How to Design a Deep Tech IP Strategy Part 2

See How to Design a Deep Tech IP Strategy Part 1 here

What would be the cost to you, in light of the sacrifices you’ve made, if your deep tech company is hit with a patent infringement lawsuit – like a bat out of hell – just before closing your Series A or B?

Devastating.

What about the cost to you if an employee – who had been with your company for only six months – made a critical R&D breakthrough, is named as an inventor on a critical patent application, and then their former employer starts claiming that the employee is still under IP assignment obligations to them?

Or what if an employee, unaware of how to handle trade secrets, accidentally exposes a core trade secret?

Devastating. Devastating. Devastating.

If your company does not have a strong IP strategy in place, your risk of these dark scenarios (and more!) occurring – and leading to significant setbacks – is, unfortunately, high.

But by becoming enthusiastic about your company’s IP strategy plan, you can minimise these risks!

In this second part of “How to Design a Deep Tech IP Strategy”, you will learn the basics of the not-too-difficult steps you can take to minimise your company’s various IP risks:

• Step 1: Perform a Freedom-to-Operate (FTO) Search
• Step 2: Devise Solutions to Potential FTO Issues
• Step 3: Protect Sensitive Information
• Step 4: Minimise Employee IP Risks
• Step 5: Minimise Third Party IP Risks
• Step 6: Minimise Inventor Risks and Ensure Clear Chain of Title with Any Patents or Patent Applications
• Step 7: Minimise Procurement IP Risks

Doing this work upfront will pay dividends in terms of generating more interest from investors and strategic partners. Doing this moves the needle (even just a little) toward making your own sacrifices worth it.

Step 1: Perform a Freedom-to-Operate (FTO) Search

It can be difficult to wrap your head around this notion but having a patent on your technology does not give you the right to actually make or sell your innovation in a particular market.

A patent is a negative right only, which means it gives you the right to exclude others from making, using, importing, or selling your patented innovation – as defined by the claims – in the particular country or countries in which you hold granted patents.

If your patented innovation includes the claim elements: A, B, C, D, E, but there is an earlier – and still in force – US patent that just has claim elements A, B, C, then if you sell your innovation in the US, you will infringe this US patent!

This US patent is known as a “blocking patent”.

If your innovation is an improvement upon an existing innovation – such as an improvement upon an existing computer vision technology – then it is highly likely that you will have to contend with potential blocking patents in the countries in which you want to do business.

Knowing about these blocking patents upfront – and doing something about them – might save you a lot of heartache down the line.

Just because there are blocking patents doesn’t mean you have to shut down your company and do something else. You have options.

But you can only think about the best way forward while mitigating your risk if you know about the blocking patents in the first place.

FTO searches are key to uncovering potential blocking patents, including pending patent applications, with claims that, if granted, could become a problematic patent. FTO searches should also reveal any potentially problematic expired patents that could still be “resurrected” (in the US, a patent that expires for failure to pay renewal fees can be easily resurrected within two years of the expiry date. I have done this with one of my own patents).

To perform a FTO search, consult or work closely with a patent attorney to ensure a reasonable freedom-to-operate search is conducted and any potential blocking patents are uncovered. Since a blocking patent can only be enforced in the country in which it is granted, your search can be restricted to the countries where it is most likely your products will be made and sold – now and in the future.

FTO searches can range from less expensive with a narrow focus (e.g., only searching the US patents of close competitors), to very expensive with a wide-ranging focus (e.g., searching the patent databases of 50+ countries).

So, what’s best for your company?

Well, it depends on how much risk you – and your investors and strategic partners – are willing to tolerate. Even a $25,000+ FTO search – which will be rather comprehensive – cannot guarantee that every potential blocking patent will be found. For example, such a search will not reveal potentially problematic patent applications that have not yet been published (patent applications are generally published 18 months after the filing date). Therefore, it is good practice to conduct regular, or at least semi-regular, FTO searches.

If you are willing to tolerate a higher level of risk and you have limited available funds, you could restrict the search to:

• Only those competitors identified as more likely to sue for infringement, or only close competitors.
• Only the one or two most commercially important countries.
• Only the essential features or processes of your innovation.

However, if thoroughness is incredibly important, your search should cover every commercially relevant country and every physical element or process that is directly or indirectly relevant to the innovation. This is because a potential blocking patent could arise based on a single feature of the innovation.

To illustrate this, say your company's main innovation is a unique robotic arm that includes a USB connection that functions as a power supply. A FTO search is performed that reveals a blocking patent on this single feature of a USB connection that functions as a power supply. Even though just a single feature of the innovation runs into a blocking patent, it is enough to potentially prevent commercialisation of the entire innovation.

