WEBVTT 00:00:00.000 --> 00:00:00.500 align:middle line:90% 00:00:00.500 --> 00:00:05.500 align:middle line:84% [SQUEAKING] [RUSTLING] [CLICKING] 00:00:05.500 --> 00:00:11.273 align:middle line:90% 00:00:11.273 --> 00:00:13.440 align:middle line:84% JOE HADZIMA: All right, Joe Hadzima here, back again 00:00:13.440 --> 00:00:16.079 align:middle line:90% for tonight, legal issues. 00:00:16.079 --> 00:00:20.640 align:middle line:84% And a couple things I want to make clear at the beginning. 00:00:20.640 --> 00:00:25.040 align:middle line:84% This is for background information only. 00:00:25.040 --> 00:00:28.680 align:middle line:84% And it's not legal advice, even though it says legal issues. 00:00:28.680 --> 00:00:31.220 align:middle line:84% And the reason for that-- there are at least two reasons. 00:00:31.220 --> 00:00:35.680 align:middle line:84% One is, legal things are very fact-dependent. 00:00:35.680 --> 00:00:37.720 align:middle line:84% And so you could have similar facts that 00:00:37.720 --> 00:00:41.000 align:middle line:90% have different legal results. 00:00:41.000 --> 00:00:44.840 align:middle line:84% And I don't want you to apply a certain fact 00:00:44.840 --> 00:00:47.040 align:middle line:84% and assume you know what you're doing on that. 00:00:47.040 --> 00:00:49.840 align:middle line:90% The second is laws change. 00:00:49.840 --> 00:00:51.252 align:middle line:90% Regulations change. 00:00:51.252 --> 00:00:52.960 align:middle line:84% We're seeing that right now in Washington 00:00:52.960 --> 00:00:56.520 align:middle line:84% with the new administration coming in. 00:00:56.520 --> 00:00:59.830 align:middle line:84% So things I say here tonight may not 00:00:59.830 --> 00:01:04.030 align:middle line:84% apply a year from now or five years from now. 00:01:04.030 --> 00:01:06.010 align:middle line:84% What I would like you to do, though, 00:01:06.010 --> 00:01:10.910 align:middle line:84% and my goal here is to tell you some of the things 00:01:10.910 --> 00:01:13.470 align:middle line:84% you need to watch out for, not to make 00:01:13.470 --> 00:01:20.168 align:middle line:84% you a do-it-yourself lawyer, but to say, if I see this thing, 00:01:20.168 --> 00:01:21.710 align:middle line:84% I might want to be careful or I might 00:01:21.710 --> 00:01:25.390 align:middle line:84% want to consult with somebody, rather than go stumbling along 00:01:25.390 --> 00:01:28.630 align:middle line:90% and end up in a big pothole. 00:01:28.630 --> 00:01:31.590 align:middle line:90% So that's the goal. 00:01:31.590 --> 00:01:32.330 align:middle line:90% Excuse me. 00:01:32.330 --> 00:01:35.710 align:middle line:90% 00:01:35.710 --> 00:01:39.070 align:middle line:84% The other thing is, I'm going to violate almost every rule 00:01:39.070 --> 00:01:41.470 align:middle line:90% of giving presentations. 00:01:41.470 --> 00:01:45.750 align:middle line:84% I'm going to probably overload you with information tonight. 00:01:45.750 --> 00:01:49.390 align:middle line:84% And the reason is I figure I have one shot at telling you 00:01:49.390 --> 00:01:50.950 align:middle line:90% about this stuff. 00:01:50.950 --> 00:01:53.910 align:middle line:84% And the slides and the video are things you could go back 00:01:53.910 --> 00:01:56.350 align:middle line:90% to if you have an issue. 00:01:56.350 --> 00:01:58.910 align:middle line:84% Last night on our founders' panel, 00:01:58.910 --> 00:02:02.570 align:middle line:84% it was interesting to know that Peter Godart said, 00:02:02.570 --> 00:02:05.570 align:middle line:84% in talking about licensing, that he had looked at my licensing 00:02:05.570 --> 00:02:07.850 align:middle line:90% materials and it was helpful. 00:02:07.850 --> 00:02:09.490 align:middle line:84% Well, that was probably-- he must 00:02:09.490 --> 00:02:11.770 align:middle line:84% have taken the course five years ago or something. 00:02:11.770 --> 00:02:15.250 align:middle line:84% So I'll have some of those materials tonight. 00:02:15.250 --> 00:02:18.070 align:middle line:90% So anyway, that's the agenda. 00:02:18.070 --> 00:02:21.010 align:middle line:84% And let's see if we can get going here. 00:02:21.010 --> 00:02:23.450 align:middle line:84% I'm going to approach this through the life 00:02:23.450 --> 00:02:25.650 align:middle line:90% cycle of a new venture. 00:02:25.650 --> 00:02:29.170 align:middle line:84% On the top going from left to right, 00:02:29.170 --> 00:02:31.390 align:middle line:84% we're going from the very beginning. 00:02:31.390 --> 00:02:32.850 align:middle line:90% You have an idea. 00:02:32.850 --> 00:02:38.410 align:middle line:84% And then proceeding to pre outside financing and then 00:02:38.410 --> 00:02:41.430 align:middle line:84% first and second round financings, et cetera. 00:02:41.430 --> 00:02:44.210 align:middle line:84% Those are the stages of your venture. 00:02:44.210 --> 00:02:46.170 align:middle line:84% And down the left side, the topics 00:02:46.170 --> 00:02:49.490 align:middle line:84% that I'm going to cover-- intellectual property, 00:02:49.490 --> 00:02:52.930 align:middle line:84% legal entity, people-related issues, and some financing 00:02:52.930 --> 00:02:54.330 align:middle line:90% things. 00:02:54.330 --> 00:02:56.663 align:middle line:84% And so even if I don't get through all of it, 00:02:56.663 --> 00:02:58.080 align:middle line:84% I'll get you through at least some 00:02:58.080 --> 00:03:00.600 align:middle line:90% of the beginning phases of it. 00:03:00.600 --> 00:03:03.400 align:middle line:84% We start off with the first two phases, which 00:03:03.400 --> 00:03:06.480 align:middle line:84% is I've got an idea, and then maybe I'm 00:03:06.480 --> 00:03:09.040 align:middle line:84% getting ready for outside financing. 00:03:09.040 --> 00:03:11.680 align:middle line:84% And we'll start with intellectual property. 00:03:11.680 --> 00:03:13.320 align:middle line:84% And in the next few slides, we're 00:03:13.320 --> 00:03:19.320 align:middle line:84% going to talk about who owns stuff and how do you protect it. 00:03:19.320 --> 00:03:21.520 align:middle line:90% OK, you with me so far? 00:03:21.520 --> 00:03:24.000 align:middle line:90% OK, here we go. 00:03:24.000 --> 00:03:27.480 align:middle line:84% Well, why worry about intellectual property? 00:03:27.480 --> 00:03:31.140 align:middle line:84% This slide shows that back in 2015, 00:03:31.140 --> 00:03:36.840 align:middle line:84% 84% of the value, the market cap of the S&P 500 00:03:36.840 --> 00:03:39.960 align:middle line:90% were represented by intangibles. 00:03:39.960 --> 00:03:43.200 align:middle line:84% Tangibles are things like, plant, equipment. 00:03:43.200 --> 00:03:45.120 align:middle line:84% And if you think historically, if we go back 00:03:45.120 --> 00:03:49.280 align:middle line:84% to pre Industrial Revolution, wealth or value 00:03:49.280 --> 00:03:52.800 align:middle line:84% was pretty much ownership of land 00:03:52.800 --> 00:03:56.190 align:middle line:84% or maybe shipping to bring things from one thing of land 00:03:56.190 --> 00:03:57.350 align:middle line:90% to another. 00:03:57.350 --> 00:04:00.990 align:middle line:84% Then we hit the Industrial Revolution and wealth starts 00:04:00.990 --> 00:04:03.990 align:middle line:84% to get defined by plant and equipment 00:04:03.990 --> 00:04:07.710 align:middle line:84% and capital raised to be able to do that. 00:04:07.710 --> 00:04:11.310 align:middle line:84% Now we're in a situation where a lot of what goes on 00:04:11.310 --> 00:04:16.110 align:middle line:84% is the intangible assets that a company has. 00:04:16.110 --> 00:04:17.810 align:middle line:84% Now, those include a bunch of things. 00:04:17.810 --> 00:04:20.149 align:middle line:90% It includes the people. 00:04:20.149 --> 00:04:24.230 align:middle line:84% It includes processes and ideas, et cetera. 00:04:24.230 --> 00:04:30.270 align:middle line:84% Some portion of that intangible is intellectual capital. 00:04:30.270 --> 00:04:34.430 align:middle line:84% That is, things like ideas and processes. 00:04:34.430 --> 00:04:37.210 align:middle line:84% And some portion of that is intellectual property, 00:04:37.210 --> 00:04:39.590 align:middle line:84% that is, some intellectual capital that can 00:04:39.590 --> 00:04:42.510 align:middle line:90% be protected and worked with. 00:04:42.510 --> 00:04:45.170 align:middle line:84% And so depending on the industry you're in, 00:04:45.170 --> 00:04:49.030 align:middle line:84% the amount of property you have versus capital may vary. 00:04:49.030 --> 00:04:51.830 align:middle line:84% But that's why this is an important set of stuff 00:04:51.830 --> 00:04:54.890 align:middle line:90% that you should know about. 00:04:54.890 --> 00:04:55.390 align:middle line:90% All right. 00:04:55.390 --> 00:04:58.850 align:middle line:84% We're going to talk about types of IP protection 00:04:58.850 --> 00:05:01.310 align:middle line:84% starting at the top, which is none. 00:05:01.310 --> 00:05:03.650 align:middle line:84% That is, you have some ideas and you just 00:05:03.650 --> 00:05:05.890 align:middle line:84% make them available to everybody. 00:05:05.890 --> 00:05:09.450 align:middle line:84% You don't do anything to protect them. 00:05:09.450 --> 00:05:13.130 align:middle line:84% A trade secret, which by definition, you 00:05:13.130 --> 00:05:17.490 align:middle line:84% have a secret and other people don't know it. 00:05:17.490 --> 00:05:20.530 align:middle line:84% And so that can prevent others from doing 00:05:20.530 --> 00:05:23.570 align:middle line:84% what you're doing, because they don't really 00:05:23.570 --> 00:05:24.670 align:middle line:90% know what you're doing. 00:05:24.670 --> 00:05:26.730 align:middle line:90% It makes sense. 00:05:26.730 --> 00:05:29.170 align:middle line:84% The next two categories, trademark-- and I'm 00:05:29.170 --> 00:05:32.430 align:middle line:84% going to go in more detail in the next future slides. 00:05:32.430 --> 00:05:37.090 align:middle line:84% Trademarks are symbols or words or stuff that 00:05:37.090 --> 00:05:41.650 align:middle line:90% express a brand of a company. 00:05:41.650 --> 00:05:46.170 align:middle line:84% And copyright, which is a protection 00:05:46.170 --> 00:05:50.520 align:middle line:84% of copying of something you write or produce. 00:05:50.520 --> 00:05:53.060 align:middle line:84% Now, this says these enhance values, 00:05:53.060 --> 00:05:55.480 align:middle line:84% but they don't really block others. 00:05:55.480 --> 00:05:59.840 align:middle line:84% So Coca-Cola, Coke, has a trademark 00:05:59.840 --> 00:06:04.300 align:middle line:84% that doesn't prevent Pepsi from offering a similar product. 00:06:04.300 --> 00:06:07.640 align:middle line:84% They just can't do it under the name Coke. 00:06:07.640 --> 00:06:10.520 align:middle line:84% A copyright, as you'll see, protects the expression 00:06:10.520 --> 00:06:14.080 align:middle line:90% of an idea, not the idea itself. 00:06:14.080 --> 00:06:17.840 align:middle line:84% So it does provide value to you, but it 00:06:17.840 --> 00:06:19.520 align:middle line:84% doesn't prevent others from using 00:06:19.520 --> 00:06:22.880 align:middle line:90% your expression of an idea. 00:06:22.880 --> 00:06:26.600 align:middle line:84% Patent, on the other hand, cuts both ways. 00:06:26.600 --> 00:06:29.420 align:middle line:84% You have real rights, as you'll see, in a patent 00:06:29.420 --> 00:06:31.800 align:middle line:84% to prevent others from doing things. 00:06:31.800 --> 00:06:33.880 align:middle line:84% But in order to get a patent, you 00:06:33.880 --> 00:06:38.640 align:middle line:84% have to explain what it is you're patenting your idea. 00:06:38.640 --> 00:06:41.080 align:middle line:84% And you're given a limited-time monopoly, where you 00:06:41.080 --> 00:06:44.160 align:middle line:90% can control who uses that idea. 00:06:44.160 --> 00:06:49.470 align:middle line:84% But by disclosing the idea, other people learn from it. 00:06:49.470 --> 00:06:55.190 align:middle line:90% And we don't like monopolies. 00:06:55.190 --> 00:06:57.590 align:middle line:84% We have antitrust laws, et cetera. 00:06:57.590 --> 00:07:01.630 align:middle line:84% But the concept of a patent goes back to the Constitution. 00:07:01.630 --> 00:07:04.750 align:middle line:84% And the societal trade-off is, we'll give inventors 00:07:04.750 --> 00:07:07.750 align:middle line:84% a limited-time monopoly in exchange 00:07:07.750 --> 00:07:09.850 align:middle line:84% for them explaining their invention. 00:07:09.850 --> 00:07:13.990 align:middle line:84% And that way, we build on stuff over time. 00:07:13.990 --> 00:07:17.110 align:middle line:84% And it's viewed to be a good societal trade-off. 00:07:17.110 --> 00:07:19.410 align:middle line:84% There can be combinations of protections. 00:07:19.410 --> 00:07:23.750 align:middle line:84% For example, software can be protected using copyright 00:07:23.750 --> 00:07:26.510 align:middle line:90% and patent type stuff. 00:07:26.510 --> 00:07:28.950 align:middle line:90% So those are the types. 00:07:28.950 --> 00:07:32.630 align:middle line:84% The duration of how long these last, trade 00:07:32.630 --> 00:07:36.230 align:middle line:84% secret could go on forever, as long as you keep it secret. 00:07:36.230 --> 00:07:38.710 align:middle line:84% At the other end, patents in the US 00:07:38.710 --> 00:07:42.750 align:middle line:84% have a life of 20 years from the date of filing. 00:07:42.750 --> 00:07:45.830 align:middle line:84% So limited-time monopoly versus long term. 00:07:45.830 --> 00:07:48.610 align:middle line:84% The cost goes in the other direction. 00:07:48.610 --> 00:07:52.410 align:middle line:84% That is, in general, patents are the most expensive thing 00:07:52.410 --> 00:07:55.450 align:middle line:90% to get and maintain. 00:07:55.450 --> 00:07:58.330 align:middle line:84% Trade secrets can be expensive, if you 00:07:58.330 --> 00:08:01.510 align:middle line:84% have to protect plants and things like that. 00:08:01.510 --> 00:08:03.770 align:middle line:84% But in general, much less expensive. 