TRIANGLE Venture Capital Group

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1 TRIANGLE Venture Capital Group High technology......strong in IP......from German universities and research centers......to global markets......nothing else.

2 Malte Köllner Triangle Venture Capital Group Introduction Train your patent attorney Every high-tech start-up financed by venture capital (VC) needs a strong IP portfolio simply speaking, patents. In many ways this can increase the value of the company. The IP portfolio is an important company asset, and to build a strong portfolio a company needs a suitable IP strategy. In turn, to achieve a successful IP strategy there needs to be cooperation and a sufficient flow of information between three areas: technology, business and legal. Of course, the IP portfolio must be built in a professional manner. Can this be done in-house for a VCfunded start-up? If a company wants a professional IP officer, he or she will command a salary of around 100,000. With the addition of all the administrative costs (eg, office space, travel expenses), the cost will rise to around 200,000. Adding patent office fees, foreign attorneys fees and value added tax will increase this amount by 100 per cent, leading to total costs of 400,000. If IP expenses are 10 per cent of research and development (R&D) costs (which sounds like a lot, but is reasonable for a high-tech start-up that needs to establish a strong IP position), the company s total R&D expenditure would be 4 million. If R&D expenditure is around 30 per cent of the total cost of the company (a value that is reasonable for a high-tech start-up), the company s total annual budget would be over 10 million. Clearly, size does matter when it comes to deciding whether a company is able to employ a full-time, inhouse IP officer. In general, VC-financed start-up companies cannot do so therefore, they need to appoint an external patent attorney. External patent attorneys If an external patent attorney from a law firm needs to be found, it is important that the VC investor does not let the company choose a patent attorney on its own. This could lead to the following consequences (structured according to the three major areas to be integrated): knowledge in the technical field of interest. Business The patent attorney may have only limited knowledge of the company s business situation. An ordinary patent attorney has little or no experience and understanding regarding the needs of a VC-financed company. Legal It should be possible, with a limited amount of effort, to find a good patent attorney however, the fact that the patent attorney is good in general terms does not mean that he or she will do an excellent job for the company and, therefore, for the investor. Patent attorneys have varying motivation and, therefore, allocate varying amounts of time to the company. Further, more general consequences of choosing the wrong patent attorney could include the following: There may be an insufficient flow of information regarding intellectual property to the board of the company or the investor. It could be difficult for the investor to control the IP processes and decisions. External patent attorneys generally act passively they do not establish a patent strategy because they do not want to patronise the client (and do not always have the power to do so). In addition, often they do not dare remind the client to file new patent applications as this may sound like the patent attorney wants to make more money for himself or herself. As a result, erroneous decisions may be taken which cannot be revised. Important assets, such as patent applications, may not be filed or may show irreparable faults. Technology The patent attorney may have insufficient Nevertheless, in general, start-up companies find patent attorneys themselves. In this situation the Building and enforcing intellectual property value

3 Introduction Triangle Venture Capital Group management of the company is at the centre of the game controlling the flow of information. The management of the company receives all the information on IP matters from the patent attorney, but distributes it only selectively. The patent attorney communicates only with the management, providing a lot of information but receiving very little in return, since the management fears that every moment of the attorney's attention will be billed at the hourly rate (which is true, but is probably money well spent). In addition, the patent attorney is bound by professional secrecy obligations he or she cannot give information straight to the investor. Thus, in this situation the patent attorney receives information on technology only selectively, and is given very little information on the business goals and situation. The investor receives information about the IP situation only after it has been filtered by the management. Even if the management does not intentionally distort the information, at the very least its generally limited knowledge of patent and trademark law is likely to blur the information provided to the investor. As a result, there is an insufficient flow of information between the technology, business and legal areas. A patent attorney hired by the company cannot be shadowed or controlled by the investor, and value creation is thus hindered. two of the three areas that need to be brought together (ie, technology and legal) can communicate without difficulty. An expert patent attorney is likely to write wonderful patent applications and do a good job in prosecution. However, in order to make the expert a perfect choice, he or she must still be trained in certain areas: patent management and best practice; the business situation and goals of the company; and the patent landscape and prior art in the technical field of the company. It is important to make sure that he or she meets the relevant people and is part of the team. In addition, regular meetings are vital. Nevertheless, some drawbacks will remain, such as: a limited flow of information to the investor regarding IP matters; limited opportunities for the investor to control the work of the attorney if the investor tries to control the attorney s work, it is likely to be quite burdensome; and despite choosing the best attorney for the job, the investor can never be sure if this decision will eventually prove to be a good choice. Choosing a patent attorney How can these disadvantageous circumstances be avoided? To begin with, the investor must choose the patent attorney. It is not enough simply to choose a renowned law firm, as a company s patent work may be handed from one attorney to another as capacity allows. This prevents a single patent attorney (and thus the investor) from accumulating all the knowledge needed for a coherent patent strategy. Instead, it is better to choose a single patent attorney to handle the company s work. There are potentially two kinds of suitable patent attorney: the expert a patent attorney with wide experience in the exact technical field of the company; and the buddy a patent attorney with whom the investor has successfully worked in the past, thus allowing the attorney to report to both the management and the investor. The expert The expert can be a good choice. When working with a patent attorney with a lot of technical know-how, it should be possible if managed properly to put the attorney in touch with the company s R&D department. In this way, The buddy The other rational choice is a buddy patent attorney. This type of attorney should have already acquired, through working with the investor, experience in patent strategy and best patent management practices. Considering the three areas that need to be integrated, it can be assumed that a buddy patent attorney can integrate the business and legal areas very well, but may be lacking in the technology field. Therefore, in order to make this attorney the perfect choice, the investor must train him or her in the technical field of the company, as well as the relevant patent landscape and prior art. It could be possible to get the expert to train the buddy. If this occurs, the following questions are of interest: What is the general patent strategy in the sector? Who are the incumbents as far as patents are concerned? How prone to litigation is this area of technology? In addition, the expert could consider the pipeline of inventions of the company and advise on which are the most promising inventions. The expert could also comment 44 Building and enforcing intellectual property value 2007

