Preparing Your Company IP for Investment | LSI USA '25

Kregg Koch  0:00  
All right, my name is Kregg Koch. I'm a patent attorney and partner at Knobbe Martens Wilson and bear. I'm here with Harnik Shukla, who's also a patent attorney and partner at Kenobi Martens, Wilson and bear. And we're very fortunate to have two investors, Terri Burke at intuitive ventures, and also Dennis McWilliam of Sante. So they're going to share their perspectives and also some really good recommendations from the investor side of the table. We're going to mostly talk about a little bit of like, what the things that we need to do and how to do them. That's what Harnik and I are mostly going to cover. Start off, we are going to go through a couple of like, true and false kind of quiz questions and just kind of test your understanding of things and try to correct some misunderstandings of IP law, potentially and again, help prepare yourselves for discussions with two people like these guys. So maybe by a show of hands, who thinks that if you have a patent on a product, that you've got freedom to operate, you have the ability to make it without potentially facing any litigation or lawsuit against you? Does anybody know the answer that that is correct. The answer is no. But oftentimes, I think New innovators and customer or companies startups think that we've got a patent that gives us the ability to make the invention in the US. First thing to know is that a patent gives you the right to make use, exclude others from making, using and selling within the United States, patents are also territorial, so the protection that you get in the United States doesn't extend outside the United States. So you're going to want to look at international protection as well. The next thing is, patents have a particular term of 20 years, and oftentimes, you know, 20 years from the data filing, and you can develop that kind of that monopoly for excluding other people within that period of time. No, buy that. There are other things we talked a little bit about. We're going to focus mostly on patents, but there are trade secrets also. Every company is going to have trade secrets, the know how to do something, the things that you can kind of keep protected internally without having to expose them in a patent application, that somebody else can come up with or develop on their own, but we're mostly going to focus on patents today. But there are so as part of as part of intellectual property, there are trademarks for brand protection, there are copyrights, there's other data privacy type issues that might go into intellectual property. Typically, you'll have a cover page that's going to show you who the inventors are, who owns the patent? It's going to give you a little abstract of it. It's going to tell you when the patent issues. But one of the questions that we talk about with Dennis is, how do you know the difference between an issue patent and a published patent application? And oftentimes it's in the number. So in the United States, you'll get a number that indicates the date of publication, and it'll be a longer number started by like a 2022, slash, and that's usually the year of publication. That'll tell you if it's an issue patent or or a pending publication, there's a big difference. Obviously, a patent is enforceable, publication is not. So when you're looking at, you know, potential issues like freedom to operate, and you're looking at the publication of it, you got to make sure that you understand that that hasn't really gone through examination yet the claims at the end, which define the scope of the invention aren't really they haven't been tested by the patent office yet. So when you're looking at those particular claims, they might be a little bit broader. It might look like it covers your products, but, you know, it's probably going to get narrowed. The other question I often get is, How did somebody get a patent on that. It's a stent. Stents have been around for decades. If you look through the claims, you'll often find one or two limitations that distinguish it from the prior art. So when somebody's looking at a particular patent and you want to understand, like, what your risks of infringement are, you're going to look at, you know, a lot of times the first blush, you're like, Oh, the pictures look just like our product. Or, you know, the description here, that's exactly what we're doing. Look at the claims. The claims are always at the end of the patent. Wait till the patent issues and and then you can start understanding exactly what the scope of their protection is, just from the language in the claims. So it's pretty important to be able to understand at least the anatomy of the patent, to really have a discussion maybe with potential investors. Of you know, they're gonna ask you, what you know, what are the barriers and what's your freedom to operate? And you want to at least be able to have some level of sophistication to be able to answer those questions. And certainly, if you guys have any tips or points or you

Dennis McWilliams  4:10  
were asking kind of the prep call, like, how do we think about intellectual property? When do we start thinking about intellectual property? And of course, it always depends a little bit on the space that we're in, because there are certain spaces where our immediate response is, well, how are you going to get around the patents that are out there? But I would say generally, like our model as Sante, we're really early stage investors, is when somebody is pitching us, our first assumption is, we're going to assume that the science works, and we're going to assume that whatever patent situation is good, that's our assumption. And then we go validate, is the business opportunity interesting? Does it fit our fund, all those types of things? The next thing that we do is we we then work on validating the science given just around the science. And then once we do that, we're like, Okay, what's the IP situation and and that really is dependent on the stage that you're at. I know for us, particularly in Medtech, it's a little different our bio. Medtech practice. But in Medtech, our first question is, what's your freedom to operate like? Can you even practice what you're doing like? Because if you can't, then you know you're really not gonna be able to do anything until you ha, till you solve that issue. And we could talk about maybe the ways that we look for value, because getting a formal freedom to operate opinion from a prestigious law firm is very expensive. So we can talk about that a little bit. So, you know, we want to make sure you got freedom to operate. And then, yes, we want to understand, like, of your clinical value proposition, the unique element of your system, you know, what patents do you have to prevent others from doing that? But it's kind of in that order. So it's funny, like, you know, yes, the patents are super important. You need to have a strong, robust patent portfolio. But like, in our orders, of like, you know, crises and problems, it really starts with freedom to operate first. And we've got some war stories. I don't Terri how you think about it, when you Yeah, I