00:08:03.770 --> 00:08:07.770 align:middle line:84% So that's an overview of the types of IP. 00:08:07.770 --> 00:08:10.570 align:middle line:84% And now I'm going to dig into the individuals in a little 00:08:10.570 --> 00:08:12.850 align:middle line:90% more detail. 00:08:12.850 --> 00:08:16.170 align:middle line:84% So if we go to a trade secret, by definition 00:08:16.170 --> 00:08:19.170 align:middle line:84% it's a secret that gives you an advantage in the marketplace. 00:08:19.170 --> 00:08:22.770 align:middle line:84% I mentioned the formula for Coke. 00:08:22.770 --> 00:08:28.090 align:middle line:84% The protection it grants is granted state by state. 00:08:28.090 --> 00:08:31.090 align:middle line:84% Each state has trade secret laws. 00:08:31.090 --> 00:08:35.650 align:middle line:84% And of course, the secret lasts as long as you keep it secret. 00:08:35.650 --> 00:08:38.250 align:middle line:84% So if you're going to disclose something 00:08:38.250 --> 00:08:42.370 align:middle line:84% to somebody, a real secret, you might 00:08:42.370 --> 00:08:45.600 align:middle line:84% use a non-disclosure agreement, where 00:08:45.600 --> 00:08:47.200 align:middle line:84% people agree that you're going to get 00:08:47.200 --> 00:08:50.480 align:middle line:84% this for a specific purpose for a certain time. 00:08:50.480 --> 00:08:54.200 align:middle line:84% For your venture plan or your pitch, 00:08:54.200 --> 00:08:58.720 align:middle line:84% keep all of that secret out of it. 00:08:58.720 --> 00:09:02.400 align:middle line:84% They want to know, in Bob Jones' parlance, 00:09:02.400 --> 00:09:06.800 align:middle line:84% what is it that you have that's valuable and why is it valuable? 00:09:06.800 --> 00:09:09.860 align:middle line:84% They don't have to explain exactly how it's done. 00:09:09.860 --> 00:09:11.920 align:middle line:84% If people really want to know it, 00:09:11.920 --> 00:09:17.680 align:middle line:84% you go into a nondisclosure agreement. 00:09:17.680 --> 00:09:21.440 align:middle line:90% OK, trademark or servicemarks. 00:09:21.440 --> 00:09:23.460 align:middle line:84% This is developing a name for yourself. 00:09:23.460 --> 00:09:25.320 align:middle line:90% It's like a brand. 00:09:25.320 --> 00:09:30.640 align:middle line:84% A trademark is for goods, servicemark is for services. 00:09:30.640 --> 00:09:34.160 align:middle line:84% It's what customers think of when they see something that's 00:09:34.160 --> 00:09:37.700 align:middle line:90% a symbol, a word, a phrase. 00:09:37.700 --> 00:09:39.060 align:middle line:90% It can be sound. 00:09:39.060 --> 00:09:40.720 align:middle line:90% It can even be color. 00:09:40.720 --> 00:09:42.300 align:middle line:84% I think most people would recognize-- 00:09:42.300 --> 00:09:45.065 align:middle line:84% although I couldn't afford my shoes 00:09:45.065 --> 00:09:46.690 align:middle line:84% and probably wouldn't look good on me-- 00:09:46.690 --> 00:09:53.150 align:middle line:84% the red-soled shoe is protected by trademark. 00:09:53.150 --> 00:09:56.790 align:middle line:84% It's a mark under which you sell goods or services. 00:09:56.790 --> 00:10:01.090 align:middle line:84% It can be what's called a house mark, describing the company. 00:10:01.090 --> 00:10:04.550 align:middle line:90% Like Lenovo is a brand. 00:10:04.550 --> 00:10:07.630 align:middle line:84% MGM Studios had the lion's roar, if you remember. 00:10:07.630 --> 00:10:09.910 align:middle line:84% You say, oh, that must be-- you don't even 00:10:09.910 --> 00:10:13.190 align:middle line:84% need to know what it says, the lion's roar. 00:10:13.190 --> 00:10:19.790 align:middle line:84% It can also be a product that that house offers. 00:10:19.790 --> 00:10:24.590 align:middle line:84% So Lenovo has the ThinkPad as a laptop computer, 00:10:24.590 --> 00:10:30.390 align:middle line:84% and Rocky the movie was made by MGM. 00:10:30.390 --> 00:10:35.510 align:middle line:84% The rights for a trademark arise through use. 00:10:35.510 --> 00:10:38.350 align:middle line:84% If you begin using something, you potentially 00:10:38.350 --> 00:10:44.170 align:middle line:84% have a trademark on it and it can last forever. 00:10:44.170 --> 00:10:48.610 align:middle line:84% There's no limit on how long it can. 00:10:48.610 --> 00:10:53.933 align:middle line:84% Now, registration federally-- and I 00:10:53.933 --> 00:10:55.350 align:middle line:84% should have said at the beginning, 00:10:55.350 --> 00:10:57.970 align:middle line:84% I'm only going to be talking about US law 00:10:57.970 --> 00:11:00.050 align:middle line:90% on all of this stuff. 00:11:00.050 --> 00:11:02.850 align:middle line:84% So federal registration of a trademark 00:11:02.850 --> 00:11:05.490 align:middle line:90% provides certain protections. 00:11:05.490 --> 00:11:10.010 align:middle line:84% Before you register your mark, you 00:11:10.010 --> 00:11:13.810 align:middle line:84% might want you should put TM next to the name 00:11:13.810 --> 00:11:16.090 align:middle line:84% you're using or claiming as a mark 00:11:16.090 --> 00:11:19.330 align:middle line:84% if it's a goods or SM if it's a service. 00:11:19.330 --> 00:11:22.030 align:middle line:84% And only after you register it federally-- 00:11:22.030 --> 00:11:24.770 align:middle line:84% you don't have to register it, but only 00:11:24.770 --> 00:11:29.130 align:middle line:84% after you register it can you put the R in the circle. 00:11:29.130 --> 00:11:34.610 align:middle line:84% Now, the rights you get when you have a registered trademark 00:11:34.610 --> 00:11:37.250 align:middle line:84% is you're protected against other people 00:11:37.250 --> 00:11:41.200 align:middle line:84% using that mark for a given set of goods and services, 00:11:41.200 --> 00:11:43.640 align:middle line:84% with the exception of what's called 00:11:43.640 --> 00:11:47.040 align:middle line:90% a senior unregistered user. 00:11:47.040 --> 00:11:48.240 align:middle line:90% So what does that mean? 00:11:48.240 --> 00:11:53.120 align:middle line:84% Well, when McDonald's went to register the golden arches 00:11:53.120 --> 00:11:56.480 align:middle line:84% and the name McDonald's for restaurants, 00:11:56.480 --> 00:12:01.280 align:middle line:84% it turned out that there was a restaurant chain in upstate New 00:12:01.280 --> 00:12:04.080 align:middle line:90% York named McDonald's. 00:12:04.080 --> 00:12:08.320 align:middle line:84% And so that unregistered mark of McDonald's 00:12:08.320 --> 00:12:10.460 align:middle line:84% in upstate New York from this other entity, 00:12:10.460 --> 00:12:14.840 align:middle line:84% they can continue to operate in the geographic region. 00:12:14.840 --> 00:12:19.080 align:middle line:84% But once McDonald's registered federally, 00:12:19.080 --> 00:12:22.040 align:middle line:84% they couldn't move that restaurant to, say, Arizona, 00:12:22.040 --> 00:12:25.300 align:middle line:84% because McDonald's would have rights over that. 00:12:25.300 --> 00:12:28.880 align:middle line:90% 00:12:28.880 --> 00:12:35.000 align:middle line:84% As I said, the right to the mark comes when you start to use it. 00:12:35.000 --> 00:12:38.160 align:middle line:84% Now, recognizing that in order to bring out 00:12:38.160 --> 00:12:43.210 align:middle line:84% a product to market, you're going to do all your research, 00:12:43.210 --> 00:12:45.985 align:middle line:84% you're going to do all of the branding, the art 00:12:45.985 --> 00:12:46.610 align:middle line:90% and everything. 00:12:46.610 --> 00:12:48.530 align:middle line:84% And if it's only after all of that 00:12:48.530 --> 00:12:52.310 align:middle line:84% that you actually transact or offer it for sale, 00:12:52.310 --> 00:12:54.430 align:middle line:84% that can be very expensive, only to find that you 00:12:54.430 --> 00:12:57.510 align:middle line:90% don't have rights to that mark. 00:12:57.510 --> 00:13:00.490 align:middle line:84% So there is a provision called intent to use, 00:13:00.490 --> 00:13:04.310 align:middle line:84% where you can go to the US Patent and Trademark Office 00:13:04.310 --> 00:13:08.170 align:middle line:84% and file an intent to use mark that says, 00:13:08.170 --> 00:13:11.390 align:middle line:84% I intend to use this symbol, name, word, or anything 00:13:11.390 --> 00:13:13.510 align:middle line:90% with these goods or services. 00:13:13.510 --> 00:13:17.450 align:middle line:84% And they go through the analysis and they say, OK, that's good. 00:13:17.450 --> 00:13:18.870 align:middle line:90% You can do that. 00:13:18.870 --> 00:13:20.590 align:middle line:84% But you then have to, within three 00:13:20.590 --> 00:13:24.390 align:middle line:84% years from the time that that registration is granted, 00:13:24.390 --> 00:13:27.270 align:middle line:90% actually use it, or it expires. 00:13:27.270 --> 00:13:30.310 align:middle line:84% I just filed an intent to use registration for one 00:13:30.310 --> 00:13:34.230 align:middle line:84% of our companies last month, before the rates went up 00:13:34.230 --> 00:13:35.410 align:middle line:90% on the trademark. 00:13:35.410 --> 00:13:38.050 align:middle line:84% It'll take about 18 months, they said, 00:13:38.050 --> 00:13:40.390 align:middle line:90% now for me to get a full thing. 00:13:40.390 --> 00:13:45.130 align:middle line:84% But I have at least nailed that in time. 00:13:45.130 --> 00:13:49.130 align:middle line:84% In picking a mark, you should use something fanciful. 00:13:49.130 --> 00:13:52.250 align:middle line:90% Examples would be Apple or iPod. 00:13:52.250 --> 00:13:55.010 align:middle line:84% I mean, whoever thought of Apple as a name associated 00:13:55.010 --> 00:13:59.130 align:middle line:84% with a computer, much less a phone? 00:13:59.130 --> 00:14:01.590 align:middle line:84% You don't want to use something as merely descriptive. 00:14:01.590 --> 00:14:04.330 align:middle line:84% In fact, you can't really get a mark 00:14:04.330 --> 00:14:06.770 align:middle line:84% on something that's merely descriptive. 00:14:06.770 --> 00:14:10.290 align:middle line:84% I went once to file a registration 00:14:10.290 --> 00:14:16.258 align:middle line:84% for the term Microdose for low-dosage aspirin 00:14:16.258 --> 00:14:17.550 align:middle line:90% that they were going to market. 00:14:17.550 --> 00:14:19.190 align:middle line:84% If you take a low dose of aspirin, 00:14:19.190 --> 00:14:21.970 align:middle line:84% it helps against potential heart attack. 00:14:21.970 --> 00:14:25.890 align:middle line:84% And after back and forth, they said, look, 00:14:25.890 --> 00:14:28.610 align:middle line:84% you're describing what the product does. 00:14:28.610 --> 00:14:31.970 align:middle line:90% It's a small dose. 00:14:31.970 --> 00:14:33.690 align:middle line:84% So we're not going to give you that one. 00:14:33.690 --> 00:14:36.840 align:middle line:90% We had to change it a bit. 00:14:36.840 --> 00:14:39.300 align:middle line:84% You should look and see before you start using stuff. 00:14:39.300 --> 00:14:41.280 align:middle line:90% Is the mark available? 00:14:41.280 --> 00:14:43.880 align:middle line:84% And you go to the US Patent and Trademark Office, 00:14:43.880 --> 00:14:47.840 align:middle line:84% and there's a whole search thing you can use there. 00:14:47.840 --> 00:14:50.880 align:middle line:84% If you're going to get full registration, 00:14:50.880 --> 00:14:53.160 align:middle line:84% many lawyers will say, well, you ought 00:14:53.160 --> 00:14:56.720 align:middle line:84% to do a full trademark or servicemark search, which 00:14:56.720 --> 00:15:00.180 align:middle line:84% would look at everything from is it being used on the internet? 00:15:00.180 --> 00:15:02.600 align:middle line:90% Is it in state directories? 00:15:02.600 --> 00:15:05.360 align:middle line:90% And these reports can run-- 00:15:05.360 --> 00:15:06.980 align:middle line:84% I haven't priced them out recently, 00:15:06.980 --> 00:15:10.800 align:middle line:84% but it could be $700 or $1,000 or something. 00:15:10.800 --> 00:15:14.920 align:middle line:84% So you're prepared before you go to the Trademark Office. 00:15:14.920 --> 00:15:16.680 align:middle line:90% OK? 00:15:16.680 --> 00:15:17.680 align:middle line:90% All right. 00:15:17.680 --> 00:15:23.720 align:middle line:84% So copyright, it's the right to make and prevent people 00:15:23.720 --> 00:15:27.040 align:middle line:90% from copying what you do. 00:15:27.040 --> 00:15:29.620 align:middle line:90% It arises from creating a work. 00:15:29.620 --> 00:15:34.830 align:middle line:84% So if I write a letter to my mother as an author, 00:15:34.830 --> 00:15:36.870 align:middle line:84% I actually have a copyright on that. 00:15:36.870 --> 00:15:40.550 align:middle line:84% I don't have to register it or anything. 00:15:40.550 --> 00:15:46.770 align:middle line:84% It protects the expression, not the idea or the function. 00:15:46.770 --> 00:15:49.230 align:middle line:84% So it's a great fit for music or literature, 00:15:49.230 --> 00:15:52.710 align:middle line:90% maybe not so well for software. 00:15:52.710 --> 00:15:55.610 align:middle line:84% And the reason, why does it only protect the expression? 00:15:55.610 --> 00:16:01.230 align:middle line:84% Well, if Shakespeare wrote a play about a love triangle 00:16:01.230 --> 00:16:03.830 align:middle line:84% and he could get a protection of that 00:16:03.830 --> 00:16:07.350 align:middle line:84% so nobody else could ever write anything about a love triangle 00:16:07.350 --> 00:16:11.110 align:middle line:84% relationship, a lot of literature would disappear. 00:16:11.110 --> 00:16:16.030 align:middle line:84% What you can't do is exactly copy his particular expression 00:16:16.030 --> 00:16:17.050 align:middle line:90% of that idea. 00:16:17.050 --> 00:16:19.990 align:middle line:90% 00:16:19.990 --> 00:16:23.210 align:middle line:84% Federal registration of a copyright is a plus. 00:16:23.210 --> 00:16:25.630 align:middle line:84% In fact, if you're going to bring suit 00:16:25.630 --> 00:16:27.690 align:middle line:84% to prevent somebody from copying, 00:16:27.690 --> 00:16:30.030 align:middle line:90% you do have to register it. 00:16:30.030 --> 00:16:34.210 align:middle line:84% The duration is long, 70-plus years, I think. 