Conducting IP Due Diligence into Emerging Israeli Companies

Conducting IP Due Diligence into Emerging Israeli Companies

Venture capitalists and acquirers should conduct due diligence into the intellectual property held by Israeli companies. Shulamit Hirsch PhD, Technion’s Head of IP, discusses the following related issues.

• How to protect inventions during the research phase.
• Avoiding entanglements with research sponsors such as universities.
• When inventors should seek releases from research institutions.
• When to file for patent protection versus maintaining trade secrets.
• How emerging Israeli companies can manage their patent budgets in view of their worldwide ambitions.
• What happens to Intellectual Property sponsored by the Israeli government when Israeli companies are acquired by non-Israeli companies.

Shulamit also discusses specific questions venture capitalists and acquirers should ask relative to target companies’ prior art searches, patent assignment histories, claims coverage and presence of patent continuations.

About Shulamit Hirsch

Shulamit Hirsch has a PhD and is one of Israel’s leading intellectual property practitioners and advisors. She is the Head of IP, Outsourcing at the Technion.
Shulamit also consults with some of Israel’s most promising private companies, Israel’s largest public companies and clients around the world such as the Guangzhou Sino-Israel Biotech Fund.

 

Transaction, Intellectual Property

Other

Head of IP, Outsourcing at the Technion

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SUMMARY:

In this episode, we discuss the importance of Intellectual property and the role that IP plays in startups funding.

SHOW NOTES:

00:03:50 – I have gut feeling for the new inventions, which are those that are worth protecting.

For the last two and a half years I’m head of the Intellectual Property (IP) at the Technion, and it’s a great privilege to get to know so many exciting inventions and new ideas. As you know, there are seven universities in Israel and also some government public research institutions and the Technion is for sure one of the best universities in Israel.

As head of IP at the Technion, I’m in charge of evaluation and protection of new inventions and also for their prosecution and maintaining and I am also taking part in the licensing efforts. As such, I have gut feeling for the new inventions, which are those that are worth protecting and which are those that will be successful in the future as regards commercialization.

In the past, I did a similar position at Tel Aviv University, as VP of IP and held this role for many years. Before that, I was trained and worked as a patent attorney at one of the largest IP firms in Israel at that time, named Reinhold Cohn and partners. My academic background is PhD in Chemistry from the Tel Aviv University.

00:09:48 – I work with a team of experts according to the subject. Sometimes I’m biological expertise, sometimes engineering and software.

I was lucky enough to study chemistry when I was young, and chemistry is one of those subjects that are relevant to many scientific fields in addition to chemistry proper. The chemistry background allows me to understand and handle, as a consultant, various technological fields such as for example drugs, food tech, energy related subjects, material science, nanotechnology, diagnostic methods and others.

In other fields, when we have to deal with technologies that are not within my direct expertise. I work with a team of experts with expertise in biology, engineering or software for example.

00:28:23 – We did have issues with the documentation of data, and in a few cases we were successful to predate the date of filing to the date of inventing.

I think that most of the important countries are first to file system. United States in the past was a first to invent system and documentation had tremendous importance, but the law changed. In this regard, researchers in academia are very well trained to register their data and findings and may support any requirements for data during the prosecution of their patent applications.

In the past, when the US system was still under the first to invent one, we did have issues with the documentation of data, and in a few cases we were successful to predate the date of filing to the date of inventing.

I think that it’s very important to file patent applications as early as possible, subject to fulfilling mandatory patentability requirements such as novelty, inventive step, applicability and sufficient disclosure.

00:34:47 – If the investors use a professional person that carries the IP due diligence, then that professional person will not be impressed by the number of patents a company has, but by their quality.

I would say that the amount of filings is not the issue that will make an impression on the investors. For a startup, it’s better to show high quality IP and perhaps a few granted patents and not necessarily many filings. If the investors use a professional person like me that carries the IP due diligence process, then that professional person will not be impressed by the number of patent applications on file, but by their quality and scope of protection.

Sometimes having at least one granted US patent and other searched applications like PCT applications will make the IP diligence more transparent for those that carry this process.  There are options in the US as well as in other jurisdictions to accelerate the examination and obtain a granted patent within a year.

00:40:16 – What happens if I do research at the Technion for five years, and during that time I file a couple of patents, and then I leave the Technion and establish my own startup?

What happens if I do research at the University for five years, and during that time I file a couple of patents, but not very many. And then as soon as I leave the University, I start filing a lot of patents and start my own company and Intel buys my company.

Is there still a risk that the University can come and say that David did a lot of his research at the University, with its facilities, equipment, graduate students, and they think they own some of the patents that David filed after he left the University.

The risk may exist but can be minimized or even nullified. I would say that transparency is the key. If the research at the University has no overlapping aspects with that at the new startup, then the solution is approaching the University from the beginning to obtain a waiver. Alternatively, if there is some overlapping between the past research at the University and the new/future IP at the new startup, then again from the beginning it is recommended to approach the University to obtain a license on the IP of past research, owned by the University.

1:04:38 What is the due diligence that VCs do on IP in order to lower the risk on investment or acquiring early stage companies.

An IP due diligence begins with an overview of all IP rights of the start-up/entity to be acquired or invested in. These include both those IP rights that are registered with patent offices (e.g., patents, design rights, and utility models), and also unregistered IP, like know-how, trade secrets, copyrights, and non-disclosure agreements (NDAs). Registered IP rights are preferred over non-registered rights.

The IP DD process that we carry analyses at least the following 3 main aspects:

1. Formal aspects that include: registered and non-registered IP rights; ownership of IP rights (check if the startup is the owner of all its IP assets); status of IP in the filing process (granted patents, pending applications, etc); funding with strings attached; validity.
2. Coverage: scope of protection, geographical coverage, time to expiration of the patents.
3. Third party considerations such as licenses, FTO, co-ownership of patents.

OTHER RESOURCES:

1) Enhanced Negotiating Strategies: This two-day seminar discusses the most intense negotiating strategies and tactics allowed without violating your ethics or morals

2) Valuation of Emerging Technologies: This seminar provides an in-depth review of more than 20 Valuation Methodologies

3) Solution Nation – The Book: Learn how the world’s most disadvantaged and destitute people stand to benefit from Israeli ingenuity.