Terri Burke  5:51  
mean, I think it depends a little on the stage of investment. So the earlier the company, I think it's exactly as you describe, right? You want to know that the value prop, the what, what the company thinks, is really unique, has freedom to operate, but there may only be filings at that point in time. You may not have issued patents yet. So then the next question would be a little bit of the strategy, and how's the company going about thinking about its product development. Is it's keeping its product development in lockstep with its IP attorneys, so that the ultimate commercial embodiment has the right claims associated with it. We're also thinking about as you're moving forward, like, where are you in that process? So as you get to a later stage, you should have some things that are maybe starting to issue, so then you can start to figure out, like, do I sort of own a space, or have I blocked? Do I have a picket fence that I'm building around what I'm doing? So it's a progression, I would say, in investments we've made in early stage companies, not all of them have had issued patents, but we felt confident in a strategy, and some do have patents. So just having a patent by itself isn't enough. It's sort of like looking at it all together. But similarly, we're going to look at the market, we're going to look at the unmet need, we're going to look at the widget, the device. We're going to think about how that's working. We're going to get through all those questions first before we really worry about IP. And so we're willing to put in that work because we like the market, we like the concept, we like the management team, all those things. And then, so it is an important thing to know that you could be working with a potential investor. Things are going really well, you're working together, and then somewhere down the line, something could fall out where you feel like we've answered all these questions. We've answered how to how to build the product. We've shown all our test results. They're in our data room. They've looked at all these things. But generally, IP is a little later in the process,

Dennis McWilliams  7:57  
in one, yeah, one way to think about it is, you know, freedom to operates kind of a binary thing. If you don't have as kind of full stop, you can't really commercialize, and that'll be a real problem for a potential acquire coming in. But then, you know, when you flip around on the patents that you own, that starts to get to how much value an acquire is going to attribute to what you're doing, particularly if you're pre revenue. I mean, if you're a revenue company, you know, to some extent, like, you know, you've already kind of proven that you've got some exclusivity, and you're driving on that. But if you're a pre revenue company, the value that they're going to place on, on the asset that they're buying is really the power of, you know, one, binary, yes or no freedom to operate, which they spend a ton of time on, and then two, making sure then or how we're going to exclude others. And that second question is going to be, how much value they attribute to what they're buying from you,

Harnik Shukla  8:44  
right? And especially first startup companies. It's, as you said, like, you know, it might be just few patent filings, but there is way to quickly build your patent portfolio in the US. The Patent Office has this fast track program so you could file a new application with a track one request. It's just additional, about $2,000 but it gets you a lot better examination, and in most cases, I've been able to get clients an issued patent within a year. You know, in contrast, just sometimes it takes three to five years. So highly, highly recommend. You know, if you're trying to build your portfolio, if you're filing your first patent, do it on fast track. It will actually save you money, compared to the repeat back and forth with the examiner. And you know, for a recent startup, we went from like zero to four patents in a matter of just 16 months. So that way you can build a patent ticket and a moat around your technology.

Terri Burke  9:36  
I think it's an important point, because as a company, you're thinking about where your value inflection points are, when you're going to be through significant milestones as a company. You're also thinking about when you need to raise capital, and so if you can time your patent strategy so that you perhaps have some issued patents when you get to a financing round, maybe it's a. Question for you, but we've talked about it in the past that sometimes VCs are kind of risk averse around intellectual property,

Dennis McWilliams  10:06  
and I would say not, not always sophisticated. I need to be honest, like, I mean Terri and I share unique background, or not unique, but we have similar background, that we're both operators and medical device companies. I think when you've been an operator, you have a different perspective on intellectual property, and what's strong was, and I think, you know, again, a lot of venture investors who haven't done that, you know, they just have a binary view of IP. A lot of times, we'll talk a little bit about how diligence goes and kind of how that process walks through. But, yeah, I mean, you know, to some extent, I think investors want to be able to check the box that the IP is handled like, you know, that there's some good patents there. That's freedom to offer. Freedom to operate, and they've got good counsel. Like, it's that checkbox, and as long as you check those boxes, most investors aren't going to give you a hard time. But it's when one of those is not, or we'll talk about IPRS a little bit like, you know, when one of those is not that that's when the red flags start kind of going off of the VCs. And it can be, can you can spend a lot of time

Terri Burke  10:59  
on it, and that's why I think that your comment about the track one is really interesting, because it does allow you a faster pathway. You can build with good counsel. You can build a strategy where some patents, you know are going to take longer to work their way through the system, but others, and you can then come to a financing, perhaps with one or two of these track one issued patents to say we do clearly have something here that, at least in the eyes of the patent office, is patentable. Doesn't change the FTO side of things, but so again, being really planful in the strategy along with your business and your value milestones, I think, is important, and probably more companies can do that to be successful.