00:16:34.210 --> 00:16:36.430 align:middle line:84% Mickey Mouse was coming up a few years ago, 00:16:36.430 --> 00:16:41.130 align:middle line:84% and somehow they did some legislation to extend that. 00:16:41.130 --> 00:16:42.445 align:middle line:90% The cost to register is low. 00:16:42.445 --> 00:16:44.570 align:middle line:84% It ranges, depending on what you're doing, anywhere 00:16:44.570 --> 00:16:46.890 align:middle line:90% from $10 to $500. 00:16:46.890 --> 00:16:50.370 align:middle line:84% And you register at the Library of Congress. 00:16:50.370 --> 00:16:55.810 align:middle line:84% And you have to actually deposit the work that you're 00:16:55.810 --> 00:16:57.170 align:middle line:90% trying to copyright. 00:16:57.170 --> 00:17:01.050 align:middle line:84% So in the case of software, the question is, well, 00:17:01.050 --> 00:17:03.890 align:middle line:84% do I have to deposit my source code? 00:17:03.890 --> 00:17:07.990 align:middle line:84% I mean, anyone can see it then and see how I'm doing it. 00:17:07.990 --> 00:17:10.010 align:middle line:84% So there's a whole procedure for how 00:17:10.010 --> 00:17:16.470 align:middle line:84% you can deposit the source code redacted and a number of things. 00:17:16.470 --> 00:17:18.569 align:middle line:84% The idea is so you can prove what 00:17:18.569 --> 00:17:21.690 align:middle line:84% it is you're preventing other people from copying. 00:17:21.690 --> 00:17:27.010 align:middle line:84% Years ago, I represented Arrow Maps back 00:17:27.010 --> 00:17:29.050 align:middle line:90% when they had paper maps. 00:17:29.050 --> 00:17:31.380 align:middle line:84% And I learned that in the map industry, 00:17:31.380 --> 00:17:36.720 align:middle line:84% people would put phantom roads on a map, roads 00:17:36.720 --> 00:17:38.480 align:middle line:90% that really didn't exist. 00:17:38.480 --> 00:17:40.600 align:middle line:84% And the reason was so if somebody else came up 00:17:40.600 --> 00:17:44.920 align:middle line:84% with that map they could say, well, you copied it. 00:17:44.920 --> 00:17:46.800 align:middle line:84% And I don't know if that's why Google 00:17:46.800 --> 00:17:51.200 align:middle line:84% or self-driving directions sometimes leads you off 00:17:51.200 --> 00:17:52.140 align:middle line:90% into the wilderness. 00:17:52.140 --> 00:17:55.720 align:middle line:84% But the other thing that Arrow Maps did 00:17:55.720 --> 00:17:58.440 align:middle line:84% is they made a street directory book. 00:17:58.440 --> 00:18:01.380 align:middle line:84% So in Boston, if you had an address, 00:18:01.380 --> 00:18:05.160 align:middle line:84% it would say it's at the corner of Fairfield and Commonwealth 00:18:05.160 --> 00:18:07.000 align:middle line:90% Avenue. 00:18:07.000 --> 00:18:10.160 align:middle line:84% And the city of Boston used that-- 00:18:10.160 --> 00:18:12.760 align:middle line:84% this is all pre-internet, of course-- 00:18:12.760 --> 00:18:15.340 align:middle line:84% to figure out where to send-- if something came in, 00:18:15.340 --> 00:18:18.480 align:middle line:84% where do we send the police car or the fire engine or something? 00:18:18.480 --> 00:18:24.720 align:middle line:84% So one year they got a call from the city saying, well, 00:18:24.720 --> 00:18:28.590 align:middle line:84% we don't need to order any more maps or directories. 00:18:28.590 --> 00:18:31.190 align:middle line:90% We're good. 00:18:31.190 --> 00:18:34.050 align:middle line:84% Or I'm sorry, they didn't order it. 00:18:34.050 --> 00:18:38.970 align:middle line:84% So the guys at Arrow said to me, what do you think's going on? 00:18:38.970 --> 00:18:40.990 align:middle line:84% I said, well, you should ask them. 00:18:40.990 --> 00:18:43.950 align:middle line:84% Have someone call up somebody in purchasing and say, 00:18:43.950 --> 00:18:46.830 align:middle line:84% we've noticed you haven't put an order in for our new version 00:18:46.830 --> 00:18:48.870 align:middle line:90% of the directory. 00:18:48.870 --> 00:18:50.245 align:middle line:84% How many can we put you down for? 00:18:50.245 --> 00:18:52.078 align:middle line:84% And the person on the other end of the phone 00:18:52.078 --> 00:18:54.250 align:middle line:84% said, oh, we're not going to do that anymore. 00:18:54.250 --> 00:18:56.830 align:middle line:90% We have our own copies. 00:18:56.830 --> 00:19:01.630 align:middle line:84% And so we simply took that statement, put an affidavit, 00:19:01.630 --> 00:19:03.090 align:middle line:90% and took it to court. 00:19:03.090 --> 00:19:04.950 align:middle line:84% And Boston paid up right away because they 00:19:04.950 --> 00:19:06.690 align:middle line:90% were copying the directory. 00:19:06.690 --> 00:19:09.510 align:middle line:90% 00:19:09.510 --> 00:19:11.010 align:middle line:84% Even though you don't have to do it, 00:19:11.010 --> 00:19:14.070 align:middle line:84% it's suggested that you put a copyright notice 00:19:14.070 --> 00:19:17.230 align:middle line:90% on things you want to protect. 00:19:17.230 --> 00:19:23.790 align:middle line:84% Typically copyright the word, the year, the author, and then 00:19:23.790 --> 00:19:24.890 align:middle line:90% all rights reserved. 00:19:24.890 --> 00:19:28.010 align:middle line:84% And that's because in certain countries, especially 00:19:28.010 --> 00:19:31.830 align:middle line:84% Latin America, if you don't do that, you lose some rights. 00:19:31.830 --> 00:19:33.230 align:middle line:90% Just put it on there. 00:19:33.230 --> 00:19:35.610 align:middle line:84% Don't put the C in the circle until you've actually 00:19:35.610 --> 00:19:36.770 align:middle line:90% registered. 00:19:36.770 --> 00:19:38.710 align:middle line:84% So you can see at the bottom of my slide, 00:19:38.710 --> 00:19:43.810 align:middle line:90% I put down a copyright notice. 00:19:43.810 --> 00:19:47.890 align:middle line:84% For your venture-- this is really important-- 00:19:47.890 --> 00:19:51.210 align:middle line:84% make sure you own what you think you own. 00:19:51.210 --> 00:20:01.130 align:middle line:84% So the author of an original work-- be it software, a book, 00:20:01.130 --> 00:20:09.690 align:middle line:84% poems, or whatever-- the author owns that created work unless-- 00:20:09.690 --> 00:20:10.550 align:middle line:90% two exceptions. 00:20:10.550 --> 00:20:13.170 align:middle line:84% One is they're an employee and it's 00:20:13.170 --> 00:20:17.210 align:middle line:84% in the course of employment, or it's 00:20:17.210 --> 00:20:19.930 align:middle line:90% deemed to be a work for hire. 00:20:19.930 --> 00:20:22.410 align:middle line:84% And so for example, I had a client 00:20:22.410 --> 00:20:25.080 align:middle line:84% who had spent a good deal of money 00:20:25.080 --> 00:20:30.520 align:middle line:84% developing an import/export computer software system. 00:20:30.520 --> 00:20:35.440 align:middle line:84% And they paid an outside computer firm 00:20:35.440 --> 00:20:37.680 align:middle line:90% to put it together. 00:20:37.680 --> 00:20:41.320 align:middle line:84% And then they found out that firm 00:20:41.320 --> 00:20:45.293 align:middle line:84% had sold a license to another one of their competitors. 00:20:45.293 --> 00:20:46.960 align:middle line:84% And they came and they said to me, well, 00:20:46.960 --> 00:20:48.660 align:middle line:90% we paid all this money. 00:20:48.660 --> 00:20:50.200 align:middle line:90% Can't we stop them? 00:20:50.200 --> 00:20:53.060 align:middle line:84% And when we looked into it, we said, well, 00:20:53.060 --> 00:20:55.960 align:middle line:84% did you have an agreement as to who was going to own it? 00:20:55.960 --> 00:20:58.000 align:middle line:90% And it turned out they didn't. 00:20:58.000 --> 00:20:59.480 align:middle line:84% So they had basically spent a half 00:20:59.480 --> 00:21:03.480 align:middle line:84% a million dollars for something that they didn't own. 00:21:03.480 --> 00:21:08.400 align:middle line:84% Now, the flip side of that is as a new venture, 00:21:08.400 --> 00:21:11.263 align:middle line:84% and you go to deal with a large company, and you say, 00:21:11.263 --> 00:21:13.180 align:middle line:84% I'm going to do some consulting work for you-- 00:21:13.180 --> 00:21:16.400 align:middle line:84% and consulting is a way that many ventures get off 00:21:16.400 --> 00:21:16.980 align:middle line:90% the ground. 00:21:16.980 --> 00:21:20.640 align:middle line:84% You work with your target customer market 00:21:20.640 --> 00:21:24.510 align:middle line:84% and learn more about them and what they want, 00:21:24.510 --> 00:21:26.290 align:middle line:84% and you make a bunch of money doing it. 00:21:26.290 --> 00:21:27.665 align:middle line:84% And eventually you say, well, now 00:21:27.665 --> 00:21:29.230 align:middle line:90% I can turn that into a product. 00:21:29.230 --> 00:21:31.090 align:middle line:84% But that interaction with the large company, 00:21:31.090 --> 00:21:34.810 align:middle line:84% they're going to give you a consultant services agreement. 00:21:34.810 --> 00:21:36.750 align:middle line:84% And guess what it's going to say? 00:21:36.750 --> 00:21:40.350 align:middle line:84% We own everything that you create. 00:21:40.350 --> 00:21:44.230 align:middle line:90% And don't blindly sign that. 00:21:44.230 --> 00:21:46.470 align:middle line:84% I have a standard thing for companies 00:21:46.470 --> 00:21:49.730 align:middle line:84% that I work with, which says, look-- 00:21:49.730 --> 00:21:52.710 align:middle line:90% 00:21:52.710 --> 00:21:56.710 align:middle line:84% I'll show you IPVision in a moment here-- 00:21:56.710 --> 00:22:01.110 align:middle line:84% if you ask us to do an intellectual property analysis 00:22:01.110 --> 00:22:06.150 align:middle line:84% on public data, you can own the specific report 00:22:06.150 --> 00:22:07.790 align:middle line:90% that we generate. 00:22:07.790 --> 00:22:10.968 align:middle line:84% But if somebody else asks us the same thing 00:22:10.968 --> 00:22:12.510 align:middle line:84% with the same parameters, we're going 00:22:12.510 --> 00:22:15.030 align:middle line:90% to generate the same report. 00:22:15.030 --> 00:22:19.130 align:middle line:84% So you can't own how we generated the report. 00:22:19.130 --> 00:22:21.370 align:middle line:90% You can own the actual report. 00:22:21.370 --> 00:22:24.130 align:middle line:84% Same thing if you're a software consultant working 00:22:24.130 --> 00:22:26.190 align:middle line:84% with a large company, you'll say, 00:22:26.190 --> 00:22:29.810 align:middle line:84% well, we have a bunch of tools and modules 00:22:29.810 --> 00:22:32.490 align:middle line:90% that we use in our development. 00:22:32.490 --> 00:22:34.650 align:middle line:90% We retain ownership of that. 00:22:34.650 --> 00:22:38.130 align:middle line:84% You can own the things we put together, 00:22:38.130 --> 00:22:41.590 align:middle line:84% but we retain and will retain ownership of any other things. 00:22:41.590 --> 00:22:45.730 align:middle line:84% And so you have to negotiate a little bit with that. 00:22:45.730 --> 00:22:49.930 align:middle line:84% Finally, you should check open source, if you're in software. 00:22:49.930 --> 00:22:53.850 align:middle line:84% Are you using open source software 00:22:53.850 --> 00:22:57.330 align:middle line:84% in a way that violates the general license? 00:22:57.330 --> 00:22:59.790 align:middle line:84% If you actually modify the open source, 00:22:59.790 --> 00:23:01.610 align:middle line:90% you're supposed to give it back. 00:23:01.610 --> 00:23:03.850 align:middle line:84% So typically there, you would have-- 00:23:03.850 --> 00:23:06.930 align:middle line:84% if you're using MySQL as a database, 00:23:06.930 --> 00:23:10.650 align:middle line:84% you're not going to change that code. 00:23:10.650 --> 00:23:12.970 align:middle line:84% Your interface to that code is yours. 00:23:12.970 --> 00:23:15.888 align:middle line:84% But if you start to mess with it, you might have a problem. 00:23:15.888 --> 00:23:16.930 align:middle line:90% And there are companies-- 00:23:16.930 --> 00:23:19.050 align:middle line:84% I think Black Duck was one of them-- that 00:23:19.050 --> 00:23:21.320 align:middle line:84% will run and look at your code to see if you're 00:23:21.320 --> 00:23:23.720 align:middle line:90% violating open source. 00:23:23.720 --> 00:23:28.240 align:middle line:84% And they will do that for investors, et cetera. 00:23:28.240 --> 00:23:31.300 align:middle line:84% Now, what about copyright and artificial intelligence? 00:23:31.300 --> 00:23:34.277 align:middle line:84% Well, this is a big area right now. 00:23:34.277 --> 00:23:36.360 align:middle line:84% So it's well-established that to have a copyright, 00:23:36.360 --> 00:23:38.220 align:middle line:90% there has to be a human author. 00:23:38.220 --> 00:23:40.840 align:middle line:90% 00:23:40.840 --> 00:23:43.200 align:middle line:90% The Patent Office came up with-- 00:23:43.200 --> 00:23:47.320 align:middle line:84% or I mean the Copyright Office came up with an announcement 00:23:47.320 --> 00:23:52.640 align:middle line:84% a year and a half ago that says, well, AI creates stuff, 00:23:52.640 --> 00:23:55.380 align:middle line:84% so by itself, AI can't have a copyright. 00:23:55.380 --> 00:23:58.800 align:middle line:90% It's not a human. 00:23:58.800 --> 00:24:02.040 align:middle line:84% But if you use artificial intelligence 00:24:02.040 --> 00:24:05.560 align:middle line:84% and you have sufficient human authorship, 00:24:05.560 --> 00:24:07.500 align:middle line:84% then you could get a copyright on it. 00:24:07.500 --> 00:24:09.000 align:middle line:90% So what does that mean? 00:24:09.000 --> 00:24:10.660 align:middle line:84% We're still trying to figure that out. 00:24:10.660 --> 00:24:13.400 align:middle line:90% 00:24:13.400 --> 00:24:15.300 align:middle line:90% But think about it. 00:24:15.300 --> 00:24:19.110 align:middle line:84% If you use DALL-E to make images and you're 00:24:19.110 --> 00:24:21.790 align:middle line:84% going to put it in a children's book 00:24:21.790 --> 00:24:26.070 align:middle line:84% and you write the text, probably OK. 00:24:26.070 --> 00:24:28.110 align:middle line:84% What if you use DALL-E to do the image 00:24:28.110 --> 00:24:31.470 align:middle line:84% and you have ChatGPT do the text? 00:24:31.470 --> 00:24:34.990 align:middle line:84% Might be OK, if you're deciding how to create those two, 00:24:34.990 --> 00:24:37.550 align:middle line:90% put them together. 