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Intellectual Property Strategies

Intellectual Property Strategies. Jack Turner, Associate Director M.I.T. Technology Licensing Office 5 May 2005. Outline. Importance of IP Exclusive vs Non-exclusive License Patent Enforcement Foreign Patents Elements of the License Agreement Typical Terms Case Study/Examples.

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Intellectual Property Strategies

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  1. Intellectual Property Strategies Jack Turner, Associate Director M.I.T. Technology Licensing Office 5 May 2005

  2. Outline • Importance of IP • Exclusive vs Non-exclusive License • Patent Enforcement • Foreign Patents • Elements of the License Agreement • Typical Terms • Case Study/Examples

  3. Important Points • A patent permits the owner to prohibit someone from using the invention • It doesn't allow the owner the right to use the invention • The use of any patented invention may infringe someone else's patent • Do a thorough patent search for two reasons • Freedom of action with respect to patents of others • Is your idea novel and not obvious, i.e., patentable? • Searching US patent database in not good enough

  4. Importance of IP to the Enterprise • Investors care • Hard to get funded without IP • IP is not, however, going to determine success • Right product for right market and execution most important • Exclusive rights in IP may deter competitors • May allow higher margins • Need to be prepared to enforce • Can you afford it? Will investors finance? • Non-exclusive license • Just a tax – you’d be happier if there were no patent • May be necessary for freedom of action

  5. Foreign Patents • Where do you really need foreign rights? • Do you need them at all? • Must file country-by-country • Very expensive, e.g., $200K to $300K over life for EU & JP • With only US patent, can prohibit importation from anywhere • If infringement is abroad, you must enforce abroad • Would you bring suit in China or India? • Can you afford to enforce?

  6. Elements of the License Agreement • Definitions, especially field of use • Example: “…automotive safety applications related to occupant sensing.” • Grant of rights • To make, have made, use, sell, lease and import • To sublicense • Exclusivity • For specific field of use • Right to pursue infringers

  7. Elements of the License Agreement (continued) • Diligence • Business plan • Obtain $xx Million capitalization • Fund $yy million in research (internal or at M.I.T.) • Perform against product development plan • Working model by <date> • Cumulative product sales (units and/or $$) by <dates> • What are consequences of failure? • Exclusive becomes non-exclusive? • Loss of license? • Royalties • License issue fee • Equity • License maintenance fee, creditable to royalties • Royalty on product sales, generally a % of sales • Share of sublicense income • Patent cost reimbursement

  8. Elements of the License Agreement (continued) • Patent challenge • Consequences? • Termination? • Royalty doubling? • Liability for licensor’s defense costs if challenge fails? • Representations and Warranties • Validity • Non-infringement • Right to Assign License • What happens is enterprise is acquired? • Dispute resolution • Mediation • Arbitration • Litigation

  9. Typical MIT Terms • Exclusive • Field of Use: Limited • License Issue Fee: $25K - $100K • Equity: 5% after significant funding (start-up only) • Royalty: 3-5% • Sliding scale as function of gross margin • Royalty buyout upon IPO or acquisition • Minimum annual royalty: escalates over time • Patent expense reimbursement

  10. ArvinMeritor - 2001 • Plasmatron fuel reformer technology • Three fields of use • Vehicle ICE hydrogen gas as fuel or fuel supplement • Stationary ICE hydrogen gas as fuel or fuel supplement • Emissions abatement hydrogen gas or ammonia to the exhaust system • Diligence • $3,750K internal research over 3 years • $3,000K research at MIT over 3 years • 1st commercial sale vehicle ICE 2007 • 1st commercial sale stationary ICE 2004 • 1st commercial sale emission abatement 2007

  11. ArvinMeritor - continued • License Issue Fee - $50K • Annual Fees - $25K in 2004 escalating to $250K in 2008+ • Royalties • Vehicle ICE – zero until 50,000 unit production vehicle program • then $1.50 per vehicle plus percent of sales varying from 0% to 2.5% as gross margin varies from <18% to >25% • Stationary ICE – if plasmatron sold w/o engine, 5% of sales; if sold w/ engine, $0.10 per kW of engine power • Emission abatement in light vehicles – if plasmatron sold w/o exhaust system, 3% of sales; if sold with exhaust system, 1% of combo but not less than 3% value of plasmatron. • Emission abatement other than light vehicles – as above but 5% and 2.5% • Pay all patent coasts

  12. Soligen – 3DP • Field - Ceramic components for use as a mold for metal casting • Diligence – Net sales ramping up to $10 million over 10-year period • Annual fees $50K per year • Royalties 4.5% of sales until MIT has been paid $500K, then 2.25% • Royalty discount for sales to 3DP consortium members • Equity – 5% at close of Series A; participation right thereafter • Share patent costs with other 3DP licensees

  13. Therics – 3DP • Field - Products for medical use requiring FDA approval • Diligence • Raise $2 million by June, 1997 • File IND application by June, 1998 • File NDA by June, 2000 • Sponsor research at MIT $50K per year for 3 years • Royalty • Issue fee $12.5K • Annual fees $12.5K escalating to $100K per year • $37.5 K on filing an NDA • 2.5% of sales • Share patent costs with other 3DP licensees

  14. ExtrudeHone – 3DP • Exclusive Field – Directly printed dies and molds (tools) made of metal or ceramic-metal (<20% ceramic) • Exclusive Field for 4 years – Directly printed metal or ceramic-metal “parts” • Diligence • Develop working 3DP machine by June, 1997 • First commercial sale by December, 1998 • Machine sales • 6 in 1999 • 12 in 2000 • 18 in 2001 • 24 in 2002 • 36 in each year thereafter • Fund research at MIT - $1 million over five years

  15. ExtrudeHone - continued • Issue fee - $15K • Annual fees - $25K escalating to $50K • Royalties • 5% of sales of machines, consumables, and products made by ExtrudeHone • Share patent costs with other 3DP licensees

  16. Uniform Droplet Spray • Solder balls for BGA assembly • US patent only • Non-exclusive licenses to 12 companies • Issue fee - $10K • Annual fee - $5K creditable to royalties • Royalties • 2% of sales of products sold in the US • 1% of sales of products sold outside of the US

  17. OmniGuide Communications Inc. • Exclusive license granted February, 2001 • Field of Use: Optical fiber and components for telecom • Option for optical fiber for IR laser wavelengths • Diligence • Raise $2 million by 10-2002 • Manufacture preforms by 10-2003 • Manufacture optical fiber by 10-2004 • First commercial sale by 10-2005 • Turned out to be impossible • No need for “better” telecom fiber • Lots of dark fiber already in place • Too hard to make defect-free fiber 10s of km in length for pennies per meter

  18. OmniGuide Inc. • In February, 2003, exercised Option for optical fiber for IR laser wavelengths • Focused on optical fiber minimally invasive laser surgery • Products now being used in more than 1000 surgeries per month • Now need to manufacture 1 meter long fibers • Sell for 100s of dollars per meter • Disposable, i.e., not re-used. • Cash flow positive at the end of 2009 If this had been a licensed to an established company, the last slide would have been the end of the story!!!

  19. Questions Jack Turner jht@mit.edu

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