Kregg Koch  11:42  
Yeah, and it's important, I think when I add to that, the benefit of getting that really patent is maybe you leverage a little more confidence with the investors. But you can also use that to leverage other patents internationally. A lot of patent offices around the world will look at what the US did. Fact, there are even specific programs that you can enter into where they actually look at the fact that you've got granted patents in the United States and use that to leverage, hopefully a better and faster result internationally in countries like or regions like Europe. You can use that type of a thing under the, you know, the pace of the called the Patent Prosecution Highway Program. You can use that in various countries also. So getting that early patent, that seed patent, started and granted early really helps develop a lot of different, you know, potential, you know, additional resources and additional, you know, accolades that are going to help you in a lot of different

Dennis McWilliams  12:29  
ways. So actually, I guess, actually, can I answer a question? I mean, you know, we, we get this question a lot from our portfolio companies. And, you know, companies we look at is like, what, what should I do on my international talents? How aggressive should I be? I mean, you know, some companies show up and they've got 140 countries that they own, China, India, everything going others have US and Europe, and that's it. I mean, like, what? What kind of guidance do you give? Because those just get really expensive, like I do, yeah,

Harnik Shukla  12:56  
so as I was mentioning, the prep call, usually, you know, I'm the one telling the clients like, no, no, we don't need to go to all of these countries. So, you know, of course, you're filing in the US, and then Europe is, you know, essentially, an easy answer, but after US and Europe, it really has to be strategic, right? Like, are you manufacturing of particular device in Mexico that maybe it makes sense to file in Mexico? Do you see some reimbursement potential in Australia. Are you going to do some clinical trials in Australia? And then you think about filing some applications over there? I do a lot of work in sensors and algorithms, and almost all of our algorithm cases, we just file in us. We don't even bother going in all these different jurisdictions, because one of the big things that companies fail to realize is that in us, you don't really have to pay the maintenance fees until the patent issues, but in most other countries, just to keep them pending, you have to keep paying this tax. So even though you have no issued patents, but if you're filed in 10 different countries, you're paying this tax to keep it pending for years on

Terri Burke  14:03  
Well, that was a really good comment about just the payment right that you might have. So one tip I have, and I did it certainly with with my startup company, is, if you're working with great counsel, ask them to project your fees for a year or two years, they know your schedule. They know where you file. They can tell you when those payments are due. Your CFO will love you because they have some predictability. But you can also start to see where are those costs going to add up. And you can make also, not only strategic decisions around like which geography, but you can also be really informed on the financial side to know where those right markets are for you. So I think it's important, because it's really hard to keep track of, and the costs keep coming on, patents from and so going. So we talked about that, that you often provide that level of,

Kregg Koch  14:57  
yeah, because there's also, I mean, there's examination costs, especially. You know, there's translation fees in, you know, certain other countries, like the Asian countries particularly. So it is really important, I totally agree it's important for our clients, especially the startups, to be able to forecast those costs well in advance so that they've got that, you know, the budget set aside to be able to dedicate to that. Because the last thing you want to see is investing two thirds of the way and running out of money and then having to abandon some of your international applications. Because, as never had happens. Does happen? Yeah, yeah. And it's, you know, no, I

Dennis McWilliams  15:27  
mean, I mean, it's funny, like, yeah, you know, look, everyone in this room, if you're, you gotta type, we're all managing cash. And, like, you know, when we're, we're in the companies, and we're trying to extend where we're trying to raise around, and we're pushing the CEO to cut costs and manage, I mean, we go through through patent costs, and it's like, and it's painful, because you have invested all this cost up to that, and if you get this meaty 100, you know, $200,000 a year fee, it's a target you got to talk about. And so, you know, you can't give up the crowd. But it's funny, like, that type of exercise really forces you to kind of think through strategically, what's really important do that at the beginning with a good advice, so then that way you're not over paying on it. And you know, and again, that's a common mistake we see, yeah, and I will say to kind of