00:24:37.550 --> 00:24:40.230 align:middle line:90% It's still up in the air. 00:24:40.230 --> 00:24:42.790 align:middle line:84% The issue about using copyrighted material 00:24:42.790 --> 00:24:48.270 align:middle line:84% to train models, that's the one that's in litigation now. 00:24:48.270 --> 00:24:52.830 align:middle line:84% You can keep track of all of this at this address 00:24:52.830 --> 00:24:54.053 align:middle line:90% at the Copyright Office. 00:24:54.053 --> 00:24:55.470 align:middle line:84% That's where they say they'll keep 00:24:55.470 --> 00:24:57.370 align:middle line:90% updated on their view of it. 00:24:57.370 --> 00:25:00.030 align:middle line:90% 00:25:00.030 --> 00:25:04.110 align:middle line:90% OK, patents. 00:25:04.110 --> 00:25:07.270 align:middle line:84% As I said earlier, a limited-time monopoly. 00:25:07.270 --> 00:25:11.110 align:middle line:90% It's a federally-granted right. 00:25:11.110 --> 00:25:12.770 align:middle line:90% You have to apply for it. 00:25:12.770 --> 00:25:18.822 align:middle line:84% It's for something that's new, non-obvious, and helpful. 00:25:18.822 --> 00:25:20.530 align:middle line:84% And this, along with all the other things 00:25:20.530 --> 00:25:25.270 align:middle line:84% where you register things-- copyright, trademark, things-- 00:25:25.270 --> 00:25:26.870 align:middle line:90% these are country by country. 00:25:26.870 --> 00:25:29.890 align:middle line:84% You have to register in each country. 00:25:29.890 --> 00:25:33.210 align:middle line:84% There are some treaties that try to harmonize it, 00:25:33.210 --> 00:25:34.550 align:middle line:90% but you have to apply. 00:25:34.550 --> 00:25:37.970 align:middle line:84% So if I have a patent in the US, I 00:25:37.970 --> 00:25:40.950 align:middle line:84% can prevent others from making, using, selling, 00:25:40.950 --> 00:25:43.770 align:middle line:90% or importing my invention. 00:25:43.770 --> 00:25:47.430 align:middle line:84% So if I don't have a patent in China, 00:25:47.430 --> 00:25:49.290 align:middle line:90% they can make it in China. 00:25:49.290 --> 00:25:50.910 align:middle line:90% They can't bring it to the US. 00:25:50.910 --> 00:25:54.210 align:middle line:84% I can't prevent them from making it in China 00:25:54.210 --> 00:25:58.370 align:middle line:90% unless I have a patent in China. 00:25:58.370 --> 00:26:02.430 align:middle line:84% Now, it's very much like real estate. 00:26:02.430 --> 00:26:05.150 align:middle line:84% Most people think-- if you didn't know about it, you'd say, 00:26:05.150 --> 00:26:08.070 align:middle line:90% I have a patent on my invention. 00:26:08.070 --> 00:26:10.130 align:middle line:90% That means I can use it. 00:26:10.130 --> 00:26:11.150 align:middle line:90% Only I can use it. 00:26:11.150 --> 00:26:14.840 align:middle line:84% Well, that's true, but that doesn't mean 00:26:14.840 --> 00:26:16.520 align:middle line:90% there aren't any limits to it. 00:26:16.520 --> 00:26:22.600 align:middle line:84% So if you think about the real estate analogy, 00:26:22.600 --> 00:26:26.360 align:middle line:84% I have a right to keep you off my property. 00:26:26.360 --> 00:26:28.520 align:middle line:90% I can keep you from trespassing. 00:26:28.520 --> 00:26:32.760 align:middle line:84% That doesn't mean that I can actually use my property. 00:26:32.760 --> 00:26:33.780 align:middle line:90% What does that mean? 00:26:33.780 --> 00:26:35.800 align:middle line:84% Well, what if I had to walk across your property 00:26:35.800 --> 00:26:38.200 align:middle line:90% to get to mine? 00:26:38.200 --> 00:26:43.240 align:middle line:84% You could keep me off your property. 00:26:43.240 --> 00:26:45.680 align:middle line:84% I could keep you off my property. 00:26:45.680 --> 00:26:47.720 align:middle line:90% We'd have a problem. 00:26:47.720 --> 00:26:50.960 align:middle line:84% So it's the right to prevent others. 00:26:50.960 --> 00:26:54.100 align:middle line:84% The claims of the patent are like the fence around. 00:26:54.100 --> 00:26:55.700 align:middle line:84% They define what the property is. 00:26:55.700 --> 00:26:58.440 align:middle line:90% 00:26:58.440 --> 00:27:00.680 align:middle line:90% So let's see if I can-- 00:27:00.680 --> 00:27:02.740 align:middle line:84% the duration is 20 years from filing. 00:27:02.740 --> 00:27:03.940 align:middle line:90% Let me give you an example. 00:27:03.940 --> 00:27:06.480 align:middle line:84% I use the coffee cup and the handle. 00:27:06.480 --> 00:27:10.140 align:middle line:84% Suppose you came up with the idea that was not obvious, 00:27:10.140 --> 00:27:11.880 align:middle line:84% and nobody had ever thought about, 00:27:11.880 --> 00:27:14.990 align:middle line:90% of a vessel to hold a liquid. 00:27:14.990 --> 00:27:17.130 align:middle line:84% All right, and you get a patent on it. 00:27:17.130 --> 00:27:19.750 align:middle line:90% Great fundamental invention. 00:27:19.750 --> 00:27:26.030 align:middle line:84% Now I come along and I patent a handle. 00:27:26.030 --> 00:27:29.470 align:middle line:90% Useful, not obvious maybe. 00:27:29.470 --> 00:27:33.710 align:middle line:84% I can't put my handle on your vessel to hold a liquid. 00:27:33.710 --> 00:27:38.070 align:middle line:84% And you can't put your vessel to hold a liquid on my handle, 00:27:38.070 --> 00:27:42.130 align:middle line:84% because we would be infringing each other's patents. 00:27:42.130 --> 00:27:45.110 align:middle line:84% So the only way that can happen is a cross license 00:27:45.110 --> 00:27:46.170 align:middle line:90% between the two. 00:27:46.170 --> 00:27:48.910 align:middle line:90% 00:27:48.910 --> 00:27:50.910 align:middle line:90% So you get the point? 00:27:50.910 --> 00:27:52.750 align:middle line:90% OK. 00:27:52.750 --> 00:27:55.750 align:middle line:84% So requirements to get a patent, it 00:27:55.750 --> 00:27:59.950 align:middle line:84% has to be something new, not obvious. 00:27:59.950 --> 00:28:01.850 align:middle line:90% Prior art must be cited. 00:28:01.850 --> 00:28:06.230 align:middle line:84% Prior art is things that have been published 00:28:06.230 --> 00:28:08.270 align:middle line:90% or prior patents, et cetera. 00:28:08.270 --> 00:28:09.190 align:middle line:90% Has to be useful. 00:28:09.190 --> 00:28:10.690 align:middle line:84% That's usually not a problem, if you 00:28:10.690 --> 00:28:12.357 align:middle line:84% looked at some of the weird patents that 00:28:12.357 --> 00:28:15.290 align:middle line:90% have gotten out there. 00:28:15.290 --> 00:28:19.130 align:middle line:84% It actually has to be patentable subject matter. 00:28:19.130 --> 00:28:21.770 align:middle line:84% Process, machine, manufacture, or composition 00:28:21.770 --> 00:28:25.210 align:middle line:84% of matter, or any improvement on that. 00:28:25.210 --> 00:28:27.130 align:middle line:84% So originally, there was a whole thing 00:28:27.130 --> 00:28:29.970 align:middle line:84% for years about whether you could patent software, 00:28:29.970 --> 00:28:32.130 align:middle line:90% because that's an algorithm. 00:28:32.130 --> 00:28:37.122 align:middle line:84% And the way people started to do it, they say it's the machine. 00:28:37.122 --> 00:28:39.330 align:middle line:84% It's the use of that with a machine or something that 00:28:39.330 --> 00:28:42.250 align:middle line:90% makes it patentable. 00:28:42.250 --> 00:28:44.850 align:middle line:84% It has to be not previously offered, sold, 00:28:44.850 --> 00:28:48.010 align:middle line:90% or publicly disclosed. 00:28:48.010 --> 00:28:51.650 align:middle line:84% Now, the publicly disclosed is an important thing. 00:28:51.650 --> 00:28:53.850 align:middle line:84% It has to be an enabling disclosure. 00:28:53.850 --> 00:28:56.410 align:middle line:84% So if I say to you in this room-- 00:28:56.410 --> 00:28:59.250 align:middle line:84% well, outside of an academic setting, let's say. 00:28:59.250 --> 00:29:04.330 align:middle line:84% I say, I have invented anti-gravity boots. 00:29:04.330 --> 00:29:05.310 align:middle line:90% That's not enabling. 00:29:05.310 --> 00:29:08.570 align:middle line:90% I haven't told you how it works. 00:29:08.570 --> 00:29:10.480 align:middle line:84% But if I go into details and explain it 00:29:10.480 --> 00:29:16.440 align:middle line:84% all in a public setting, then that starts a one-year clock. 00:29:16.440 --> 00:29:21.560 align:middle line:84% I have one year in the US to file a patent application 00:29:21.560 --> 00:29:23.780 align:middle line:84% from the time I did an enabling disclosure, 00:29:23.780 --> 00:29:25.920 align:middle line:90% or I offer it for sale. 00:29:25.920 --> 00:29:28.320 align:middle line:84% And if I don't, I can't get a patent. 00:29:28.320 --> 00:29:32.580 align:middle line:84% And this is an issue in some parts of the world. 00:29:32.580 --> 00:29:36.200 align:middle line:84% I was in Istanbul at the second Entrepreneurship Summit 00:29:36.200 --> 00:29:41.080 align:middle line:84% when they had people from countries all over the world. 00:29:41.080 --> 00:29:45.600 align:middle line:84% And I was mentoring a team from Egypt. 00:29:45.600 --> 00:29:48.460 align:middle line:84% And they said, oh, we've got this great thing. 00:29:48.460 --> 00:29:53.100 align:middle line:84% We got this new way of doing wireless that's faster, better. 00:29:53.100 --> 00:29:54.660 align:middle line:90% It had all this great stuff. 00:29:54.660 --> 00:29:58.580 align:middle line:84% And I said, well, have you disclosed this to anybody? 00:29:58.580 --> 00:30:00.840 align:middle line:84% And they said, oh, yes, we published it 00:30:00.840 --> 00:30:03.360 align:middle line:90% in some prestigious journal. 00:30:03.360 --> 00:30:07.670 align:middle line:84% And I looked at them and I said, could somebody 00:30:07.670 --> 00:30:13.030 align:middle line:84% figure out what it is you did from that journal article? 00:30:13.030 --> 00:30:17.998 align:middle line:84% And they thought for a moment and they said, oh, they might. 00:30:17.998 --> 00:30:19.290 align:middle line:90% And I said, well, I don't know. 00:30:19.290 --> 00:30:20.950 align:middle line:84% You may have just blown the opportunity 00:30:20.950 --> 00:30:23.610 align:middle line:84% to get a patent anywhere in the world except the US, 00:30:23.610 --> 00:30:25.360 align:middle line:90% if it's been within one year. 00:30:25.360 --> 00:30:27.610 align:middle line:84% And you could just see their excitement in their faces 00:30:27.610 --> 00:30:29.510 align:middle line:90% just went-- 00:30:29.510 --> 00:30:31.010 align:middle line:90% so it's an important thing. 00:30:31.010 --> 00:30:35.790 align:middle line:84% You have one year in the US only. 00:30:35.790 --> 00:30:39.490 align:middle line:84% It has to be not obvious to one of ordinary skill in the art. 00:30:39.490 --> 00:30:43.070 align:middle line:84% And there are different ways of showing that it's not obvious. 00:30:43.070 --> 00:30:47.750 align:middle line:84% Bob Langer you heard about last night, Bob, 00:30:47.750 --> 00:30:54.110 align:middle line:84% for some of his earlier patents, had arguments with the Patent 00:30:54.110 --> 00:30:56.450 align:middle line:84% Office about, look, if I look at the literature, 00:30:56.450 --> 00:30:58.990 align:middle line:90% they say this can't be done. 00:30:58.990 --> 00:31:01.630 align:middle line:84% And oh, by the way, people are buying it. 00:31:01.630 --> 00:31:03.890 align:middle line:84% So it can't have been-- that I just did. 00:31:03.890 --> 00:31:06.290 align:middle line:84% So it can't have been obvious to people of ordinary skill 00:31:06.290 --> 00:31:09.250 align:middle line:84% in the art, if the art was saying can't do it, 00:31:09.250 --> 00:31:10.750 align:middle line:90% and then people are buying it. 00:31:10.750 --> 00:31:13.770 align:middle line:90% 00:31:13.770 --> 00:31:16.410 align:middle line:84% And an important thing since a few years 00:31:16.410 --> 00:31:23.650 align:middle line:84% ago, we used to be a first to file jurisdiction. 00:31:23.650 --> 00:31:25.670 align:middle line:84% First to file the application would win. 00:31:25.670 --> 00:31:29.730 align:middle line:84% And there's a great history, if you follow Alexander Graham Bell 00:31:29.730 --> 00:31:31.350 align:middle line:90% and I think a guy named Gray. 00:31:31.350 --> 00:31:33.610 align:middle line:84% There was a big fight at the Patent Office. 00:31:33.610 --> 00:31:37.850 align:middle line:84% We're now the first inventor to file. 00:31:37.850 --> 00:31:41.090 align:middle line:84% So if you don't get to the Patent Office-- 00:31:41.090 --> 00:31:42.530 align:middle line:90% you have to be an inventor. 00:31:42.530 --> 00:31:45.990 align:middle line:84% If you get there before somebody else who's invented something, 00:31:45.990 --> 00:31:47.290 align:middle line:90% you win. 00:31:47.290 --> 00:31:48.510 align:middle line:90% If not, you lose. 00:31:48.510 --> 00:31:51.250 align:middle line:84% This becomes an issue with companies when 00:31:51.250 --> 00:31:53.890 align:middle line:90% they're doing joint ventures. 00:31:53.890 --> 00:31:56.452 align:middle line:84% When you're doing a joint venture between, say, 00:31:56.452 --> 00:31:58.410 align:middle line:84% a small company and a large company or even two 00:31:58.410 --> 00:32:01.170 align:middle line:84% large companies, there's always a question of, 00:32:01.170 --> 00:32:05.220 align:middle line:84% you bring your stuff, I bring my stuff. 00:32:05.220 --> 00:32:06.380 align:middle line:90% We do stuff together. 00:32:06.380 --> 00:32:11.440 align:middle line:84% Who's the real owner of that thing in the middle? 00:32:11.440 --> 00:32:12.918 align:middle line:90% And we may learn things. 00:32:12.918 --> 00:32:14.960 align:middle line:84% And so there are cases where some large companies 00:32:14.960 --> 00:32:18.680 align:middle line:84% have gone off and filed first inventor type things. 