A potential blocking patent could also come from an indirect process or feature. To illustrate this, say your company's main innovation is a drug for diabetes, but the only viable delivery process approved for that drug into the human body is covered by a blocking patent owned by another company. This delivery process is certainly indirect to the main innovation – a diabetes drug – but nonetheless could very well prevent the commercialisation of the drug.

Of course, for innovations that have dozens, hundreds, or even thousands of features, a comprehensive FTO search will require a significant investment, but this investment may pay dividends in avoided patent infringement lawsuits.

So, what happens if the FTO search reveals several potentially problematic patents? How do you get around the risk of stepping on someone else’s toes without shutting down your company? That is the subject of the next step.

Step 2: Devise Solutions to Potential FTO Issues

Naturally, it is disheartening if the FTO search throws up one or more potential blocking patents. However, finding one or more blocking patents is not necessarily fatal. Several strategies can be employed to work around problematic patents to mitigate the risk of patent litigation and maximise the chance of your company successfully moving forward, even if an owner of a potential blocking patent threatens litigation.

So, let’s have a look at your “menu” of options:

• Ideally working with a patent attorney, categorise each potential blocking patent as either “high risk”, “medium risk”, or “low risk” and focus efforts on the higher risk problematic patents. High risk patents or patent applications would include those owned by close – and litigious – competitors, or those that clearly cover core features or processes of your innovation. High risk patents would also include those patents with claims that make it easy and inexpensive for the patent owner to prove infringement. Alternatively, potential blocking patents with claims drafted such that it will be difficult or expensive for the blocking patent owner to prove infringement can be classed as “low risk”.
• Determine if a viable business can still be built by not making or selling the innovation in the specific countries covered by the potential blocking patents.
• Work out if the innovation can be cost-effectively “tweaked” to “work around” the potential blocking patents to avoid infringement. Each promising change should have its own FTO search conducted before further resources are allocated.
• Work with your patent attorney to search for prior art that will show the potential blocking patents to be potentially invalid (a patent’s claims have to be novel and non-obvious). This evidence can then be used if an owner of a potential blocking patent ever tries to cause trouble. If dealing with a problematic patent application, you could even make the patent examiner aware of this prior art to try and prevent the patent from being granted or to narrow its scope.
• Determine whether a patent attorney can draft a strong legal opinion that states your company's innovation does not infringe the one or more potential blocking patents.
• Determine if resources can be allocated to drafting (or purchasing) patents with claims covering technology that is commercially vital to the owners of the potential blocking patents – especially if these owners are close competitors. These types of patents can be held in reserve as “bargaining chips” to minimise the risk of patent litigation.
• Determine if resources can be allocated to try and buy “high risk” potential blocking patents (assuming the blocking patent is not already owned by a competitor). Advantageously, this course of action will strategically prevent a competitor from purchasing or licensing the blocking patents. This solution should be carefully discussed with the patent attorney because of the risk that “reaching out” to a blocking patent owner could cause a patent infringement lawsuit.
• Determine if resources can be allocated to try and license “high risk” potential blocking patents. This solution should be carefully discussed with the patent attorney, because of the risk that “reaching out” to a blocking patent owner could cause a patent infringement lawsuit. Further, before entering into a licensing agreement, ensure the licensing agreement: (1) does not impose an onerous financial burden, (2) is long-term, (3) cannot be easily terminated by the blocking patent owner, and (4) the blocking patent owner does not pose a solvency risk.
• Determine whether a joint venture can be formed with a blocking patent owner. This solution should be carefully discussed with the patent attorney because of the risk that “reaching out” to a blocking patent owner could cause a patent infringement lawsuit. If you take this course of action, make sure any joint venture agreement does not disadvantage you.
• Prepare a standard licensing agreement with pre-meditated terms (reasonable royalty rate, long-term duration, etc.) as an offer to license a “high risk” potential blocking patent, should the blocking patent owner ever approach the company and threaten litigation.

You can see you have options. Even if the FTO search came up empty, canvass the solutions that make the most sense for your company and circumstances. Remember, no FTO search is ever 100% effective and the last thing you want is for a potential blocking patent to suddenly surface and catch you off-guard.