Kregg Koch  16:09  
answer your question with a little more particularity. You don't have to go after all the countries that you might even market and sell in. You don't always have to do that. You have to create enough of an impediment that a competitor doesn't want to go into those countries. And you can do that with establishing that with establishing really good, strong IP in the main markets. So you don't have to think about all the little countries that are going to add up all the costs, 100 or $2,000 that's a pretty big budget. I don't think BC fees like that typically for startups, but you know, you do need to plan ahead and know that

Dennis McWilliams  16:37  
we're talking about IP Rs in the moment. That's a

Kregg Koch  16:40  
separate question. Separate, completely different thing. But if you know, there are programs in place, like the Patent Cooperation Treaty that allow you to defer some of those costs down the road, and you know, most companies take advantage of that, and that allows you, you start out with the US as your primary market, typically, and then you can use this PCT the Patent Cooperation Treaty program to kind of defer the cost, you know, another year and a half to two and a half years down the road after your first filing. So very, very good ways, and that's the intention to kind of let you hopefully have a better understanding of the markets that you're gonna want to get into. Hopefully have a little bit of revenue. I mean, that's probably pretty early for most medical device companies, but at least have some good foundation of investment, and, you know, capital to be able to pursue those countries. But I think Harnik said it perfect strategic. Just be strategic about it. Don't shoot for the moon. There's no reason to.

Harnik Shukla  17:28  
Yeah, and, you know, I think we've been touching a lot of different aspects of IP diligence. I just wanted to get it back and set up the framework whenever, just before you're prepping for your IC we say IP diligence, you need to make sure you've got three questions answered. It's, do you have ownership of your patents? We haven't really talked much about ownership, but that issue ends up coming up becoming really a big problem early on, especially if you've had consultants. I've noticed, especially up at COVID, a lot of startups use consultants, but they don't have the best agreements with them. And startups, whenever they file an application, they think, well, I file the application, so I must own it. But in mentorship is a legal concept. You can't arbitrarily decide who gets to be an inventor. So you know, often it ends up that whether you're working with a university professor or a doctor at a hospital or a consultant, they end up becoming inventors for your pan application. So you want to make sure you had the right agreements.

Dennis McWilliams  18:30  
And when do they show up? The show when you've got the term sheet signed with the acquisition and the numbers name they're going to then they raise their hand, and then, like, that's when they show up. Yeah, and

Kregg Koch  18:40  
there's there's two things I'd like to add to that. One is really simple. An ounce of profession. Prevention is worth a pound of cure. It seems to me, like all these issues, these consulting agreements, they're pretty easy to negotiate at the start of an agreement, but when things maybe start going sideways, or a lot of revenue starts coming in, people's memories fade. People have a difference of opinion, potentially at that stage, get your agreements in place that exactly requires the ownership to be transferred to your company at a very early stage, honestly, before the disclosure of me information, before they're onboarded, that's the time to do it. Make sure they're in writing and make sure they're reviewed by good attorneys, to make sure that everything

Terri Burke  19:17  
looks clear. Yeah, on that, I would say, think about there's a lot of great R and D houses that sometimes, if you're a physician, and maybe you've got a napkin drawing, and you're thinking about, like, how do I get some prototypes made? Those are the contracts you really want to make sure have clauses around IP. Who owns it? Is it assigned to the company? Right? Just make sure even, like, the simplest of things, but when we're doing diligence as investors, we're going to start to look at that kind of thing to make sure that there's a clear chain of custody and that we know that, hey, these six different people have contributed. But guess what? The company we're interested in investing in, they own all of that. It's assigned to them. We're going to have counsel check. Out for us, because it gets messy, and the time to clean it up is when you're still a small company, and you have the ability to do that, like Dennis said, it gets it gets ugly later, right? And transfer agreements with universities, that's an important piece.

Dennis McWilliams  20:17  
That's kind of like I was thinking. I was trying to, my brain was trying to go like, well, what's when we're doing diligence on a company and we're getting serious about doing a deal, kind of our order of operations on IP like, let's say early on we want to be educated on, what have you done on freedom to operate? And so very seldom do companies at the stage we see have a formal freedom to operate opinion from from counsel. I mean, that's amazing when they do. So we kind of judge that by probing questions. Like fried is, if they don't, then that's, you know, negative tick. You know, have you search? You know, if they talk about the search that they've done and it was a thoughtful search, so if I was doing this, like, at least they're thinking about that. Or, you know, there's something, you know, we call, and you guys probably have a term or have an offering for it, but a soft FTO, so it's like a non formal opinion, but you can do different levels of that. And so we kind of want to understand, and we kind of query on that. We don't confirm any of it. When we just ask, we kind of understand what are the claims that you think are unique to what you're doing? And then I would say, before we go to term sheet. If you know back to do you own it, if you have a licensing agreement with somebody, we'll read that. We'll want to understand what royalties are, what you owe, and that, like, that's kind of like our invention, joint invention disagreement. So what we'll do, all that work ourselves, a lot of times, just to confirm, like, just the basics are there. Then we negotiate a term sheet, and then once we sign a term sheet, and we've agreed upon the deal. Then we hire independent IP counsel and we spend money. So, you know, we'll spend 5070, $100,000 with an IP firm that we select. We've just Kenobi a lot, and we basically sick them on your intellectual property. They go away for four weeks, and they come back and give us a report. We pay for it initially, and then you pay us back if we do the deal with our money. So, like, that's kind of how that works. If there are problems that pop up in there, and those problems do kind of pop up, that becomes a conversation of how much risk we're going to take in terms of because, you know, if we wake up the term sheet, we got to pay our legal costs on that. And so that's kind of how the order of operations goes on that. And you know, maybe you can talk about being on the other side of those engagements. No,

