cancer.
One day he meets Debbie DeZein at a social gathering. As they chatted over their wine and crudites, he learns that Debbie
is that rarest of persons, an unemployed computer programmer. She tells her sad tale about working for a software
start-up company that tried to make high end computer aided design/computer aided engineering software
(CAD/CAE). Her specialty was coding programs that modeled complex structures in three dimensions and
translating data about the structure into visual images. The company had just closed its doors because although the
technology that Debbie and her colleagues had developed was superior to anything on the market, they simply could
not make inroads against CyberCAD, the 800 pound gorilla of the CAD/CAE world. As Debbie saw it, CyberCAD
crossed the line between hardball and spitball. As soon as version 1.0 of their product came out, she was convinced
that CyberCAD immediately disassembled, decompiled and analyzed it, discovered their innovations and announced
that their new version of their flagship program, also called CyberCAD, would include all of their innovations as new
features. Debbie told Alvin that "two can play" at that game. She told him she had disassembled, decompiled and
analyzed CyberCAD until, in her view, she knew that program better than its designers. During her last several
months, she had figured out ways to tweak CyberCAD so that it would take CAD/CAE to a whole new level. When
he became apparent that her company would not survive, she downloaded her work files onto her personal computer.
She did not tell her colleagues how far she had progressed or how significant her work had been.
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Quiz
Alvin had told her what he did for a living. That prompted Debbie to mention that her brother, a pre-med student, had
shown her his cellular biology text, with its illustrations of various cells. It occurred to her that her super-CyberCAD
would make it easy to develop complex, interactive 3D visual models of cells. Alvin commented that such a tool
could prove invaluable to researchers like himself who were devising ways to deliver medications to cells and would
benefit enormously from improved visualization tools. He suggested that she try to market her program. She said
that it was impossible to compete with CyberCAD and that she lacked the business skills, the capital and the stomach
to make the attempt.
Just then, Eddie Eebiz walked up. Eddie, an acquaintance of Debbie's, was the MIS director at a downtown law firm.
Eddie complained that he had just completed the worst six months of his life, overseeing his lawfirm's development of
an ambitious website at which they could market their services to prospective clients, and interact with existing
clients. It was, in Eddie's humble opinion, a fabulous success, and what thanks did he get? A $5000 bonus and a
warm handshake. He said that if he had the opportunity to join one of these "dot.coms" in its pre-IPO phase, he'd be
gone in a second.
The chemistry was just right. Alvin, Debbie and Eddie retired to Eddie's nearby apartment where they talked until 3 a.m.
What emerged was the outline of a business plan. They would form a business with a couple of components. First,
they would be an application service provider to pharmaceutical companies involved in cell research. Alvin would
help Debbie tweak super-CyberCAD so that it would provide a user-friendly tool for modeling cancer and other cells.
Researchers could then pay a fee to upload their data to the new company's website and tell the site how the data
should be used in developing the visual model. Debbie's improved program would go to work and display vivid,
movable and detailed images to the researchers. The company would do all the processing itself. No one would be
able to see the inner workings of super-CyberCAD, including CyberCAD itself.
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Quiz
Second, they imagined actually getting involved in some research. Alvin was, after all, involved in research himself. They
imagined that a small group of sophisticated customers -- principally pharmaceutical companies -- might be interested
in purchasing not only the CAD/CAE modeling services, but also the assistance of Alvin and other scientists the
company might use in designing novel therapies. Alvin imagined that some of his graduate students might find useful
dissertation topics in the process. In the right circumstances, the compensation arrangement might not be a fixed or
metered charge, but co-ownership of some of the intellectual property that resulted.
They came up with what they considered a catchy name for the venture: CellIcon.
"But where are we going to get the money," they asked themselves. They had read that venture capital was getting harder
to get after the NASDAQ fall in early 2000. Then Debbie blurted out "Uncle Fred." She explained that her Uncle
Fred Feinance had just sold his small wholesale business, netting for himself about $1.2 million. Uncle Fred had no
children, and was particularly fond of his niece. Uncle Fred was an experienced businessman, but knew virtually
nothing about high tech. Indeed, he sold his company because he saw that his competitors were making effective use
of the internet and Fred figured he'd let someone else take his business into the next century. If they could get Fred to
provide seed capital or a loan or something now, they'd be able to get CellIcon off the ground.
Problems:
1. Formation. Alvin, Debbie, and Eddie come to the law office of Newt Economy. Alvin had worked with Newt before
since Newt did some intellectual property work with Alvin for the university. Alvin had also used Newt for some
personal legal work and held him in high regard. The three of them tell Newt that they want to form a company with
a structure that divides everything evenly and that they want him to prepare suitable documents for Uncle Fred to sign
in order for them to get his money. Can Newt take on the matter? If so, how? What advice does he give?