Step 3: Protect Sensitive Information

Prior to filing relevant patent applications or if your company relies on trade secrets, you need very strong protection in place to protect your sensitive R&D efforts. As a start, make sure you have the following in place (ideally documented):

• A process to screen all social media, press releases, presentations and other public disclosures to ensure no trade secret or sensitive information is inadvertently disclosed.
• A process to label all documents, etc., that are part of your trade secrets as “Confidential”.
• Processes for monitoring access to trade secrets or other sensitive R&D information to ensure only authorised persons have access (e.g., sign in logs, access cards, automatically logging if a trade secret or sensitive information has been accessed or moved and by whom, etc.).
• In line with the above, is your physical security in tip-top shape? What about your cyber security protections? What is the process for dealing with emails that could have malware?
• A process for responding to a data breach, or a malware incident, especially if the data breach or malware incident could negatively impact sensitive information or trade secrets.
• A process for educating the IP team, employees, and other relevant parties on how to properly handle sensitive information.
• A process for checking the security and confidentiality of third-party services, such as cloud services, before entrusting such third-party services with trade secret or sensitive data.
• A process for properly disposing of sensitive documents associated with a trade secret.

Step 4: Minimise Employee IP Risks

Without proper consideration and diligence, your company is exposed to losing valuable IP rights because of the accidental or malicious actions of employees, including ex-employees.

Minimising employee IP risks also includes minimising the risks posed by the founders. So, let’s start there.

Minimising Founder Risks

• Make sure all founders have signed agreements assigning IP to the company.
• Make sure founders do not have conflicts of interest with former employers. This means making sure that no founders are under non-compete obligations from former employers. It also means making sure that founders did not come up with relevant innovations while under broad IP assignment obligations with former employers.

Minimise New Employee Risks

• Make sure a new employee has not signed a relevant non-compete and / or non-solicitation agreement with a former employer.
• Make sure your company’s employment contract includes confidentiality clauses, IP assignment clauses, and potentially non-compete clauses (be aware that some jurisdictions, such as California, actually outlaw non-compete agreements).
• Have all new employees confirm in writing that they will not disclose or use the trade secrets of former employers without the written authorisation of said former employers.
• Ideally, prior to being hired, discover if a potential new employee has been involved in any intellectual property related lawsuits and the nature of those lawsuits.
• Understand that if a new employee who has been with your company for less than six months is named as an inventor on a patent application in that time, the former employer could “come out of the woodwork” down the line and claim the employee was still under IP assignment obligations to them. It is a grey area that you need to be aware of.
• Make sure there is a process in place to teach new employees how to properly handle trade secrets and other sensitive IP prior to patent applications being filed.

Minimise Employee Risks During Term of Employment

• Request employees to maintain comprehensive documentation regarding their contributions to relevant R&D.
• Have processes in place to ensure employees are not mishandling trade secrets and other sensitive IP (see Step 3 above).

Minimise Departing Employee Risks

• Ensure a departing employee returns all confidential information they have in their possession.
• Perform an exit interview to remind the departing employee of their confidentiality obligations.
• Confirm that the departing employee has indeed signed IP assignment agreements.
• Ideally obtain information regarding the departing employee’s new employer, which could help determine the risk of misuse of sensitive information. If a departing employee – with significant trade secret or other sensitive knowledge – is going to work for a competitor, resolve to monitor the competitor closely for signs the departing employee is in breach of their confidentiality agreement.
• Potentially examine all work computers, hard drives, external drives, work email accounts, etc., that the departing employee used for evidence of misuse of trade secrets or other sensitive information. For example, is there evidence the departing employee removed or deleted files, or forwarded or downloaded documents in the days or months prior to departure?

Step 5: Minimise Third Party IP Risks

Without careful oversight and diligence, exposure or misuse of your company’s IP can occur at the hands of a third-party contractor, service provider, or even from a licensee or joint venture or strategic partner.

Hence, make sure that:

• Any supplier, producer, or manufacturer engaged in making – or otherwise exposed – to the company's IP, should sign agreements with confidentiality clauses and clauses that assign any innovations created or made, within certain parameters, to the sole ownership of your company. If you get push-back on the IP assignment clauses, at least negotiate a favourable licensing agreement for any relevant IP invented by the third-party while under contract with your company.
• You seek to understand, or better yet monitor, the security processes a third-party provider has in place to prevent the mishandling of sensitive IP.
• Any third-party provider indemnifies your company against any infringement of third-party IP on their part in the course of fulfilling their duties to the company (such as using pirated software, or a trade secret customer list taken from an ex-employer).
• Joint venture or strategic partnership agreements (including licensees) clearly state what IP each side is bringing to the table, and how the ownership or control of IP created together is to be dealt with. This will preferably be to your company’s advantage, but at the very least, your company should obtain licenses to IP controlled by the strategic or joint venture partner.
• A joint venture or strategic partner indemnifies your company against any infringement of third-party IP on their part in the course of the partnership with your company.
• You seek to understand, or better yet monitor, the security processes a strategic or joint venture partner has in place to prevent the mishandling of sensitive IP.

