Patent and trade mark attorneys: an ever expanding role

Today's attorney needs to advise clients at a much more commercial level, particularly where fund-raising and risk management is involved.

By Peter Finnie

The expectations of many of our clients have changed significantly over the last few years. As patent and trade mark attorneys, we are no longer simply thought of as legal professionals who merely draft, file and prosecute patent and trade mark applications through to grant. Instead, the increase in public awareness of the importance of intellectual property (IP) has seen our role evolve significantly. This enhanced role requires us to advise clients at a much more commercial level, particularly where fund-raising is involved. It also requires us to understand the concept of risk management.

As a consequence, we have had to develop an improved understanding of how the private equity investment community operates so that we can advise clients on the development and implementation of sophisticated and cost-effective IP strategies to support their business planning and fund-raising efforts, since IP is usually central to this.

The increase in awareness of IP has had a corresponding impact on investors in technology-based companies. IP due diligence exercises are no longer simply a matter of counting how many patents there are in the portfolio. Investors want to build a better understanding of the IP-related risks and understand how the IP asserted to be of value to the business fits within the overall framework of the business plan. They want to see an explicit IP strategy.

We have had experience of acting for both investors and companies across a range of technologies, including the telecommunications, IT and life sciences sectors. Investors have had a significant impact on shaping the services we now offer to clients since they provide the opportunity to gain an insight to how IP is viewed from a very different perspective to the one we normally see.

IP Risks

A concept that investors understand is that of “risk”. The lesson I learned is to approach IP in terms of risk. The following are some of the IP risks a business may face:

• The IP is not adequately protected.
• Money is being spent on IP that is not relevant to the business plan.
• The company does not own the IP.
• The key IP is not valid.
• Valuable IP could be overlooked and inadvertently “lost”.
• Pursuing an inappropriate filing strategy.
• Infringing third party IP and all its consequences.
• Ultimately, the company and any investors stand to lose money.

Tailor made approach to due diligence

Once you have understood this it is possible to tailor the IP due diligence process to identify and evaluate risk. The key to this is the company’s business plan.

When conducting due diligence on behalf of investors, the companies we investigate hardly ever present their IP to the investor in the form of anything more sophisticated than a basic patent status report with a list of their patents and pending patent applications together with copies of the associated publications. Indeed, companies seem consider it is sufficient to file patent applications, and the more the merrier, since received wisdom is that this would support or even enhance the pre-money valuation.

They cannot explain what they are doing in terms of their own business plan. Their own patent attorney usually has never even seen the business plan. They file patent applications for their client because they are asked to do so. As a result there is no explicit IP strategy to speak of.

IP Issues

The following are just a few of the IP related issues we routinely encounter when conducting IP due diligence:

• The key IP is not actually owned by the company.
• Plans to exploit the IP are incompatible with existing agreements with third parties involved in joint research and development. Joint ownership of inventions can limit the ability to exploit the IP to the fullest extent possible.
• The IP is not related to product or services outlined in the business plan and therefore of no apparent value (but still represent a significant cost).
• The importance of IP to the future success of the company is being oversold, which could lead to devaluation of the company when it becomes clear the IP is not as strong as originally asserted.
• There is no coherent internal policy for identifying and protecting innovation at an early stage. Important opportunities may have already been missed.
• The first filing of a patent application in United Kingdom is followed by an International patent application 12 months later, even when it is clear from the business plan that the key market is the US and principal competitors are US-based. This simple filing strategy would lead to a long delay in the grant of a US patent and could affect investor confidence and the ability to attract and retain US-led investment.
• There were no novelty searches conducted on new patent applications within the first year to assist foreign filing decisions. This also means there is no evidence to suggest the invention is patentable when it may be necessary to have this to support a decision to invest.
• Patent applications are not written with the business plan in mind so the claim structure is inadequate.
• No assessment of third party rights has been undertaken, even when it is clear there is a relevant patent that could adversely affect the company’s plans to exploit their own technology.
• There is no on-going watch of published patent applications or patents to give an early warning of potential risks.
• No trade mark applications have been filed, even in the UK, and no trade mark clearance searches have been conducted.
• The company is not free to use its trade marks in United States (usually a key market) so a new name is required. This normally arises from a failure to check at an early stage whether the trade mark can be registered and used in the US. Where branding is important, it is not sufficient simply to obtain a UK registered trade mark and assume you can do the same elsewhere. Getting the trade mark side of things wrong can prove very costly.
 

The client-attorney relationship should be such that these key risk management issues are identified and dealt with long before any serious due diligence exercise appears on the horizon. The aim is to ensure clients get the most out of their investment in research and development of new technology to manage the IP risks in a responsible and cost-effective manner.

Making a difference

As a result of the investigations we have carried out on behalf of investors we now offer a very different service to our UK clients. We expect to sit down with our clients from the very beginning to develop the framework for an explicit IP strategy that can form part of the company’s business plan. The IP strategy document sets out why IP is relevant to the company, how it is going to support the business plan.

Even a basic understanding of the business plan, which typically establishes the “unique selling point” the company offers in the context of their technology and their competitors in the market, can suggest a suitable patent and trade mark strategy.

We identify what IP already exists or may be developed in future, and how the IP is going to be used to commercial advantage, i.e. to maintain exclusivity, through licensing, or simply sold for profit. We also discuss the source of any innovation, particularly where other parties are involved since this may give rise to ownership issues. A failure to identify these issues can have serious consequences.

It is equally important to determine an appropriate level of effort to be spent identifying and monitoring third party IP that may present a risk to the company. This is an issue that you can only avoid in the very short term. Again, the business plan usually discusses likely competitors and so provides a useful starting point for this.

Raising expectations

Our clients have found this process to be of enormous benefit since they then have a clearer understanding of their company’s IP position, and are able to make informed decisions when called upon to do so.

In summary, I believe clients should expect more from their patent and trade mark attorneys than the basic (albeit skilled) service of filing patent and trade mark applications as if it were an exercise in acquiring property for the sake of it. Whether the patent attorney is acting for a company or an investor, our technical and legal skills ensure we are in an ideal position to offer commercial advice at this level, to complement the legal services offered by other legal advisors.

Background

Peter Finnie is a European Patent Attorney and Partner in the London-based firm of Gill Jennings & Every LLP. He is a recommended patent attorney in the latest edition of the Legal 500. The core of his practice is represented by UK start-up companies for whom he advises on the development of IP strategies as an integral part of business planning and fund raising. He is an active member of Library House in Cambridge.