00:32:18.680 --> 00:32:20.820 align:middle line:90% So important to remember. 00:32:20.820 --> 00:32:25.840 align:middle line:90% 00:32:25.840 --> 00:32:26.920 align:middle line:90% OK. 00:32:26.920 --> 00:32:27.680 align:middle line:90% Whoops. 00:32:27.680 --> 00:32:30.360 align:middle line:90% Let me back up here. 00:32:30.360 --> 00:32:32.000 align:middle line:90% All right. 00:32:32.000 --> 00:32:36.680 align:middle line:84% So a couple of things for your venture. 00:32:36.680 --> 00:32:39.840 align:middle line:84% The first, you want to make sure you have a freedom to make, 00:32:39.840 --> 00:32:41.620 align:middle line:90% license, and sell your product. 00:32:41.620 --> 00:32:43.720 align:middle line:84% So you want to know, do you own it? 00:32:43.720 --> 00:32:50.780 align:middle line:84% Now, just like copyrights, the inventor owns the patent. 00:32:50.780 --> 00:32:53.720 align:middle line:90% 00:32:53.720 --> 00:32:56.480 align:middle line:84% And there's, some exceptions, if you're an employee working 00:32:56.480 --> 00:32:59.840 align:middle line:90% for a company called Shoprite. 00:32:59.840 --> 00:33:03.770 align:middle line:84% But typically companies will have you, as an employee, 00:33:03.770 --> 00:33:07.830 align:middle line:84% sign an invention disclosure and assignment agreement 00:33:07.830 --> 00:33:10.790 align:middle line:84% where you agree to assign whatever you come up 00:33:10.790 --> 00:33:13.070 align:middle line:90% with to the company. 00:33:13.070 --> 00:33:17.190 align:middle line:84% So if you look at it, you'll see some patents 00:33:17.190 --> 00:33:18.550 align:middle line:90% in the Patent Office. 00:33:18.550 --> 00:33:20.970 align:middle line:90% The inventor is listed. 00:33:20.970 --> 00:33:24.870 align:middle line:84% And then you go and look at who owns it and it's the inventor. 00:33:24.870 --> 00:33:26.990 align:middle line:84% Others, you'll see the inventor and then 00:33:26.990 --> 00:33:29.350 align:middle line:90% the name of the company. 00:33:29.350 --> 00:33:32.550 align:middle line:84% What if it's licensed from the university? 00:33:32.550 --> 00:33:35.350 align:middle line:90% Do you actually own that? 00:33:35.350 --> 00:33:37.790 align:middle line:84% Did it go into the public domain, 00:33:37.790 --> 00:33:39.210 align:middle line:84% because you didn't file something, 00:33:39.210 --> 00:33:41.390 align:middle line:84% or you made an enabling disclosure, 00:33:41.390 --> 00:33:44.430 align:middle line:90% or you offered to sell it? 00:33:44.430 --> 00:33:46.750 align:middle line:84% There have been some cases on people not even 00:33:46.750 --> 00:33:50.510 align:middle line:84% actually showing the invention, but offering it at a trade show. 00:33:50.510 --> 00:33:52.990 align:middle line:84% And that can be viewed as an on-sale bar 00:33:52.990 --> 00:33:56.110 align:middle line:90% to getting the patent. 00:33:56.110 --> 00:33:58.630 align:middle line:84% And then there's a strategy of, do you want a patent 00:33:58.630 --> 00:34:01.030 align:middle line:84% or do you want to disclose to prevent others? 00:34:01.030 --> 00:34:04.690 align:middle line:84% And I'll show you something about that in a moment. 00:34:04.690 --> 00:34:06.930 align:middle line:84% So before you launch, you want to make sure you 00:34:06.930 --> 00:34:09.610 align:middle line:90% have freedom to operate. 00:34:09.610 --> 00:34:11.889 align:middle line:84% Is what I'm proposing to do-- does somebody 00:34:11.889 --> 00:34:15.929 align:middle line:84% else have a patent that could prevent me from doing it? 00:34:15.929 --> 00:34:18.427 align:middle line:84% Because you're going to spend a lot of time and money. 00:34:18.427 --> 00:34:19.969 align:middle line:84% And if you develop something and then 00:34:19.969 --> 00:34:23.250 align:middle line:84% someone comes along and says, sorry, you're infringing, 00:34:23.250 --> 00:34:26.290 align:middle line:84% investors are going to want to know about that. 00:34:26.290 --> 00:34:31.250 align:middle line:84% Typically, you'll get a freedom to operate opinion 00:34:31.250 --> 00:34:32.715 align:middle line:90% from a law firm. 00:34:32.715 --> 00:34:34.590 align:middle line:84% That doesn't mean that you're not infringing. 00:34:34.590 --> 00:34:36.969 align:middle line:84% It just says, we've looked and we 00:34:36.969 --> 00:34:41.330 align:middle line:84% don't think there's a problem with what you propose to do. 00:34:41.330 --> 00:34:45.650 align:middle line:84% And part of that is that letter prevents you 00:34:45.650 --> 00:34:49.190 align:middle line:84% from having treble damages for willful infringement, which 00:34:49.190 --> 00:34:49.690 align:middle line:90% you could. 00:34:49.690 --> 00:34:52.150 align:middle line:84% If you willfully infringe someone's patent, 00:34:52.150 --> 00:34:54.310 align:middle line:84% they can hit you for three times the damages. 00:34:54.310 --> 00:34:59.000 align:middle line:90% 00:34:59.000 --> 00:35:02.250 align:middle line:84% So prior art, if you're going to have freedom to operate, 00:35:02.250 --> 00:35:04.000 align:middle line:84% you've got to figure out what's out there. 00:35:04.000 --> 00:35:09.760 align:middle line:84% So this is See-the-Forest, which is one of the companies 00:35:09.760 --> 00:35:12.640 align:middle line:90% that I co-founded, IPVision. 00:35:12.640 --> 00:35:14.960 align:middle line:90% That's the web address. 00:35:14.960 --> 00:35:19.520 align:middle line:84% And what this was, we were doing early-stage technology 00:35:19.520 --> 00:35:22.460 align:middle line:84% commercialization, primarily out of MIT. 00:35:22.460 --> 00:35:26.380 align:middle line:84% People would come in, professors, whatever, 00:35:26.380 --> 00:35:28.640 align:middle line:84% and they'd say, I got this great idea. 00:35:28.640 --> 00:35:35.400 align:middle line:84% And we would look at it and we'd try to figure out, well, 00:35:35.400 --> 00:35:36.780 align:middle line:90% what's out there? 00:35:36.780 --> 00:35:39.640 align:middle line:90% 00:35:39.640 --> 00:35:43.840 align:middle line:84% At one point, we raised a bunch of money for a company. 00:35:43.840 --> 00:35:46.480 align:middle line:90% 00:35:46.480 --> 00:35:49.955 align:middle line:84% It was going to be-- it was a nano fuel company. 00:35:49.955 --> 00:35:51.080 align:middle line:90% And we wanted to make sure. 00:35:51.080 --> 00:35:53.380 align:middle line:84% If we were going to step onto the stage with a new fuel, 00:35:53.380 --> 00:35:55.260 align:middle line:84% we're going to be up against some pretty big players. 00:35:55.260 --> 00:35:56.870 align:middle line:84% So we ought to know what's there. 00:35:56.870 --> 00:35:59.090 align:middle line:84% So on the advice of patent counsel, 00:35:59.090 --> 00:36:02.230 align:middle line:84% we hired an outside firm that went and looked all 00:36:02.230 --> 00:36:05.230 align:middle line:84% over the world and everything for prior art. 00:36:05.230 --> 00:36:07.990 align:middle line:84% And it cost us $70,000 or $80,000. 00:36:07.990 --> 00:36:12.150 align:middle line:90% And it took six months or more. 00:36:12.150 --> 00:36:13.950 align:middle line:90% And we had the results. 00:36:13.950 --> 00:36:16.090 align:middle line:84% But in that six months in the US, 00:36:16.090 --> 00:36:20.230 align:middle line:84% there are about 5,000 new patents issued per week. 00:36:20.230 --> 00:36:22.753 align:middle line:84% So it was obsolete by the time we got it. 00:36:22.753 --> 00:36:25.170 align:middle line:84% So we had to figure out, is there a better way to do this? 00:36:25.170 --> 00:36:28.790 align:middle line:84% And we came up with this idea of patent mapping. 00:36:28.790 --> 00:36:33.790 align:middle line:84% By the way, if you're in the class or in the MIT community, 00:36:33.790 --> 00:36:37.870 align:middle line:84% if you go to see-the-forest.com and register and send me 00:36:37.870 --> 00:36:40.330 align:middle line:84% an email saying what you're doing, 00:36:40.330 --> 00:36:44.630 align:middle line:84% we'll upgrade you to the premium version as part of our giveback. 00:36:44.630 --> 00:36:45.770 align:middle line:90% But what is it? 00:36:45.770 --> 00:36:48.670 align:middle line:84% So this is an example of a patent map. 00:36:48.670 --> 00:36:54.510 align:middle line:84% The boxes on the map are patents or patent applications. 00:36:54.510 --> 00:36:58.970 align:middle line:84% The left edge of the box is the publication date or the issue 00:36:58.970 --> 00:37:00.170 align:middle line:90% date. 00:37:00.170 --> 00:37:04.050 align:middle line:84% The tail to the left of the box is 00:37:04.050 --> 00:37:06.930 align:middle line:90% when the application was filed. 00:37:06.930 --> 00:37:11.770 align:middle line:84% And the lines connecting the box are the citations. 00:37:11.770 --> 00:37:16.190 align:middle line:84% When a patent issues, as part of the prosecution, 00:37:16.190 --> 00:37:19.090 align:middle line:84% you have to disclose to the Patent Office 00:37:19.090 --> 00:37:22.410 align:middle line:84% all prior art of which you're aware. 00:37:22.410 --> 00:37:24.730 align:middle line:84% And the examiner looks at that and decides 00:37:24.730 --> 00:37:28.050 align:middle line:84% whether what you're claiming is allowed over the prior art. 00:37:28.050 --> 00:37:32.450 align:middle line:84% And they list in the patent what those prior art patents are. 00:37:32.450 --> 00:37:34.390 align:middle line:90% And they have significance. 00:37:34.390 --> 00:37:36.870 align:middle line:84% And there are at least three people involved. 00:37:36.870 --> 00:37:39.690 align:middle line:84% There's you as an inventor, there's 00:37:39.690 --> 00:37:41.930 align:middle line:84% your patent lawyer who understands 00:37:41.930 --> 00:37:45.850 align:middle line:84% something about the technical area, and there's the examiner. 00:37:45.850 --> 00:37:48.330 align:middle line:84% And the issue is, if you willfully 00:37:48.330 --> 00:37:53.680 align:middle line:84% don't disclose prior art, it can be the basis for invalidating 00:37:53.680 --> 00:37:56.600 align:middle line:84% an otherwise good patent, because it's viewed 00:37:56.600 --> 00:37:58.140 align:middle line:90% as fraud on the Patent Office. 00:37:58.140 --> 00:38:00.200 align:middle line:90% So there are consequences. 00:38:00.200 --> 00:38:02.240 align:middle line:84% So unlike the citations you might 00:38:02.240 --> 00:38:05.320 align:middle line:90% put in your technical paper-- 00:38:05.320 --> 00:38:11.760 align:middle line:84% I'm citing my professor because he's my PhD committee. 00:38:11.760 --> 00:38:14.280 align:middle line:84% I'm going to cite that person's textbook. 00:38:14.280 --> 00:38:17.640 align:middle line:84% It may not have anything directly relevant to the paper. 00:38:17.640 --> 00:38:22.280 align:middle line:84% There's more spurious citations than academic stuff. 00:38:22.280 --> 00:38:26.400 align:middle line:84% So what we have here is the Tesla patent. 00:38:26.400 --> 00:38:33.560 align:middle line:84% And at the time it was issued in 2010, this was the prior art. 00:38:33.560 --> 00:38:35.700 align:middle line:84% These are the prior art patents that it cited. 00:38:35.700 --> 00:38:39.120 align:middle line:90% 00:38:39.120 --> 00:38:42.240 align:middle line:84% This is what it looked like in 2023. 00:38:42.240 --> 00:38:44.480 align:middle line:84% Everything to the right of that patent 00:38:44.480 --> 00:38:48.200 align:middle line:84% were new patents citing the Tesla patent. 00:38:48.200 --> 00:38:51.590 align:middle line:84% So the idea of being able to figure out what the prior art is 00:38:51.590 --> 00:38:54.170 align:middle line:84% and be able to look at who's sighting you going forward 00:38:54.170 --> 00:38:57.150 align:middle line:84% can help you with a whole bunch of thinking about patent 00:38:57.150 --> 00:38:58.650 align:middle line:90% and business strategy. 00:38:58.650 --> 00:39:02.430 align:middle line:90% 00:39:02.430 --> 00:39:08.390 align:middle line:84% Here's the Tesla patent portfolio back in 2018. 00:39:08.390 --> 00:39:12.350 align:middle line:90% And here's what it was in 2023. 00:39:12.350 --> 00:39:15.550 align:middle line:84% You can see how many patents they have on things. 00:39:15.550 --> 00:39:18.470 align:middle line:84% I'm going to come back to Tesla in a few minutes 00:39:18.470 --> 00:39:20.950 align:middle line:90% about their patent strategy. 00:39:20.950 --> 00:39:25.670 align:middle line:84% But you can pretty much see when you look at these maps, what 00:39:25.670 --> 00:39:27.230 align:middle line:90% are people doing? 00:39:27.230 --> 00:39:30.390 align:middle line:84% A really good one is you got a core patent 00:39:30.390 --> 00:39:33.350 align:middle line:90% and you're filing extensions. 00:39:33.350 --> 00:39:35.210 align:middle line:84% And those will cite the core patent. 00:39:35.210 --> 00:39:37.910 align:middle line:84% If you get a cluster of citations like that, 00:39:37.910 --> 00:39:40.193 align:middle line:84% that sort of tells you where they're going. 00:39:40.193 --> 00:39:41.610 align:middle line:84% The way these things are laid out, 00:39:41.610 --> 00:39:48.430 align:middle line:84% the ones in the bottom right are either patent applications that 00:39:48.430 --> 00:39:52.370 align:middle line:84% are published, don't cite prior art, 00:39:52.370 --> 00:39:53.890 align:middle line:84% or they're brand new patents that 00:39:53.890 --> 00:39:56.410 align:middle line:84% haven't had time to be cited when we look 00:39:56.410 --> 00:40:00.250 align:middle line:90% at an individual portfolio. 00:40:00.250 --> 00:40:03.970 align:middle line:84% OK, so obtaining a patent, you want 00:40:03.970 --> 00:40:06.825 align:middle line:84% to think about what to patent, when, 00:40:06.825 --> 00:40:08.450 align:middle line:84% you're going to prepare an application, 00:40:08.450 --> 00:40:10.770 align:middle line:90% and then prosecute it. 00:40:10.770 --> 00:40:13.410 align:middle line:84% Prosecuting means simply negotiating 00:40:13.410 --> 00:40:18.290 align:middle line:84% with the Patent Office to get the claims on the patent. 