Step 6: Minimise Inventor Risks and Ensure Clear Chain of Title with Any Patents or Patent Applications

I have a whole article titled "Inventorship Issues That Could Impact Your Deep Tech Company" dedicated to the rule that if someone contributes to at least one claim, they must be named as an inventor on the patent application. Failure to include an inventor is known as a misjoinder. Conversely, including someone who did not contribute to at least one claim is known as a nonjoinder. Either scenario is bad news for the validity of the patent. Hence, you should make sure that all R&D – and who contributed to what – is properly documented. You should make sure that any inventor named on a patent or patent application materially contributed to at least one claim and that, indeed, all relevant inventors are named as such.

You should also make sure that each of your company’s patents and patent applications has a proper chain of title. That means that all inventors have assigned their ownership rights to your company and this assignment is recorded with the relevant patent office.

An IP strategist, patent attorney or patent agent can assist with these matters, including clearing up any discrepancies.

Step 7: Minimise Procurement IP Risks

Perhaps not so obvious is the need to make sure that your company’s procurement strategies don’t invite IP risks. Basically, good procurement practices ensure freedom-to-operate.

An example from the book “Driving Innovation” by Michael A. Gollin, describes this in practice (italics and bolding are my additions):

“For example, consider a vaccine company’s purchase of equipment to set up a new gene sequencing center for determining the genetic sequence of bird flu virus samples. The gene sequencing center’s shopping list includes microbiological culture equipment for handling the samples and processing them to grow in bacterial host cells (microbial samples, Petri dishes, test tubes, and incubators), biochemical equipment for separating out and amplifying the DNA (fluid handling systems, thermal cyclers), analytical instruments for reading the DNA sequence (optical scanners), and computer hardware and software for interpreting the data and assembling the sequence from many bits and pieces. Much of this equipment can be purchased outright, and the sale agreement would typically include an assignment of the physical device itself, with an implied license to use any patents held by the device’s manufacturer, to the extent necessary to use it. As to the software, the vaccine company would need to check the user agreement to make sure it includes the right to carry out the company’s intended screening activities, and that there are no restrictions, say, to academic research only. The software license also needs to cover a sufficient number of computer users. For the biological materials, the company needs to be sure that adequate consents have been obtained, and that genetic analysis and use of the data is permitted. Finally, if the company needs genetic data available on public databases, to compare to the newly screened data, it can access most such data without restrictions. From the company’s point of view, then, the procurement succeeded in providing freedom to operate, through assignment of rights and purchase of equipment, by actual and implied licenses, and by use of public domain materials. If freedom to operate cannot be achieved, then the IP manager must make a series of decisions about how to obtain access to the desired information, materials, or technology. For example, if a genetic sequencing center is not able to buy an important patented instrument at a reasonable price (or at all), then the organization must choose whether to use an alternative instrument, to challenge the patent, or to find another line of work altogether. Sometimes, despite the IP manager’s best efforts, through negligence or as a result of a calculated risk, an outsider asserts that the organization is liable for infringing IP rights. The claim may come in the form of a letter or a lawsuit asserting misappropriation of trade secrets or infringement of patent, copyright, or trademark rights. Procurement practices are implicated in this situation, because the organization may choose to negotiate an agreement with the outsider who is asserting IP rights, or it may choose to stop using the accused product or method and find an alternative, as with a new procurement. Alternatively, if the legal grounds are strong, the organization may seek to defend itself and deny the accusation.” ~ (Gollin, Michael A.. Driving Innovation (pp. 154-155). Cambridge University Press. Kindle Edition.)

Final Thoughts

If you follow the above steps, your company will certainly be in a stronger position from an IP risk perspective and you are less likely to suffer a devastating IP blow that could upend your company’s future. As mentioned in Part 1, it's important to remember that the plan above is just a start and there is a lot of detail that is missing. But if you actually don't have a clue where to begin in terms of designing a strong IP strategy, this article has hopefully provided some useful pointers.

Finally, minimising IP risks requires an ongoing effort. Your company needs to dedicate time and resources to repeated FTO searches. Minimising employee and third-party IP risks requires constant diligence.

But it’s so worth it.

Action Items:

• There’s really just one action item: methodically go through the steps to minimise your company’s IP risks.

So, what do you think? Are there any major IP risk minimisation steps that have been missed? Hopefully this introductory guide will prove to be beneficial for your company.

Disclaimer: this article is for education purposes only and should not be construed as legal or financial advice.?

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