Franano has been responsible for the intellectual strategy at all three his companies and shared some ideas about how entrepreneurs can ensure their intellectual property is protected in a cost-effective fashion. The interview was edited for clarity and length.
Entrepreneurs are often very busy creating and pursuing their business ideas. Does intellectual property become something that they worry about when they know if the ideas will succeed or not? Are they required to create an IP strategy before starting?
It is important to have an IP strategy in place from the beginning to avoid any early mistakes. When I was trying to license product, IP diligence showed that the inventor had given slides at an awards banquet. This was before the patent application was filed.
Young businesses often don’t have the funds to invest heavily in intellectual property. They have to adopt a more cost-conscious approach. Is it possible for an IP strategy to be cost-effective? __S.9__
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Yes. If there is related subject matter, you may file one larger patent application rather than three separate ones.
If your intellectual properties attorneys have high levels of confidence in your business and your technology, they will often accept payments that arrive over time instead of at the invoice date. Early-stage companies are more likely to be funded than later stages. Intellectual property costs are relatively stable. Firms that work with early stage companies know this and are flexible about the timing of payments.
Coca-Cola’s formula is well-knownly protected as a trade secret and not through any other forms or intellectual property. Trade secrets are tools that entrepreneurs can use in order to protect their intellectual capital.
I have seen it used effectively in situations where knowledge is not easily gained but there is a low chance of getting valuable patent claims. In these cases, it might be more advantageous to keep the knowhow private as a valuable trade secret than to make it available in a low-value application for a patent. It’s always a debate: “Would this be better served by not filing it?”. If you decide that it should be kept as a trade secrets, then you need to manage it well and make sure that all of your former employees, vendors, and consultants are protected from any unauthorized disclosures.
Venture capitalists are often the best option for startup founders who have limited cash. You’re also putting your IP at risk and the business model at stake by disclosing information with people who are basically strangers. Do you have the right to request confidentiality disclosure agreements for potential investors?
I tend to share non-confidential info first and don’t request a CDA. If there is mutual interest, the CDA can be made later.
Sometimes sharing can lead to great learning. Investors are always seeing both the good and the bad. It can be uncomfortable to disclose information, but it can also help you to get feedback from people who are highly skilled and intelligent. They can provide valuable feedback on things to fix, things that need to be thought about, potential partners, and any risks to your business plans.
Sometimes, investors don’t know I share information with them if they have a portfolio or operate in a company which is clearly a rival to ours. That is a dangerous situation.
In the overall scheme of protecting IP, what is the role of confidentiality agreements?
It is common to hear that Venture capitalists will not sign CDAs. However, if you take serious discussions with venture capital groups, many of them will.
If they are very serious about diligence and you tell them that you have additional information you’d like to share, but you need a CDA in order to do so, they will likely sign it. While signing a CDA can make people more careful about sharing personal information with others, it is not a guarantee that confidentiality will be maintained.
What is the best way to protect intellectual property and ensure confidentiality for independent contractors and employees?
A CDA is a must for any young company. It should be used frequently.
You need to have and control IP rights if you work in a cocreation or coinvention environment. It’s essential that your research and engineering contracts, as well as consulting and manufacturing contracts, contain language that indicates that inventions have been given to your company. These clauses will be a part of all your agreements. An investor or partner who is new to the business must know that you will not co-create with others who do not have a clear obligation of assigning IP to them. In this situation, the company may not be able commercialize its products and could lose investors.
Remaining friendly with your ex-employees is also very important. You might need their help to file an affidavit, to declare a fact or to resolve a dispute with a government entity like the NIH. You want your inventors to be happy. In a dispute about an invention, you don’t want a former employee inventor coming into court to say, “I hated working here.” Those people were all jerks. And I don’t remember anything.”
Any other information you’d like to share about how entrepreneurs can develop an IP strategy for a cost-conscious business model?
You are really trying to take over intellectual ground so that others can innovate around you. This is all about getting products to people, especially those in the healthcare industry. It is necessary to be able attract capital in order to accomplish this. In order to raise capital, you need to prove that your business can sustain itself over time. It is important to protect your intellectual property. Another issue that I see is when companies neglect to inform their IP owners in written communications or fail to disclose their IP properly in public presentations. I have witnessed people speak out and say “Here’s what the lawyer says to me about our intellectual propriety.” You shouldn’t say that! It’s essentially giving up attorney client privilege and opening your private communications up to discovery in a case.
Franano closed by saying that intellectual property can be used in three ways. It protects against other entrepreneurs copying an entrepreneur’s innovation and “allows to you build a business capable of providing products to patients,” Franano said. It is a weapon that can be used against competitors. Franano also said intellectual property can be used by companies to boost investors’ and partners confidence in their company.
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