4 Triangle Venture Capital Group Introduction on possible areas of patent protection for the company. For the investor, this will lead to many advantages, including the following: A certain quality of work from the patent attorney is guaranteed. The information flow between the investor, the patent attorney and the management of the company as far as intellectual property is concerned is improved considerably (although it must be borne in mind that key IP matters should be considered at board level). The investor will be able to control important IP decisions. A systematic IP portfolio can be built, steered actively by the patent attorney. An IP strategy can be established. The patent attorney will be active since he or she now has the duty to build a portfolio and has been instructed, and if he or she reminds the management that new patent applications should be filed, it is because the portfolio must be grown continuously rather than in order to make money. The investor can be sure that the patent attorney understands the needs of a VC-financed start-up. read them. As a result, the company and the investor can expect the patent attorney to be up to date. The investor and the patent attorney should be allowed to communicate freely, and the patent attorney should be allowed to send copies of important letters to the investor. The patent attorney should be seen as part of the team, and in doing so the team spirit between the company and the investor is strengthened. He or she should be informed on the same basis as the employees the more the patent attorney knows, the better he or she can serve the objectives of the company. If the patent attorney is well informed about difficult cash situations, he or she will react with consideration. One point, however, should remain unambiguous: the patent attorney is the attorney of the company. He or she receives instructions from the management of the company only. If there are differing opinions between the company and the patent attorney concerning the IP strategy, it is for the board to discuss the matter and the management to advise the patent attorney accordingly once a decision has been taken. Clearly, the patent attorney should be involved in the decision-making process. Summary The key measures to be taken are thus as follows: This set-up improves the possibility of building a strong IP portfolio and increasing the value of the company. Thus, this is also in the interest of the company and not just in the interest of the investor. Structural elements In order to achieve an optimised flow of information between the company, the investor and the patent attorney, the secrecy obligation of the attorney must be offset in regard to the investor. This may not always be to the taste of the management, but an open flow of information should be part of the professional communication of the parties involved in a VC-financed company in an ideal situation, the parties form a team. Regular meetings should take place to exchange information. A meeting between the management and the patent attorney should happen at least quarterly. A meeting with the board (including the management) and the patent attorney should happen at least once a year. The company s monthly reports should be sent to the patent attorney, who should be paid for 15 minutes to The investor should choose the patent attorney. The patent attorney should be trained in areas where he or she lacks the necessary expertise. The secrecy obligation of the patent attorney should be waived in regard to the investor. A good flow of information should be established between the company, the patent attorney and the investor. The building of a systematic portfolio should be realised by a suitable patent strategy. Things to avoid include: changing the patent attorney; lack of control of the attorney s work; and lack of experience and/or training. The goals to achieve are: thorough training of the attorney; and a long-term relationship with the attorney. Building and enforcing intellectual property value

Introduction Triangle Venture Capital Group Malte is responsible for IP due diligence at Triangle Venture Capital Group and for all IP issues at its portfolio companies.

5 Introduction Triangle Venture Capital Group Malte is responsible for IP due diligence at Triangle Venture Capital Group and for all IP issues at its portfolio companies. He regularly advises the European Venture Capital Association on IP-related questions. Malte is a German and European patent attorney, and a partner in a patent law firm in Frankfurt am Main. He has authored and co-authored numerous publications on intellectual property and venture capital. Malte holds an LLB and a PhD in physics. Malte Köllner Partner Tel koellner@kp-patent.com Triangle Venture Capital Group Germany 46 Building and enforcing intellectual property value 2007

Practical Guidelines For IP Portfolio Management

Practical Guidelines For IP Portfolio Management For the latest breaking news and analysis on intellectual property legal issues, visit Law today. www.law.com/ip Portfolio Media. Inc. 860 Broadway, 6th Floor New York, NY 10003 www.law.com Phone: +1 646