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Quiz
•
•
•
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•
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2. Domain Name. Eddie is net-savvy enough to realize that CellIcon will need to register the www.cellicon.com
domain name. He does so in his own name since CellIcon is not yet formed. A month later he gets a nasty letter from
lawyers who purport to represent Sellicon Valley, Inc., a marketing company in Palo Alto. Sellicon Valley says that it
has registered trademarks in "Sellicon" and "Sellicon Valley" and that cellicon.com is confusingly similar. Unless
Eddie assigns the domain name, they plan to take "appropriate legal action" to prevent CellIcon's infringement of their
trademarks. What is the new company to do?
3. Customer Agreements. The founders ask Newt to draft the agreement that CellIcon's customers will have to "sign"
before they can use the company's services. They describe the two-tier model that they have in mind, though they
recognize that a form contract may not be suitable for the "research partnership" tier. Newt is aware that a couple of
states, though not the state in which CellIcon operates, have enacted UCITA. Among the things that Newt discusses
with the founders is the probable need for assurances to customers that their data, which will be stored on CellIcon's
servers, will be maintained in the strictest confidence. After the meeting, Alvin calls Newt. He says that he did not
want to raise the matter at the meeting, but he wanted Newt's assurance that he would not be doing anything wrong if
he himself looked over the work performed for the customer. Alvin said that he thought that that was an important
part of quality assurance, and that he would never disclose CellIcon's customer files to anyone. He added that he
particularly welcomed the chance to exercise this task because it was personally educational for him to see what other
researchers in the field were doing.
4. Trade Secrets and Copyright. Debbie asks for a meeting with Newt. She tells him that she has been served with a
subpoena on behalf of CyberCAD requiring her to produce all documents, electronic or paper, that she took with her
from her old company and submit for examination. She called her old boss, the head of development, who said that
everybody had gotten them. He told her that CyberCAD had purchased all of her old company's assets in connection
with the latter's bankruptcy. He said that he had heard that CyberCAD examincd the old company's backup tapes and
discovered evidence that CyberCAD had been decompiled in violation of the CyberCAD standard license agreement
and that they were determined to learn what the results of that decompilation had been.
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Quiz
•
•
•
5. Patents. Alvin calls Newt and tells him that he has been working with one of CellIcon's "partnership"
pharmaceutical company customers on a project that involves an extremely promising therapy for skin cancer. A key
breakthrough came when Alvin asked one of the graduate students whom he supervised to run some tests in the
university lab. The student, whom Alvin characterized as one of the best students he has ever had, made a few
suggestions that led to the breakthrough. "I'm not even sure that the student really knows just how significant her
suggestion was," Alvin quips. Alvin says that he and the company scientists with whom he has collaborated plan to
file a patent application. The company's patent lawyer will do most of the work, but Alvin wants Newt to look over
that lawyer's shoulder and to negotiate with the pharmaceutical company to protect CellIcon's interests. Newt reminds
Alvin about the university's recently adopted inventions policy that requires all university personnel to disclose any
potentially patentable results obtained using the university's facilities to the university's IP office. (Newt should
know; he helped the university, his client, to devise the policy.) Alvin's tells him not to worry. Most of the "important
work" was done by CellIcon and the pharmaceutical company. "Besides, no one pays any attention to that silly policy.
I don't even remember if I signed it. University researchers have been commercially exploiting their discoveries for
years. How else do you think that the university can get away with paying their faculty so much less than what they'd
make in private industry?"
6. DMCA. Debbie and Eddie call Newt and tell him that CyberCAD just released the newest version of their
program. They had Alvin pick up a copy at the university bookstore (to take advantage of the academic discount), but
found that when they started to install it, they ran into a couple of snags. First, the installation program required them
to assent to certain "conditions of copyright license" Among the conditions were requirements that the user not
attempt to disassemble, decompile or reverse engineer the program, that the user not use the program to prepare any
derivative programs, and that the user not use the program in any "time-sharing" system or sell access to the program
to multiple users. If the user was unwilling to assent to these conditions, the user was directed to return the package
to CyberCAD for a full refund. Debbie and Eddie clicked "I accept," though they had no intention of observing any
33
Quiz
•
of those conditions, figuiring that CyberCAD would never find out. However, the next step in the installation
required them to register the program online with CyberCAD. The installation program automatically dialed an "800"
number at CyberCAD and the opening screen said, "Welcome [email protected]. [That was the e-mail
address used by the program used by CellIcon to access the internet.] Please take a few moments to fill out the
following information so that CyberCAD may better serve you. Certain questions concerning the uses to which you
intend to put CyberCAD are mandatory and, if you do not answer them, the installation will abort." Debbie and Eddie
immediately broke the link with the CyberCAD computer. However, between them Debbie and Eddie were able to
analyze the CyberCAD object code and eventually got around the installation program restrictions to install the
CyberCAD on their computer. What does Newt tell them?
•
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Appendix – Useful URL’s
• www.uspto.gov - U.S. government patent
and trademark office web site
• www.cyber.law.harvard.edu - Harvard
University Law School’s Berkman Center
for Internet and Society – excellent
presentation of cutting edge cyber law
issues
• www.findlaw.com - legal resources
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