00:40:18.290 --> 00:40:21.890 align:middle line:84% So the important thing is to figure out what to patent. 00:40:21.890 --> 00:40:24.970 align:middle line:84% What large companies have done in order 00:40:24.970 --> 00:40:27.490 align:middle line:84% to encourage people to file patents 00:40:27.490 --> 00:40:30.950 align:middle line:84% is they give awards to inventors. 00:40:30.950 --> 00:40:33.450 align:middle line:84% So the inventors are there filing these things. 00:40:33.450 --> 00:40:35.970 align:middle line:84% And they end up with a whole bunch of patents. 00:40:35.970 --> 00:40:39.490 align:middle line:84% And the question is, are these actually worthwhile or not? 00:40:39.490 --> 00:40:43.370 align:middle line:84% You don't really have the luxury of that as a new venture. 00:40:43.370 --> 00:40:47.050 align:middle line:84% So you want to figure out not what I could get a patent on, 00:40:47.050 --> 00:40:49.440 align:middle line:84% but what do I want to get a patent on? 00:40:49.440 --> 00:40:52.360 align:middle line:90% What's going to add value? 00:40:52.360 --> 00:40:56.920 align:middle line:84% And how will competitors use my technology? 00:40:56.920 --> 00:40:59.000 align:middle line:84% And you want to figure out actually 00:40:59.000 --> 00:41:02.160 align:middle line:84% what you're doing against the prior art. 00:41:02.160 --> 00:41:07.080 align:middle line:84% So we worked with the National Science Foundation SBIR program. 00:41:07.080 --> 00:41:09.840 align:middle line:84% In phase II of that program, one of the crucial things 00:41:09.840 --> 00:41:11.920 align:middle line:84% of getting a phase II grant is that you 00:41:11.920 --> 00:41:15.080 align:middle line:90% have intellectual property. 00:41:15.080 --> 00:41:17.480 align:middle line:84% So we worked with them to look at-- often when you 00:41:17.480 --> 00:41:19.360 align:middle line:84% have a technology, there are many places 00:41:19.360 --> 00:41:20.500 align:middle line:90% you could go with it. 00:41:20.500 --> 00:41:23.800 align:middle line:84% You know, your beachhead market, where do you want to go? 00:41:23.800 --> 00:41:27.360 align:middle line:84% And if you can actually visualize the patent world, 00:41:27.360 --> 00:41:29.440 align:middle line:84% it can help you make that decision. 00:41:29.440 --> 00:41:34.120 align:middle line:84% So we made a map like the Tesla map using keyword searches 00:41:34.120 --> 00:41:38.480 align:middle line:84% for, say, an area, met with one of the SBIR grantees, 00:41:38.480 --> 00:41:41.560 align:middle line:84% and said, OK, well, there's a big thicket of patents up here 00:41:41.560 --> 00:41:42.220 align:middle line:90% at the top. 00:41:42.220 --> 00:41:43.440 align:middle line:90% And we looked. 00:41:43.440 --> 00:41:45.460 align:middle line:84% And we saw there were some companies there. 00:41:45.460 --> 00:41:47.150 align:middle line:84% And we looked at the titles without even 00:41:47.150 --> 00:41:49.270 align:middle line:90% having to read too deep. 00:41:49.270 --> 00:41:53.030 align:middle line:84% And they said, ooh, that looks like a lot of what 00:41:53.030 --> 00:41:54.510 align:middle line:90% we're trying to do. 00:41:54.510 --> 00:41:58.230 align:middle line:84% But these other patents over here, there aren't many of them. 00:41:58.230 --> 00:41:59.610 align:middle line:90% And we could go there. 00:41:59.610 --> 00:42:02.770 align:middle line:84% So we think we might switch our whole commercialization 00:42:02.770 --> 00:42:04.270 align:middle line:84% effort from where we thought we were 00:42:04.270 --> 00:42:07.350 align:middle line:90% going to go to this other area. 00:42:07.350 --> 00:42:08.450 align:middle line:90% So that was useful. 00:42:08.450 --> 00:42:10.550 align:middle line:84% We did the same kind of process a week 00:42:10.550 --> 00:42:14.310 align:middle line:84% or two later, same map with a lot of cluster at the top. 00:42:14.310 --> 00:42:17.190 align:middle line:84% And I said, well, this could be a patent thicket. 00:42:17.190 --> 00:42:19.367 align:middle line:90% You might not want to go there. 00:42:19.367 --> 00:42:20.450 align:middle line:90% And they're looking at it. 00:42:20.450 --> 00:42:22.650 align:middle line:84% And they said, oh, we know these companies. 00:42:22.650 --> 00:42:24.150 align:middle line:84% And just looking at the title, we're 00:42:24.150 --> 00:42:25.590 align:middle line:90% going to have to dig deeper. 00:42:25.590 --> 00:42:28.950 align:middle line:84% But we think that might be exactly where we want to go. 00:42:28.950 --> 00:42:30.950 align:middle line:90% I said, well, why is that? 00:42:30.950 --> 00:42:32.590 align:middle line:84% And they said, well, we think we've 00:42:32.590 --> 00:42:35.237 align:middle line:84% solved the problem that they're trying to solve 00:42:35.237 --> 00:42:36.570 align:middle line:90% and they haven't figured it out. 00:42:36.570 --> 00:42:39.190 align:middle line:84% Otherwise, they would have filed patent applications. 00:42:39.190 --> 00:42:42.110 align:middle line:84% And so in thinking about building something 00:42:42.110 --> 00:42:44.190 align:middle line:84% that someone would want to acquire 00:42:44.190 --> 00:42:48.158 align:middle line:84% as a strategy for a new venture, they said, 00:42:48.158 --> 00:42:49.950 align:middle line:84% we're going to look at this real carefully, 00:42:49.950 --> 00:42:52.330 align:middle line:84% and we may double down and go into that area 00:42:52.330 --> 00:42:53.790 align:middle line:90% and build a portfolio. 00:42:53.790 --> 00:42:56.530 align:middle line:90% 00:42:56.530 --> 00:42:57.590 align:middle line:90% When to file? 00:42:57.590 --> 00:43:01.090 align:middle line:84% Well, again, you want to file before you lose rights. 00:43:01.090 --> 00:43:04.570 align:middle line:84% So that one-year period to public disclosure. 00:43:04.570 --> 00:43:08.250 align:middle line:84% Don't forget about the first inventor to file. 00:43:08.250 --> 00:43:12.810 align:middle line:84% And important, in time to have a patent to protect your product 00:43:12.810 --> 00:43:14.370 align:middle line:90% or services. 00:43:14.370 --> 00:43:16.410 align:middle line:84% So a few years ago, I was negotiating 00:43:16.410 --> 00:43:20.090 align:middle line:84% with a large consumer products company 00:43:20.090 --> 00:43:24.570 align:middle line:84% for an exclusive license of something we had developed. 00:43:24.570 --> 00:43:27.110 align:middle line:84% They were excited about the concept. 00:43:27.110 --> 00:43:29.650 align:middle line:84% We had a bunch of patent applications 00:43:29.650 --> 00:43:30.950 align:middle line:90% that were in process. 00:43:30.950 --> 00:43:34.170 align:middle line:84% And I'll explain how we did that in a moment. 00:43:34.170 --> 00:43:36.270 align:middle line:84% And as we were negotiating the deal, 00:43:36.270 --> 00:43:39.230 align:middle line:84% there was a whole section that said, well, what 00:43:39.230 --> 00:43:42.615 align:middle line:90% if these patents don't issue? 00:43:42.615 --> 00:43:44.240 align:middle line:84% We're going to cut the royalty or we're 00:43:44.240 --> 00:43:45.300 align:middle line:90% going to do this or that. 00:43:45.300 --> 00:43:47.880 align:middle line:84% And it was a whole-- it was a couple of pages. 00:43:47.880 --> 00:43:50.660 align:middle line:84% And just as we're in the middle of that big discussion, 00:43:50.660 --> 00:43:53.600 align:middle line:84% I got notification that one of our applications 00:43:53.600 --> 00:43:56.280 align:middle line:84% had issued as a patent in the US and then 00:43:56.280 --> 00:43:58.602 align:middle line:90% in two days later in China. 00:43:58.602 --> 00:44:00.060 align:middle line:84% And I went back to them and I said, 00:44:00.060 --> 00:44:03.200 align:middle line:84% we can just rip up this whole section because we actually 00:44:03.200 --> 00:44:05.423 align:middle line:90% have issued patents now. 00:44:05.423 --> 00:44:06.840 align:middle line:84% And they felt really good about it 00:44:06.840 --> 00:44:09.220 align:middle line:84% because if they were going to license this, 00:44:09.220 --> 00:44:12.600 align:middle line:84% they want to spend a lot of their money building out, 00:44:12.600 --> 00:44:15.200 align:middle line:84% then go to market on it, et cetera, knowing that we 00:44:15.200 --> 00:44:18.760 align:middle line:90% had a protectable position. 00:44:18.760 --> 00:44:22.880 align:middle line:84% Now, as I'm going to talk to you in a few minutes about, 00:44:22.880 --> 00:44:28.400 align:middle line:84% what the cost of patents are, they can be expensive. 00:44:28.400 --> 00:44:31.280 align:middle line:84% One of the things you can do, though, in order 00:44:31.280 --> 00:44:34.840 align:middle line:84% to get a placeholder, is what's called a provisional patent 00:44:34.840 --> 00:44:36.800 align:middle line:90% application. 00:44:36.800 --> 00:44:42.180 align:middle line:84% Do you remember how I said that in the rest of the world, if you 00:44:42.180 --> 00:44:47.180 align:middle line:84% disclose before you file, you won't be able to get a patent? 00:44:47.180 --> 00:44:49.700 align:middle line:84% The concept of a provisional patent application 00:44:49.700 --> 00:44:51.960 align:middle line:84% was put in the law as something saying, well, 00:44:51.960 --> 00:44:54.300 align:middle line:90% this is really an application. 00:44:54.300 --> 00:44:57.730 align:middle line:84% So if you file a provisional, that's going to count as filing. 00:44:57.730 --> 00:44:59.980 align:middle line:84% Other countries in the world are going to look at that 00:44:59.980 --> 00:45:03.060 align:middle line:90% and say, well, you did file. 00:45:03.060 --> 00:45:06.460 align:middle line:84% So it's a very quick application you can put in. 00:45:06.460 --> 00:45:10.700 align:middle line:84% It has to have a meaningful description of your invention. 00:45:10.700 --> 00:45:16.140 align:middle line:84% It does not have to include claims. 00:45:16.140 --> 00:45:19.700 align:middle line:84% It establishes your filing date priority. 00:45:19.700 --> 00:45:23.060 align:middle line:84% It protects your idea for a year. 00:45:23.060 --> 00:45:26.240 align:middle line:84% And then you have to actually file a utility application. 00:45:26.240 --> 00:45:28.580 align:middle line:90% It's called a full application. 00:45:28.580 --> 00:45:30.340 align:middle line:90% It's fast and cheap. 00:45:30.340 --> 00:45:33.660 align:middle line:90% I think it's $64 for micro. 00:45:33.660 --> 00:45:38.180 align:middle line:84% That would be if you're a new venture, $64 filing fee. 00:45:38.180 --> 00:45:43.410 align:middle line:84% Nothing happens at the Patent and Trademark Office. 00:45:43.410 --> 00:45:46.170 align:middle line:90% But you've established a date. 00:45:46.170 --> 00:45:49.150 align:middle line:84% When you go to file your full application, 00:45:49.150 --> 00:45:53.130 align:middle line:84% though, it has to have enough in the provisional for you 00:45:53.130 --> 00:45:55.530 align:middle line:84% to be able to say, my full application 00:45:55.530 --> 00:45:58.550 align:middle line:84% is going to fit into the provisional, what's described. 00:45:58.550 --> 00:46:00.730 align:middle line:84% So let's say I discovered, and nobody else 00:46:00.730 --> 00:46:04.470 align:middle line:84% knew, that fruits and vegetables were important for human health. 00:46:04.470 --> 00:46:07.290 align:middle line:90% And I filed a provisional. 00:46:07.290 --> 00:46:08.870 align:middle line:84% And then in the course of the year, 00:46:08.870 --> 00:46:11.110 align:middle line:84% as I'm going out and talking and figuring my market, 00:46:11.110 --> 00:46:14.170 align:middle line:84% I realize, protein is important too. 00:46:14.170 --> 00:46:18.570 align:middle line:84% And I go to try to file a full application, including protein. 00:46:18.570 --> 00:46:21.770 align:middle line:84% That provisional isn't going to cover it. 00:46:21.770 --> 00:46:23.370 align:middle line:84% In fact, a provisional can even be-- 00:46:23.370 --> 00:46:24.890 align:middle line:84% I've seen it where somebody's going 00:46:24.890 --> 00:46:28.130 align:middle line:84% to give a paper at a conference, let me just slap a cover 00:46:28.130 --> 00:46:30.770 align:middle line:90% page on it and file it. 00:46:30.770 --> 00:46:37.808 align:middle line:84% Now, patent lawyers will say you really ought to file and make it 00:46:37.808 --> 00:46:39.100 align:middle line:90% with the claims and everything. 00:46:39.100 --> 00:46:41.183 align:middle line:84% And yeah, if you had an unlimited amount of money, 00:46:41.183 --> 00:46:42.180 align:middle line:90% you could do that. 00:46:42.180 --> 00:46:44.020 align:middle line:84% But as a startup, you don't have that. 00:46:44.020 --> 00:46:47.560 align:middle line:84% When we were developing the IPVision technology, 00:46:47.560 --> 00:46:49.720 align:middle line:90% it's a SaaS thing. 00:46:49.720 --> 00:46:53.040 align:middle line:84% We would have six-week development cycles. 00:46:53.040 --> 00:46:56.840 align:middle line:84% And before we deployed the code, we'd sit and we'd say, 00:46:56.840 --> 00:47:00.600 align:middle line:84% all right, what did we do in this cycle that we think 00:47:00.600 --> 00:47:03.040 align:middle line:90% is important? 00:47:03.040 --> 00:47:05.280 align:middle line:90% And should we file something? 00:47:05.280 --> 00:47:10.160 align:middle line:84% What did we think about during the cycle 00:47:10.160 --> 00:47:13.560 align:middle line:84% that we did not implement that we think might be important 00:47:13.560 --> 00:47:15.520 align:middle line:90% that we should file on? 00:47:15.520 --> 00:47:18.420 align:middle line:84% And it was a pretty good discipline. 00:47:18.420 --> 00:47:21.140 align:middle line:84% And we'd file, $64, we'd file them. 00:47:21.140 --> 00:47:23.222 align:middle line:84% And we had a series of these things. 