On day two of the IPWatchdog LIVE conference in Dallas, Texas earlier this month, a panel of experts advising startups and passionate about licensing business models discussed the challenges and opportunities that intellectual property poses.

Panelists started the discussion by describing their experiences with the biggest mistakes startups make with patents.

Ian McClure, Associate VP of Research, Innovation and Economic Impact at the University of Kentucky and AUTM Chair, identified two common mistakes made by the roughly 1,200 startups spun out of U.S. university research each year. .

From FTO Failure to ‘Every Wrong Application’

First, the freedom to manipulate search isn’t enforced until it’s too late. Because it costs. Instead, there is only a patentability search. Are original discoveries patentable? Usually yes. However, almost all of these early stage companies have to go through an extensive “risk mitigation process” with “many, many, many” pivots and many improvements. Another mistake early-stage deep tech startups make is not including someone on the board who is well versed in intellectual property strategy.

Stephen Key, an inventor and author who advises startups as part of his role as a co-founder of inventRight, says founders can expose themselves to the United States Patent and Trademark Office (USPTO) by publishing their inventions after a one-year grace period. I explained that it would cause problems for me. Then, during patent prosecution, their own conduct is used against them as prior art. His second big mistake startups make is not examining the prior art enough. The third is not aligning patent claims with business strategy. As a result, patents are essentially worthless.

Efrat Kasznik, president of the Foresight Valuation Group and a lecturer at the Stanford Graduate School of Business for more than a decade, said startups need to be better educated on how to use intellectual property, Key and McClure said. I agree with Mr. Startups are misguided in two extreme ways, she said. Either the founder procrastinates and doesn’t file on time, doesn’t have enough of her IP to support the business, or has a lot of patents. As an example, she described her company with 300 patents “before anything else” (the advice they received from patent attorneys was to file in every country).

“We had a client with 75 patents, 72 of which were design patents and only a few utility patents,” she says. “You see it a lot. Startups think patents are a good thing.

She wholeheartedly agreed with McClure. Startups really need someone to guide the application in their interests, not those of an outside law firm.

Licensing and customer discovery

The panel then began discussing how the licensing business model facilitates the commercialization of intellectual property.

We have discussed key strategies for adding value to your patents. For example, the importance of knowing your differences from a market perspective, or the importance of including manufacturing know-how. Adding variations and workarounds expands the scope of the claim and creates uncertainty about what exactly it covers. This helps from a negotiation point of view.

McClure said the overall trend among university startups is that more and more companies are “trying to become technology companies.” That is, they are “totally dependent” on intellectual property, which they eventually acquire or license.

He suggested that one way to increase the value of university startup patents is to do early customer discovery, before filing a provisional patent application. Customer discovery is the process of determining whether a potential customer is interested in a technology and how far the technology needs to be developed in order to find it attractive.

“In many cases, the customer discovery process completely shifts towards a risk-averse process or using technology,” McClure said.

But of course, academic researchers don’t like to be told what to do, so there are obstacles to prioritizing customer discovery early on. McClure explained that evolution is happening. More and more researchers want to do “inspired research”.

non-patent work

Kasznik noted that more unicorns are now relying less on patent assets than when she first researched the issue. Do software sellers need patents? That’s a question many of the companies she works with are asking. You can raise a lot of money.

Intellectual property is part of what a startup needs to license technology, Key said. Other assets are essential, such as having the right team and creating market demand. He told the story of how he negotiated a licensing deal with North America’s largest privately held packaging company for Fishbone, a sustainable innovation to replace plastic rings, before the patent even issued. rice field.

“I can’t stress enough how important market demand is to get people to move mountains and invest,” Key said. “At the end of the day, [licensing] It’s about really good business that needs to be taken out of risk. “

Panelists argued between using intellectual property to facilitate licensing agreements to market and seeking licenses to implement patents after the invention has already been adopted industry-wide. I admit there is a big difference. A panel discussion on the first day of the conference, “The Future of Monetization,” explored the latter phenomenon.

IP value gap

McClure then shared findings from his published study. Berkeley Business Law Journal As to whether technology-based companies attributed value to non-core intellectual property assets when merged or acquired. In short, it was not. lebron dutyStartups pivot so often that they typically own at least a few non-core intellectual property assets that can be monetized but not.

This led Kasznik to explain that intangible assets do not show up on a company’s balance sheet from an accounting perspective, something many people are unaware of. It is the first time that the value of a company’s intangibles has been disclosed once an M&A deal is closed. The gap between the book value and market value of companies today is so large that some attribute it entirely to intellectual property.

The panel concluded by suggesting strategies for de-risking new technologies. This involved initially selling the benefits of the idea and using angel investors to fund the university’s startup product development plans. Universities are starting to take a more aggressive financial interest in startups spun off from research instead of trying to extract value from their patents. That’s where the real value lies, says McClure.

He stressed the need for intellectual property professionals to provide sophisticated knowledge of IP to technology transfer offices, addressed by the CHIPS and Scientific Acts signed into law on August 9. Did.