Harnik Shukla  22:29  
that's absolutely right. So like I said, the three prongs, you look at the ownership and either the clean, the cleaner it is, it gives you that impression of sophistication, right? It's all about

Dennis McWilliams  22:40  
credibility. We will ask you guys, like, all right, they'll walk you through the report, like, Okay, do they know what they're doing? It's like, yeah, their council is really good company, right? Yeah. It's like, they, they've done a good job here. Or it's like,

Harnik Shukla  22:52  
right? And then on FTO, you know, it's a story like, as Dennis said, it's not like most folks will have a full, like, 50 to $100,000 FTO report. But do you know who your competitors are? Right? What are some of the patents that are in your space? Do you have an idea of how you're getting around it? Or there might be spaces like, you know, remote monitoring or ECG, where patents have been there for 20 plus years, and a lot of it's in public domain. So just generally, having a good story for your FTO that gives you a lot of credibility when we are probing on behalf of VCs and

Kregg Koch  23:29  
Dennis. You raised that. I think it's a really good point. I mean, there's a little bit of a scale on this too, the earlier stage you are, and I think this applies to all of these three prongs. But you know, for freedom to operate, it might be a good story in the beginning. But if you're, you know, along the point of being a commercialized you have a commercialized product on there. I mean, at that point you expect

Dennis McWilliams  23:46  
something. We would run a form. I mean, yeah, in most companies, when they they're on, like our quality control system, when I was on Apollo, it required a freedom to operate, opinion, to launch a product. That was kind of part of our checklist process. Not everybody does that, but, but, yeah. I mean, there is, there is, there is kind of a scale of what you expect, right?

Audience Question  24:04  
So, great panel so far. Thank you so much. My question relates to software as a medical device. So you're laughing Exactly. So we feel like it's always kind of like, where's your IP, but at the same time, like patenting algorithms feels, you know, like busy therapy, but at the same time, investors are like, they, you know, use the medical device like, everything is patented, but when you go to software, so just curious from the panel, like, you know, how do you build a software as the medical device patent strategy? And you know, to create, you know, to answer those questions of the investors when they are when we hit the IP questions.

Terri Burke  24:45  
So I'll answer maybe as an operator and a marketer at heart, and then you sure certainly speak to the strategy. But I think some of it is what we've been talking about. Where do you have as an innovator? Do you have a strategy? Do you have a solid under. Understanding and what you think is a trade secret and unique versus what you think you should patent. So I would say, have your story together and have good counsel. Because when you get into these diligence situations, you're going to have these guys talking to your counsel. So you want to make sure you're well represented, where someone can explain why you chose certain approaches. So I always detecting, really and why? So I think it comes to what's your value proposition, and how are you executing against that, and then maybe you can speak to like, how you decide that?

Harnik Shukla  25:31  
Yeah, and you're right. It's very complicated when it comes to algorithms. Most of the times I recommend keeping the deep algorithms that cannot be reverse engineered just to trade secret, because the type of claims you're going to be able to get, the protection is going to be generally narrow, and you don't want to give away your crown jewel, specifically, all those companies who are, you know, doing AI work, you don't want to tell them what your model looks like, what your weights are, and that shouldn't be in a public domain. So that should all be kept trade secret. On the other side, there's a lot of things that are user facing. All your user interfaces, how your doctor is working with the computer screen, right, like how they're manipulating the data. Some of those features are extremely valuable, because if somebody's going to copy you, they're going to be copying the user interaction features, and that's where most of the protection