00:47:23.222 --> 00:47:25.180 align:middle line:84% And then eventually 12 months later, of course, 00:47:25.180 --> 00:47:26.763 align:middle line:84% we had to decide whether we were going 00:47:26.763 --> 00:47:29.000 align:middle line:90% to pay the big bucks for it. 00:47:29.000 --> 00:47:32.860 align:middle line:84% But it's a good strategy for startups. 00:47:32.860 --> 00:47:35.440 align:middle line:90% 00:47:35.440 --> 00:47:38.880 align:middle line:90% What's in a patent application? 00:47:38.880 --> 00:47:41.060 align:middle line:90% It's like a term paper. 00:47:41.060 --> 00:47:43.260 align:middle line:84% You've got the field of invention, usually, and then 00:47:43.260 --> 00:47:44.580 align:middle line:90% the background. 00:47:44.580 --> 00:47:48.257 align:middle line:84% What problem is there that you're solving? 00:47:48.257 --> 00:47:49.840 align:middle line:84% You do a little summary of what it is. 00:47:49.840 --> 00:47:53.420 align:middle line:84% And then the core of it is the detailed description. 00:47:53.420 --> 00:47:55.440 align:middle line:84% Remember I said it's a trade-off. 00:47:55.440 --> 00:47:58.100 align:middle line:84% You get a patent if you disclose. 00:47:58.100 --> 00:48:01.140 align:middle line:84% Here's where you have to disclose what the invention is. 00:48:01.140 --> 00:48:04.900 align:middle line:84% And you have to describe the best mode of practicing it. 00:48:04.900 --> 00:48:07.280 align:middle line:84% So you can't say the best mode is this way, 00:48:07.280 --> 00:48:09.220 align:middle line:84% and then go off and do something else 00:48:09.220 --> 00:48:12.020 align:middle line:90% and expect to have it happen. 00:48:12.020 --> 00:48:17.020 align:middle line:84% And the claims are exactly is what your invention. 00:48:17.020 --> 00:48:22.580 align:middle line:84% Now, the claims, the writing and interpretation of claims, that's 00:48:22.580 --> 00:48:26.340 align:middle line:84% a highly technical thing for patent lawyers. 00:48:26.340 --> 00:48:31.380 align:middle line:84% So you don't typically want to do those yourself. 00:48:31.380 --> 00:48:33.180 align:middle line:84% This is where you want to spend the money 00:48:33.180 --> 00:48:36.210 align:middle line:84% and get somebody who really knows the prior art 00:48:36.210 --> 00:48:39.210 align:middle line:90% and knows how to write stuff. 00:48:39.210 --> 00:48:40.590 align:middle line:90% Here are some of the costs. 00:48:40.590 --> 00:48:43.330 align:middle line:90% 00:48:43.330 --> 00:48:48.890 align:middle line:84% Arrange for preparing an application $5,000 to $15,000. 00:48:48.890 --> 00:48:53.750 align:middle line:84% I once got a bill for $35,000 for an application. 00:48:53.750 --> 00:48:58.030 align:middle line:84% And I called up the law firm and I said, $35,000, 00:48:58.030 --> 00:48:59.050 align:middle line:90% what's going on? 00:48:59.050 --> 00:49:01.810 align:middle line:84% Well, it turned out my co-founder was 00:49:01.810 --> 00:49:05.842 align:middle line:84% calling the patent lawyer all the time and saying, 00:49:05.842 --> 00:49:07.550 align:middle line:84% we should add this and we should do that. 00:49:07.550 --> 00:49:08.690 align:middle line:90% And he didn't tell me. 00:49:08.690 --> 00:49:11.370 align:middle line:84% And so the meter was just turning like this. 00:49:11.370 --> 00:49:13.750 align:middle line:84% So I had to sit down the law for the company. 00:49:13.750 --> 00:49:15.250 align:middle line:84% Nobody talks to the patent lawyer 00:49:15.250 --> 00:49:17.210 align:middle line:90% without coming through me. 00:49:17.210 --> 00:49:21.830 align:middle line:84% And my co-founder was a former MIT professor. 00:49:21.830 --> 00:49:23.010 align:middle line:90% He's a brilliant guy. 00:49:23.010 --> 00:49:26.250 align:middle line:84% And I said, next time this happens, you're 00:49:26.250 --> 00:49:30.250 align:middle line:84% paying for all of the prosecution costs on it. 00:49:30.250 --> 00:49:34.760 align:middle line:84% The filing fees are fairly low for a micro, which would 00:49:34.760 --> 00:49:37.280 align:middle line:90% be what you would be, $64. 00:49:37.280 --> 00:49:41.560 align:middle line:84% The prosecution costs-- it's like a tennis match. 00:49:41.560 --> 00:49:44.320 align:middle line:84% You really can't decide whether this is going 00:49:44.320 --> 00:49:48.788 align:middle line:90% to be a two-hit rally or what. 00:49:48.788 --> 00:49:50.580 align:middle line:84% They had the Australian Open the other day. 00:49:50.580 --> 00:49:53.240 align:middle line:90% It was 55 back and forths. 00:49:53.240 --> 00:49:56.280 align:middle line:90% So you put the application in. 00:49:56.280 --> 00:49:59.520 align:middle line:84% Typically the examiner rejects it. 00:49:59.520 --> 00:50:02.280 align:middle line:84% And that's a good sign, because if they accept it, 00:50:02.280 --> 00:50:05.040 align:middle line:84% you probably haven't tried to claim enough. 00:50:05.040 --> 00:50:08.080 align:middle line:84% And so you respond to that and point 00:50:08.080 --> 00:50:11.360 align:middle line:84% that the prior art does not really 00:50:11.360 --> 00:50:12.892 align:middle line:84% matter in this case for that reason. 00:50:12.892 --> 00:50:14.600 align:middle line:84% Then it goes back, and then the examiner, 00:50:14.600 --> 00:50:15.780 align:middle line:90% and you go back and forth. 00:50:15.780 --> 00:50:18.000 align:middle line:84% And if that keeps going, your cost 00:50:18.000 --> 00:50:20.040 align:middle line:84% is going to go up, because typically the patent 00:50:20.040 --> 00:50:23.320 align:middle line:90% lawyers charge by the hour. 00:50:23.320 --> 00:50:27.040 align:middle line:84% You can't really control that very well. 00:50:27.040 --> 00:50:30.500 align:middle line:84% Some large companies have tried to do fixed cost patent 00:50:30.500 --> 00:50:32.180 align:middle line:90% applications. 00:50:32.180 --> 00:50:33.580 align:middle line:84% And we've done some analysis that 00:50:33.580 --> 00:50:37.420 align:middle line:84% say, typically that doesn't get you anything near a good patent, 00:50:37.420 --> 00:50:39.740 align:middle line:84% because all they want to do for a fixed cost 00:50:39.740 --> 00:50:42.140 align:middle line:84% is get something allowed as a claim. 00:50:42.140 --> 00:50:46.140 align:middle line:84% And if I go back to that discussion with the big consumer 00:50:46.140 --> 00:50:50.540 align:middle line:84% products company, if we hadn't got our patents issued 00:50:50.540 --> 00:50:53.380 align:middle line:84% at that time, I wasn't really worried, 00:50:53.380 --> 00:50:55.860 align:middle line:84% because the language said if we didn't 00:50:55.860 --> 00:51:01.400 align:middle line:84% get at least one claim and one patent allowed, 00:51:01.400 --> 00:51:03.740 align:middle line:84% well, I could craft the claim so small 00:51:03.740 --> 00:51:05.780 align:middle line:84% that it would be irrelevant and it 00:51:05.780 --> 00:51:08.700 align:middle line:84% would have met the requirements of that contract. 00:51:08.700 --> 00:51:10.400 align:middle line:84% So it was kind of stupid on their part. 00:51:10.400 --> 00:51:13.380 align:middle line:84% They didn't really understand what they were doing. 00:51:13.380 --> 00:51:16.700 align:middle line:84% Foreign patent applications get expensive. 00:51:16.700 --> 00:51:17.840 align:middle line:90% Here are some of the costs. 00:51:17.840 --> 00:51:18.900 align:middle line:90% You can read them. 00:51:18.900 --> 00:51:22.020 align:middle line:84% When you go to national phase, which just means 00:51:22.020 --> 00:51:24.580 align:middle line:84% you've filed in the US and you're going around the world. 00:51:24.580 --> 00:51:27.220 align:middle line:90% That really can get expensive. 00:51:27.220 --> 00:51:30.730 align:middle line:84% There was a general accounting office study back in the early 00:51:30.730 --> 00:51:36.410 align:middle line:84% 2000s that looked at the cost for a small entity to get 00:51:36.410 --> 00:51:40.050 align:middle line:84% and maintain a patent in the 10 major industrial countries 00:51:40.050 --> 00:51:41.050 align:middle line:90% of the world. 00:51:41.050 --> 00:51:46.610 align:middle line:84% And it ranged from $350,000 to $500,000 over the life 00:51:46.610 --> 00:51:50.010 align:middle line:84% of the patent, which is a big number. 00:51:50.010 --> 00:51:54.230 align:middle line:84% By the way, if we're thinking about licensing it, 00:51:54.230 --> 00:51:59.010 align:middle line:84% part of our negotiation with an exclusive license 00:51:59.010 --> 00:52:02.450 align:middle line:84% would be that the licensee would pick up the patent costs. 00:52:02.450 --> 00:52:04.530 align:middle line:84% So if you can get something licensed 00:52:04.530 --> 00:52:07.290 align:middle line:84% before you have to start paying the big bucks, 00:52:07.290 --> 00:52:12.410 align:middle line:90% that's a reason to do that. 00:52:12.410 --> 00:52:15.710 align:middle line:84% If it's expensive, what's another strategy you might do? 00:52:15.710 --> 00:52:18.010 align:middle line:90% Well, I call it disclosing. 00:52:18.010 --> 00:52:19.810 align:middle line:84% If you have something that you think 00:52:19.810 --> 00:52:23.090 align:middle line:84% is a fundamental invention, and you talk to your patent lawyer 00:52:23.090 --> 00:52:27.090 align:middle line:84% and they think you can get a really strong patent on it, 00:52:27.090 --> 00:52:31.820 align:middle line:84% then a strategy is to disclose the others. 00:52:31.820 --> 00:52:33.800 align:middle line:84% Because what you don't want to do 00:52:33.800 --> 00:52:37.600 align:middle line:84% is put it out there and have some other people come 00:52:37.600 --> 00:52:39.800 align:middle line:90% and picket fence, it's called. 00:52:39.800 --> 00:52:41.800 align:middle line:84% They patent all of the key things 00:52:41.800 --> 00:52:46.280 align:middle line:84% that are needed to bring that thing as a commercial viability. 00:52:46.280 --> 00:52:49.280 align:middle line:84% The Japanese were famous for this. 00:52:49.280 --> 00:52:52.720 align:middle line:84% So here's my vessel to hold a liquid. 00:52:52.720 --> 00:52:54.920 align:middle line:90% Let's say I have that patent. 00:52:54.920 --> 00:53:00.360 align:middle line:84% And you come along and say, well, maybe it needs a top, 00:53:00.360 --> 00:53:02.400 align:middle line:84% or you could come along and say, I'll 00:53:02.400 --> 00:53:06.960 align:middle line:84% patent a sleeve, or maybe a handle, 00:53:06.960 --> 00:53:10.960 align:middle line:84% or maybe even an insulating version of that. 00:53:10.960 --> 00:53:13.700 align:middle line:84% And if you do that, I'm sort of stuck. 00:53:13.700 --> 00:53:16.320 align:middle line:84% I can't go to market with any of those things. 00:53:16.320 --> 00:53:17.920 align:middle line:90% You blocked me in. 00:53:17.920 --> 00:53:23.160 align:middle line:84% An example of that is this Ring patent. 00:53:23.160 --> 00:53:26.680 align:middle line:84% This little patent in the yellow there, that was a Ring patent. 00:53:26.680 --> 00:53:30.060 align:middle line:84% All the red patents are from SkyBell. 00:53:30.060 --> 00:53:32.898 align:middle line:84% When you see a pattern like that of one company citing 00:53:32.898 --> 00:53:34.940 align:middle line:84% one patent of another company, it could very well 00:53:34.940 --> 00:53:38.180 align:middle line:90% be a picket fence. 00:53:38.180 --> 00:53:44.140 align:middle line:84% So what it means here is if you can get that strong patent 00:53:44.140 --> 00:53:46.740 align:middle line:84% on the cup, the vessel to hold a liquid, 00:53:46.740 --> 00:53:48.780 align:middle line:84% you could disclose in the patent filing 00:53:48.780 --> 00:53:52.660 align:middle line:84% or elsewhere other things, but not actually claim it. 00:53:52.660 --> 00:53:54.280 align:middle line:84% I've got a vessel to hold a liquid. 00:53:54.280 --> 00:53:55.040 align:middle line:90% It's wonderful. 00:53:55.040 --> 00:53:56.920 align:middle line:84% It are a lot of things you could do with it. 00:53:56.920 --> 00:53:58.320 align:middle line:90% You could put a top on it. 00:53:58.320 --> 00:53:59.840 align:middle line:90% You could put a handle on it. 00:53:59.840 --> 00:54:02.840 align:middle line:84% You could put an insulation sleeve for hot or cold. 00:54:02.840 --> 00:54:03.920 align:middle line:90% You can do all of that. 00:54:03.920 --> 00:54:07.300 align:middle line:84% And having done that, that becomes prior art 00:54:07.300 --> 00:54:09.080 align:middle line:90% disclosed for other people. 00:54:09.080 --> 00:54:11.460 align:middle line:84% So somebody else can't come along 00:54:11.460 --> 00:54:14.020 align:middle line:84% and say, I want to patent the sleeve, 00:54:14.020 --> 00:54:16.940 align:middle line:84% because it's already been disclosed. 00:54:16.940 --> 00:54:18.922 align:middle line:84% It's cheap, but you want to make sure-- 00:54:18.922 --> 00:54:20.380 align:middle line:84% it's a cheap strategy, but you want 00:54:20.380 --> 00:54:22.540 align:middle line:84% to make sure that actually your core 00:54:22.540 --> 00:54:25.850 align:middle line:90% patent is going to be strong. 00:54:25.850 --> 00:54:27.610 align:middle line:90% Now back to Tesla. 00:54:27.610 --> 00:54:30.770 align:middle line:84% You saw all the patents Tesla had. 00:54:30.770 --> 00:54:34.890 align:middle line:84% And Elon Musk's is pro-innovation. 00:54:34.890 --> 00:54:39.610 align:middle line:84% So back in 2014 they said, look, we're 00:54:39.610 --> 00:54:43.570 align:middle line:84% going to make a bunch of our patents available. 00:54:43.570 --> 00:54:47.410 align:middle line:84% We're going to license them for free to people, because we 00:54:47.410 --> 00:54:51.090 align:middle line:90% believe in innovation. 00:54:51.090 --> 00:54:53.770 align:middle line:90% And everyone went yay. 00:54:53.770 --> 00:54:57.590 align:middle line:90% Well, what were those patents? 00:54:57.590 --> 00:55:01.970 align:middle line:84% They were things around chargers and other kinds of things. 00:55:01.970 --> 00:55:04.650 align:middle line:84% He had patented a bunch of things 00:55:04.650 --> 00:55:07.610 align:middle line:84% that were needed in order to make the complete ecosystem 00:55:07.610 --> 00:55:09.250 align:middle line:90% for electric vehicles. 