Ways to recognise your investable ideas. Gabriela Kennedy Partner, Intellectual Property Group Hong Kong 21 November 2006

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1 Ways to recognise your investable ideas Gabriela Kennedy Partner, Intellectual Property Group Hong Kong 21 November 2006

2 What does this mean? How can they be sold to investors? Investable Ideas How can they be identified? How can they be valued?

3 = Investable Idea Idea Commercial value

4 Investable Ideas Commercial Benefits Auto Cleaning System Commerical Value Technological Value Prolong life of air-conditioner Potential application in other electrical appliances Develop new appliances or licence to others

5 Investable Ideas Intellectual Asset Idea + Commercial Value + Legal Protection Intellectual Asset Intellectual Assets typically include: Patents Trade Marks Registered Designs Copyright Trade Secrets

6 Intellectual Property Increases the value of investable ideas, if protection is obtained Income Stream Benefits of IPRs Monopoly Bargaining Power

7 Intellectual Property ivoice, Inc. Patent - speech-enabled name dialer for Microsoft Outlook Estimated value: Assuming 5% of Microsoft Outlook users (exceeding 100 million) buy it at retail price of US$29.95 per user, revenues generated would exceed US$145 million

8 Identifying Investable Ideas New idea or Invention with: Technological and commercial significance Capability of developing into a real product Reasonable manufacturing costs Acceptable price

9 How can the potential intellect asset be valued? What is its marketability? New product for existing and growing market More certainty that the product will sell The market is there Value will be relatively higher VS New product for new market Product potential is higher Risk is higher as well Market is not there yet Difficult to assess whether the product will sell

10 How can the potential intellectual asset be valued? Dolly s Cloning Patent Patent was obtained by PPL Therapeutics (Scottish biotech company) to protect the know-how which allowed the production of Dolly in 1996 Made world headlines The technology used to clone Dolly never helped to develop a marketable product and generated no commercial benefit. PPL was forced to sell the patent to Exeter Life Sciences (a US company) - for US $1.8 million!

11 How can the potential intellectual asset be valued? What is the likely return generated from existing licenses and other agreements Anticipated royalties application of the ideas to other fields / industries future licensing Check all legal agreements License Employment/consulting Non-disclosure Commercial

12 How can the potential intellectual asset be valued? Manage Legal Risks by checking Similar third party IPRs covering the same idea Potential disputes or litigation Risky intellectual assets Asset value in numerical terms Income approach: sale of products and licensing Cost approach: research and development costs Market approach: review historical transactions of similar product/patent, then estimate the value

13 How should your investable ideas be packaged to attract investors? Show commercial significance and feasibility Strategic IPR filing and management Provide full support to potential investors

14 Strategic IPR filing and management: Scenario 1 Small car maker All design, research and manufacturing done by car maker Finished with 1 st car and thinking of selling in China

15 What are the IPRs at issue? Trademark Registration Copyright Registration Design drawings; engineering drawings; on-board computer software What are the features which attract customers? Appearance Design Registration Functions of car Patent Registration Patent : full patent / short term patent Car / car parts / service

16 Trademark registration Choose the right trademark House brand / sub-brand Defensive Trademark Language: English / Chinese and others Choose the right class Class 12: automobiles; automobile bodies; engines; chassis; tires; brakes; bumpers; windscreens; mirrors; indicators; air bags Class 9: on-board computers; vehicle radios; break down warning triangle Class 11: vehicle air-conditioners; lights for vehicles Class 17: connecting hose for vehicle radiation Class 27: automobile carpets

17 Trademark registration Service mark Class 37: Maintenance service; repair service; car washing service; lubricating service; service station Class 39: rental service; towing service

18 How should third party rights be dealt with? Third Party Rights Be Pre-emptive Cancellation Actions Buying Back Register more rights than you currently need Monitor gazettes, e.g. watch services 3 rd party rights should be dealt with straight away. Do not wait until problem arises Keep evidence to support cancellations Not preferred, but sometimes necessary Prepare for the worst case! Have a crisis management plan!

19 Other IPR issues? New trademark registrations Ownership of copyright Ownership of new inventions Ownership of design rights Control of Chinese sub-contrator/licensee IP issues relating to exportation

20 Ownership of new designs Design patent Ensure company retains all rights to apply for design patents Copyright ownership vested in the author/creator of the copyright work (engineering drawings) But ownership belongs to company if copyright work created in the course of employment Ensure assignment of copyright

21 Ownership of new designs Co-author Joint-Ownership Agreement to retrain all IP rights in co-authored works Commissioned works Short of prior arrangement, copyright belongs to the commissioned party Agreement to retain copyright in commissioned works

22 Ownership of new inventions VS Employee Company Who owns the invention? Ensure company has all rights to apply for invention patents created in the course of employment

23 Practical tips Conduct IP audits regularly Regular monitoring of official gazettes All contracts/arrangements should be reduced to writing Have documents signed and where appropriate, stamped with company chop Date all documents Keep documents safe

24 Provide support to potential investors Actual demonstration Provision of all market information Access to know-how Provision of all technical material Support your investors Assistance in the actual technology transfer Legal documentation

25 Provide support to potential investors REMEMBER! Investors want to buy your invention instead of developing it in-house because they want to save time and costs! If you are worried about premature disclosure Sign a non-disclosure agreement to restrict unauthorized used of trade secret or confidential information If necessary, withhold information on some of the major elements of the invention

26 THANK YOU! Gabriela Kennedy Partner Lovells, Hong Kong