Kregg Koch  26:23  
should be. Do you have a good sense for you know that maybe the requirements of trade secret, what it takes to get one, how to protect it, those kinds of things. Does anybody want to know a little bit more about trade secret protection? Yeah, okay, all right. So I think the kind of the first point is it's a heck of a lot cheaper, because there's not really anything that you have to file. It's mostly that you have to take precautions to keep that information secret. You know, one of the downsides to trade secret is that it doesn't prevent others from independently developing that technology and using it, but it does protect against the misappropriation that tends to be a really important factor for a lot of companies. There's a lot of mobility of employees between companies, consultants, et cetera. I think you know the level of precautions that you need to use or apply to keep that information secret is typically commensurate with the value of the trade secret. But the important steps are, identify it. Make sure everybody knows our trade secrets. Make sure everybody that comes across that you know, keep it on a kind of a need to know basis, or limited access to the extent that you can. These are some of the things that you can do, and the ones that do have access to it, make sure you have really good, strong agreements, written agreements, that they understand the nature of the trade secret, that they agree not to divulge it, not to use it, et cetera, all those kinds of things,

Dennis McWilliams  27:32  
very I mean, one of the most valuable trade secrets is the recipe for Coca Cola. Everybody knows that the story I love to tell on trade and trade secret can be the most powerful if you can really pull it off, like it's extremely valuable. But anyone know the Kentucky Fried Chicken Story like the KFC story? So KFC was another very valuable trade secret, Colonel Sanders secret recipe of the spices for Do y'all know what I'm talking about? The batter? Okay, all right. Stairs are so it's been a trade secret, very, very valuable. Entire franchise. Bet on it. And, you know, he had, you know, Colonel Sanders had long died, and it was kept in a safe, a very protected safe by the family. And like that was the crown jewels of it. And there was this reporter who was doing a story on Kentucky Fried Chicken and interviewing the heir that kind of was responsible for this now, and asked him about the trade secret, and said, you know, yeah, we keep it in the safer over here. And the reporter says, Can I see it? And the guy goes to the safe, pulls it out and lets him take a picture of it. And so now, I mean, you can Google KFC, and then you can see an actual picture of is that real story? It's a real story. And I mean, I don't do that until he's gone,

Terri Burke  28:38  
yeah. I mean, just tactically, with trade secrets. You know, we would have this conversation. I worked at Edwards for a lot of years, and operationally, if, if you have, I don't know, pick it. 25 engineers working on something, and it's truly trade secret, probably one or two need to have access to it. So you have to think about it in terms of like, how are you going to protect and demonstrate that it is a trade secret. Because if it's really a trade secret, like every employee shouldn't have access to it. You should have a closed system, etc, so you do have to operationalize not only what Council is saying from a trade secret perspective, but also, how are you going to make sure it stays safe within your organization?

Audience Question 2  29:20  
This is not about trade secrets, but I had a question around, how have you seen companies expand their IP portfolio outside of the US and Europe and, you know, like the main markets that you have money for in the beginning? But maybe,

Dennis McWilliams  29:36  
you know, yeah, I think, I mean, I think you said it best, Frank, like, like, you don't need a patent in all those areas, because really, what you're trying to do is prevent somebody from manufacturing their your device and going through all the trouble of manufacturing your product. And so the higher the pain level of reproducing what you're doing physically, the less you have to worry about. Like, if you block the US markets Europe, it makes no sense to buy. A massive manufacturing group to compete in, like Argentina, like it just does like you it'll never pay off. So think about along those lines. But if things are more fungible, like, you know, we just talked about software, like, where super is super easy to do it like, there's a little, you know, the easier it is for somebody to copy, the lower that barrier is, you know, then you have to worry about that a little bit more in those countries. But I don't know. I mean, you know, I we look forward, do you have it in the US? And then, like, if you have in Europe, okay, that's great. And then maybe, if the disease state is super prevalent in some country, maybe we're curious about being Japan and Korea or something like that. And then Japan and China. Like, I don't know what advice you guys give now, but like, we don't, like, we do not opine on that. Like, yeah, we do not expect anybody to have IP in those, those those countries,

Harnik Shukla  30:46  
right? And China used to be big for a few years, and now it's,

Dennis McWilliams  30:52  
doesn't matter. No, it's not. It doesn't seem like, well, and there are other barriers. Like, like, what we found at Apollo when I was doing that, like, we did file some some some IP in China, because we felt it was a big market for what we were doing. But it took so long for us to get the regulatory approvals for the products in the country that the IP was almost moot. So

Audience Question 3  31:11  
Well, thank you for answering all this question. So we developed a novel medical device, and we were wondering, how do we protect the design of the device, the design, the design. Yeah, okay, do I take

Kregg Koch  31:21  
that correct? Do you mean design by, like, the ornamental appearance of it? Yeah? Okay, yeah. In fact, actually, it's a really powerful way to protect a product. I know we were talking about that in our last call last week. You know, design patent applications, and they're recognized around the world, but again, it's country specific. You have to get one here. You have to get another one in Europe, etc. But there, you know, there are specific design patents that you can file an application for, and it has to cover just strictly ornamental, non functional features. And it is a, it is a powerful way. I mean, we've seen a lot of really strong, you know, cases and litigation results based on design patents. And we get them like, I enforce. I do a lot of design work as well myself and a lot of enforcement on behalf of clients where they're you know, there are clear competitors coming on the market that are just carbon copying in China and Ali Baba, etc. And design patents have been extremely powerful to shut those down very quickly, because you can get design patents quickly. You can get them for a lot lower cost compared to utility patents, which cover the functional features of it. And you can also get them internationally as well. And they are, there are also international agreements. Just like I was talking about that Patent Cooperation Treaty, there are the Paris Convention treaty allows you to basically claim priority to a application in the United States, to extend your protection abroad as long as you do within a certain time period. So just like even utility patents, I think the best strategy start in your strongest market, which is typically the United States, get that application on file, and then if you know there are other areas that you want to be able to extend that protection into, you've got a certain amount of time down the road to do that. But design patents are a very powerful tool that I think any customer that really values the appearance and overall esthetics of their product should strongly consider.

Harnik Shukla  33:01  
That's a great question. It's really easy to file a lawsuit on design patent. So you need to stop if you need to stop somebody, stop an infringer, then it's a lot cheaper. You get into lawsuits. It's powerful. You can also have design patterns on user interfaces. So I know we talked about software as a medical device. That's one approach to protect some of the software is plotting a design patent on the user interface, which is the look and feel.

Kregg Koch  33:31  
I also, I want to add one point to make sure that we don't forget to make this it's a really important one, and it's a common, I guess maybe it's commonly overlooked by a lot of startups. You got to make sure you file your patent applications before you start making any public disclosures, right or before you offer something for sale. In the United States, you've got a, what I consider a fairly generous one year grace period if you make a public disclosure, even at a trade show. So you're just drip, you know, you're showing a doctor, you know, a prototype that you came up with, and you don't have a non disclosure agreement that might be considered a public disclosure if that were in the United States, that immediately starts a clock ticking. You have one year within which to file a patent application in the United States, in Europe, in most other countries, you don't have that generous one year grace period. You really have to have filed a patent application covering the subject matter that you disclosed before you actually make that disclosure. So even for a design patent, same thing, you got to make sure that you really get your ducks in a row and get those applications filed before you start hitting the payment with it and showing it off and potentially making those patent barring type events happen. And you know, like even, you know, in this case, it's probably not. Social media tends to be an area where we see a lot of inadvertent disclosures from our clients. Some clients in certain areas, medical device, are much more careful, much more sophisticated, but anything like that. I mean, just make sure you got your patent application on file before you make those

Audience Question 4  34:50  
kind of disclosures. I don't know if I can do this, but I think I have three questions. Number of years when you deal with strategics and for potential acquisition that they like. To see that you your coverage is through get to like, I mean, of course they want to see that there's, you know, 20 years, but it takes time you file, till you develop, till you raise capital. I mean, is 10 years enough, is eight years enough?

Dennis McWilliams  35:12  
That's a really good question. The way I say most people try to handle that is, you need some in this is assuming that, like, if you're generating revenue already, and it's a short time from the acquisition to scale, then it's a shorter amount of time, right? Because it's all about time

Terri Burke  35:32  
for Right? Like, what's the market, and does the strategic feel like they have enough time to not only attack that market, see revenue, but then maybe build on the patent portfolio, or build on a gen two, Gen three, so it's somewhat dependent on

Dennis McWilliams  35:48  
but from a practical perspective, I think it's one of those things that I like, when I was running my company, it took a long time to get the approvals and those things, and we were really worried that, God, our patents are going to run out of this time. And we had this like, but like, once you get further along and you in, your product starts to shape, take shape more, and you're doing clinical work with it, like these guys are coming up with all sorts of new, interesting claims and challenges that you're layering onto that to extend that out, that I would say, practically speaking, like, you know, and again, everything's a little different if you have a truly funded like, I think, like, read on innovation, or something like those big, broad patents, but usually you're gonna be able to you're going to be able to put enough other blocking IP and build that in the market where it acquires and feel pretty comfortable that they can block others from doing

Audience Question 4  36:29  
it any number of patents that makes a strategic comfortable.

Kregg Koch  36:33  
That's the quality of these. Yeah, that's quality of that for

Audience Question 4  36:36  
so that's my second question, because I met with investors every now and we say, well, you know, someone's gonna come challenged like that. That's ridiculous, yeah. So, I mean, I look at it, it's actually, it's, oh, that's not ridiculous. Well, let me, let me rephrase it. It's any investor can say that, and it's always a possibility. But right now, we have had 19 issue patents. This is where we are, yeah, okay, that's a pretty good Mo.

Dennis McWilliams  36:59  
No, it is. It is a good Mo. I mean, again, but there's nuance to it. I mean, like one of the trends, and we're going to run out of time to talk about it, but one of the things we are starting to see, which is causing a lot of anxiety with with medical device investors, is this thing called the IPR process, where Institutional Review Board, where, where you can have a company can challenge once your patents issued, somebody can, just like, before you even start commercializing, they can try to invalidate your claims. And on one hand, that's a little scary, just that you could have something invalidated. But it also turns out to be pretty darn expensive to you to start up a company. We have a company, Tara and I are in. It's public. You can look it up, but Penumbra has been hitting them in the IPR process, and they've been trying to, we've spent several million dollars over several years defending that. It's like, you know, and it's like, oh my god, like new your fear, unlock your level unlocked. And venture it's like, Okay, now we got to worry about that.

Audience Question 4  37:56  
Should be the British system that, if they lose, they pay.

Kregg Koch  38:00  
But I will say, and I think Terry raised this point before, it's the quality of your patents. I mean, looking at, you know, the diversity of protection. Even just with a design patent, it gives you a little different scope of protection that you might you know, if one patent is invalidated, you still have three others that take different bites at the apple, just make sure it covers your core technology. And sometimes it's a little difficult to predict in the early stage. But you know, the more you can build alternatives and additional detail into your patent application, the easier it is for us to be able to track a commercial product as it meanders and improves over the years, to be able to try to get different levels of protection that are meaningful and really apply to your core technology. And I think that's the best way. I mean that it's not the number, it's the quality of it and the diversity of it. I think, in my opinion, of the patents that cover your core technology, that really is

Terri Burke  38:44  
gonna make it. And I guess I would say along the way, it's really easy, when you first get started in a startup, to sit down and hear counsel and start your filings, and then your engineers go three different directions, because two things didn't work. The third thing looks promising, right? And you continue to evolve through concepting, to design freeze, but you have to stay connected to your patent counsel, because your embodiment of the device is changing, and what you originally file may not be quite where you're at. So Well, there's

Dennis McWilliams  39:14  
the other benefit, like in this one situation where we're dealing with this, what our team did is they they have an annual meeting with their patent counsel, and so now they know who to come who their competition is, and they see the product this company is building, and they're modifying their claims to make them infringing on what we're doing. So it's like again, that consistent engagement with your counsel is super important to play that game of poker,

Harnik Shukla  39:36  
and you have to keep continuation spending. So whenever, if your counsel tells you, do you want to file a continuation? Your answer should almost always be

Audience Question 4  39:43  
Yes. Last question, you mentioned the freedom to operate, and some DC had asked us about that, and our attorney wrote a freedom to operate, wonderful, great. And does the fact that our attorney wrote it make it less useful

Dennis McWilliams  39:58  
to them? Yeah. I mean. So some, some VCs will require an independent FTO opinion from their council that they choose. Okay, some will want to do it, but they will take great comfort in knowing that you've already done it and you haven't. And what they may do, like, you know, to save money sometimes, is just like, Well, look, let's just like, have counsel our council check okay to that it was done appropriately,

Harnik Shukla  40:20  
right? And generally we so let's say if I was representing Dennis or Terry and you had the FTO prepared by your counsel, you don't want to send it over most of the times without this privilege communication between your attorney and you. So what we get is, what are some of the patents that you found, or what was the search strings, but not the actual opinion, because if you send the opinion over, then you're losing privilege. So it's something to think about. Yeah, just in your counsel and our

Dennis McWilliams  40:49  
counsel will inform you of

Terri Burke  40:51  
that. That's how it worked. So this is my last bit of advice coming at that as a startup CEO, and also being on the other side of things, is make sure you have good counsel, because they can be a really important asset, and part of your team when you go through diligence with VC firms and investors, right? So when we get to the point where there's a term sheet and now we want to spend money on counsel, we're bringing good counsel. Who would

Kregg Koch  41:17  
you recommend to? Well, there's

Terri Burke  41:19  
these gentlemen right here at Kenobi who are wonderful, but we're bringing good counsel, so you want to have good counsel too. So I always say it's money well spent, because then it's these guys talking to your counsel, and it's not an engineer trying to describe what's going on. It's kind of it's the professionals, not the civilians. So that's my advice,

Kregg Koch  41:41  
right? Thank you all for coming. If anybody has any additional questions, we can stick around for a few minutes and happy to discuss it with anybody. But we appreciate you guys coming. I hope it's a fantastic conference for everyone.