00:55:09.250 --> 00:55:12.210 align:middle line:84% He's interested in selling electric vehicles. 00:55:12.210 --> 00:55:15.810 align:middle line:84% Henry Ford was interested in selling cars. 00:55:15.810 --> 00:55:20.390 align:middle line:84% In Henry Ford's case, he didn't need to drill for oil, 00:55:20.390 --> 00:55:26.600 align:middle line:84% refine it into gas, build gas stations, build roads. 00:55:26.600 --> 00:55:27.900 align:middle line:90% Other people could do it. 00:55:27.900 --> 00:55:31.560 align:middle line:84% In Tesla's case, if he could control through license 00:55:31.560 --> 00:55:34.407 align:middle line:84% what people did, but he could enable 00:55:34.407 --> 00:55:36.240 align:middle line:84% others to become entrepreneurs and build out 00:55:36.240 --> 00:55:38.920 align:middle line:84% the infrastructure, it would help his strategy. 00:55:38.920 --> 00:55:41.760 align:middle line:84% Because in the old days, the strategy for patents 00:55:41.760 --> 00:55:47.840 align:middle line:84% was patent what you invent and make sure you don't infringe. 00:55:47.840 --> 00:55:52.880 align:middle line:84% If you think more broadly, even a nonprofit 00:55:52.880 --> 00:55:55.520 align:middle line:84% could patent something to make sure some other people wouldn't 00:55:55.520 --> 00:55:58.520 align:middle line:90% do things to prevent-- 00:55:58.520 --> 00:56:01.000 align:middle line:84% if the nonprofit's goal was to get this out 00:56:01.000 --> 00:56:05.280 align:middle line:84% into the marketplace, like Amy Smith's incubator 00:56:05.280 --> 00:56:08.280 align:middle line:84% I talked about the other day, then 00:56:08.280 --> 00:56:11.640 align:middle line:84% you could at least use that as a control if somebody tries 00:56:11.640 --> 00:56:15.120 align:middle line:84% to do something that you don't think is in the public interest. 00:56:15.120 --> 00:56:16.800 align:middle line:90% Make sense? 00:56:16.800 --> 00:56:18.060 align:middle line:90% Think a little bit broader. 00:56:18.060 --> 00:56:23.940 align:middle line:90% 00:56:23.940 --> 00:56:26.860 align:middle line:84% So you should think about goal-oriented IP. 00:56:26.860 --> 00:56:29.860 align:middle line:84% What it is, you have a core technology. 00:56:29.860 --> 00:56:32.120 align:middle line:84% Do you have a product that if you put it out there, 00:56:32.120 --> 00:56:35.380 align:middle line:84% there's a risk that people could reverse engineer it? 00:56:35.380 --> 00:56:39.300 align:middle line:84% In which case, you might want to patent it. 00:56:39.300 --> 00:56:41.820 align:middle line:84% If that product has a short time-frame, 00:56:41.820 --> 00:56:44.940 align:middle line:84% is it worth getting the cost of it, 00:56:44.940 --> 00:56:49.620 align:middle line:84% if it's going to be leapfrogged in two or three years? 00:56:49.620 --> 00:56:55.100 align:middle line:84% Is your business model to manufacture and sell? 00:56:55.100 --> 00:56:55.840 align:middle line:90% That's one thing. 00:56:55.840 --> 00:56:57.000 align:middle line:84% What if you're going to license it? 00:56:57.000 --> 00:56:59.000 align:middle line:84% Well, if you're going to license the technology, 00:56:59.000 --> 00:57:01.020 align:middle line:84% you better have the IP protection, 00:57:01.020 --> 00:57:04.220 align:middle line:84% because your licensee is going to invest money 00:57:04.220 --> 00:57:05.642 align:middle line:90% in commercializing it. 00:57:05.642 --> 00:57:07.600 align:middle line:84% And they want to make sure that it's protected. 00:57:07.600 --> 00:57:11.620 align:middle line:84% So you would really want an IP strategy if you were licensing. 00:57:11.620 --> 00:57:15.020 align:middle line:84% Now, there may be other non-IP bars to entry 00:57:15.020 --> 00:57:18.770 align:middle line:84% that might protect you, if you have to get FDA approval 00:57:18.770 --> 00:57:20.930 align:middle line:90% or other regulatory. 00:57:20.930 --> 00:57:23.770 align:middle line:84% And if you're thinking that your ultimate thing is 00:57:23.770 --> 00:57:26.050 align:middle line:84% you're going to be acquired, again, you 00:57:26.050 --> 00:57:28.490 align:middle line:84% want to have something that's valuable. 00:57:28.490 --> 00:57:32.650 align:middle line:84% And you might want to build up a portfolio of IP 00:57:32.650 --> 00:57:38.730 align:middle line:84% so that the person acquiring you sees that extra value. 00:57:38.730 --> 00:57:44.317 align:middle line:84% All right, so practical checklists for you, employees. 00:57:44.317 --> 00:57:46.650 align:middle line:84% Make sure you get an invention disclosure and assignment 00:57:46.650 --> 00:57:48.010 align:middle line:90% agreement. 00:57:48.010 --> 00:57:52.530 align:middle line:84% Because as we know, the inventor owns if you don't get that. 00:57:52.530 --> 00:57:54.890 align:middle line:90% Same with copyright. 00:57:54.890 --> 00:57:56.530 align:middle line:84% If you're using consultants, make 00:57:56.530 --> 00:57:59.290 align:middle line:84% sure you have a work for hire agreement 00:57:59.290 --> 00:58:02.070 align:middle line:84% which specifically says you, the consultant, 00:58:02.070 --> 00:58:04.730 align:middle line:84% are going to do x for me under a work for hire 00:58:04.730 --> 00:58:08.090 align:middle line:90% and I'll get to own it. 00:58:08.090 --> 00:58:11.850 align:middle line:84% You want to have non-disclosure agreements where appropriate. 00:58:11.850 --> 00:58:14.410 align:middle line:84% Now, typically venture capital investors 00:58:14.410 --> 00:58:17.520 align:middle line:84% will not sign non-disclosure agreements. 00:58:17.520 --> 00:58:21.200 align:middle line:84% And the reason they state is, we get a lot of people coming in 00:58:21.200 --> 00:58:23.040 align:middle line:90% with similar technologies. 00:58:23.040 --> 00:58:26.640 align:middle line:84% And if we don't fund you but we fund someone else, 00:58:26.640 --> 00:58:29.200 align:middle line:84% we don't want to have anybody claiming 00:58:29.200 --> 00:58:31.760 align:middle line:90% we violated an agreement. 00:58:31.760 --> 00:58:35.400 align:middle line:84% So again, don't disclose the secret sauce 00:58:35.400 --> 00:58:37.340 align:middle line:90% until the absolute last moment. 00:58:37.340 --> 00:58:39.920 align:middle line:90% 00:58:39.920 --> 00:58:41.660 align:middle line:90% You want to avoid infringement. 00:58:41.660 --> 00:58:44.080 align:middle line:84% You want to make sure you have freedom to operate. 00:58:44.080 --> 00:58:46.280 align:middle line:84% Am I going to infringe somebody else's patent if I 00:58:46.280 --> 00:58:48.320 align:middle line:90% bring this thing to market? 00:58:48.320 --> 00:58:52.160 align:middle line:84% Understand the patent landscape, not only in one time, 00:58:52.160 --> 00:58:53.940 align:middle line:90% but over time. 00:58:53.940 --> 00:58:55.840 align:middle line:84% So to see the forest site, you can 00:58:55.840 --> 00:58:59.160 align:middle line:84% update those maps weekly or monthly 00:58:59.160 --> 00:59:02.747 align:middle line:84% and keep an idea of what competitors are doing. 00:59:02.747 --> 00:59:04.580 align:middle line:84% And you want to preserve your patent rights. 00:59:04.580 --> 00:59:06.428 align:middle line:90% File provisional applications. 00:59:06.428 --> 00:59:08.220 align:middle line:84% By the way, there was a real culture thing. 00:59:08.220 --> 00:59:12.720 align:middle line:84% We were dealing with this large consumer products company. 00:59:12.720 --> 00:59:14.600 align:middle line:84% And we talked to their patent people 00:59:14.600 --> 00:59:18.020 align:middle line:84% and said, in our collaboration, we're 00:59:18.020 --> 00:59:20.900 align:middle line:84% going to be filing provisional applications. 00:59:20.900 --> 00:59:24.700 align:middle line:84% And they said, well, we don't really do that. 00:59:24.700 --> 00:59:25.780 align:middle line:90% Why not? 00:59:25.780 --> 00:59:27.940 align:middle line:90% Well, they're too hard to track. 00:59:27.940 --> 00:59:30.715 align:middle line:84% And we said, listen, guys, Silicon Valley 00:59:30.715 --> 00:59:31.840 align:middle line:90% is doing this all the time. 00:59:31.840 --> 00:59:34.900 align:middle line:84% You're going to get hammered if you don't figure out 00:59:34.900 --> 00:59:36.340 align:middle line:90% how to keep track of this. 00:59:36.340 --> 00:59:40.420 align:middle line:84% So the big companies were not thinking in this way. 00:59:40.420 --> 00:59:44.500 align:middle line:84% You want to make sure you file timely the patent application. 00:59:44.500 --> 00:59:46.140 align:middle line:84% And you want to make sure you're not 00:59:46.140 --> 00:59:49.660 align:middle line:84% going to be picket fenced, if appropriate. 00:59:49.660 --> 00:59:54.540 align:middle line:90% Now, how to deal with lawyers. 00:59:54.540 --> 00:59:55.920 align:middle line:90% They're wonderful creatures. 00:59:55.920 --> 00:59:58.660 align:middle line:90% I used to be one. 00:59:58.660 --> 01:00:02.900 align:middle line:84% You're purchasing legal expertise usually by the hour. 01:00:02.900 --> 01:00:04.682 align:middle line:84% So already I've been here about an hour. 01:00:04.682 --> 01:00:06.640 align:middle line:84% The bill's going to be horrendous for you guys, 01:00:06.640 --> 01:00:08.700 align:middle line:90% I got to tell you. 01:00:08.700 --> 01:00:10.540 align:middle line:84% So you want a disciplined approach 01:00:10.540 --> 01:00:11.660 align:middle line:90% in dealing with lawyers. 01:00:11.660 --> 01:00:17.670 align:middle line:84% If you come in and dump a notebook from your lab and say, 01:00:17.670 --> 01:00:21.230 align:middle line:84% write me a patent, it's going to take a long time. 01:00:21.230 --> 01:00:23.730 align:middle line:84% Or if you're like my co-founder and playing ping pong 01:00:23.730 --> 01:00:25.050 align:middle line:90% back and forth. 01:00:25.050 --> 01:00:28.490 align:middle line:84% So you want to understand what it is you're trying to do. 01:00:28.490 --> 01:00:32.970 align:middle line:84% You want to make sure the attorney's kept informed. 01:00:32.970 --> 01:00:35.970 align:middle line:84% You want to show the invention disclosures, 01:00:35.970 --> 01:00:38.450 align:middle line:84% clear agreement on fees, and don't 01:00:38.450 --> 01:00:40.250 align:middle line:90% wait until the last moment. 01:00:40.250 --> 01:00:42.410 align:middle line:84% If you come up on the one-year deadline 01:00:42.410 --> 01:00:44.350 align:middle line:84% and call the attorney tomorrow and say 01:00:44.350 --> 01:00:46.490 align:middle line:84% I got to get this filed Monday, what 01:00:46.490 --> 01:00:49.452 align:middle line:84% do you think the bill's going to be, 01:00:49.452 --> 01:00:51.410 align:middle line:84% versus we're going to have to have this on file 01:00:51.410 --> 01:00:54.410 align:middle line:90% a month from now? 01:00:54.410 --> 01:00:57.050 align:middle line:84% Leverage your technical expertise. 01:00:57.050 --> 01:00:58.670 align:middle line:84% Read some other patents in your area. 01:00:58.670 --> 01:01:01.730 align:middle line:84% You can do a first draft of everything. 01:01:01.730 --> 01:01:04.110 align:middle line:84% After all, you're describing what your invention is. 01:01:04.110 --> 01:01:06.410 align:middle line:84% Let the patent lawyer do the claims. 01:01:06.410 --> 01:01:10.330 align:middle line:84% But the time you spend doing that and reading other people's 01:01:10.330 --> 01:01:14.360 align:middle line:84% patents is time you don't have to pay the lawyers for. 01:01:14.360 --> 01:01:16.840 align:middle line:84% And then you can read my ten commandments 01:01:16.840 --> 01:01:19.080 align:middle line:84% of dealing with lawyers, which is 01:01:19.080 --> 01:01:22.960 align:middle line:84% in the course materials about how to streamline 01:01:22.960 --> 01:01:26.480 align:middle line:90% your interactions. 01:01:26.480 --> 01:01:28.160 align:middle line:84% The question came up the other night 01:01:28.160 --> 01:01:30.180 align:middle line:84% about licensing from universities. 01:01:30.180 --> 01:01:33.297 align:middle line:84% So I thought I would give you a rush through that. 01:01:33.297 --> 01:01:34.880 align:middle line:84% As I promised you, I'm overloading you 01:01:34.880 --> 01:01:36.560 align:middle line:90% with information. 01:01:36.560 --> 01:01:38.560 align:middle line:90% I think some of it's sinking in. 01:01:38.560 --> 01:01:42.880 align:middle line:84% Some people are looking like, I need a break. 01:01:42.880 --> 01:01:44.500 align:middle line:90% But let's talk about licensing. 01:01:44.500 --> 01:01:47.200 align:middle line:90% 01:01:47.200 --> 01:01:50.560 align:middle line:84% Before the Bayh-Dole Act back in 1980, 01:01:50.560 --> 01:01:53.540 align:middle line:84% if the federal government funded research in a university, 01:01:53.540 --> 01:01:57.320 align:middle line:84% the federal government owned the resulting IP. 01:01:57.320 --> 01:02:01.200 align:middle line:84% It was managed out of Washington. 01:02:01.200 --> 01:02:04.400 align:middle line:84% It was only licensed non-exclusively. 01:02:04.400 --> 01:02:05.580 align:middle line:90% So think about it. 01:02:05.580 --> 01:02:08.280 align:middle line:84% If you're going to build a business, 01:02:08.280 --> 01:02:10.580 align:middle line:84% you'd like to have an exclusive license 01:02:10.580 --> 01:02:13.140 align:middle line:84% and not against a bunch of competitors. 01:02:13.140 --> 01:02:17.300 align:middle line:84% And so the result was, few patents were commercialized. 01:02:17.300 --> 01:02:21.860 align:middle line:84% Only about 5% of patents were commercially licensed. 01:02:21.860 --> 01:02:25.140 align:middle line:84% So Bayh-Dole came along and said, wait a second, guys, 01:02:25.140 --> 01:02:29.000 align:middle line:84% we should give the ownership of this IP that we the government 01:02:29.000 --> 01:02:29.760 align:middle line:90% pay for. 01:02:29.760 --> 01:02:31.460 align:middle line:90% Give it to the universities. 01:02:31.460 --> 01:02:34.500 align:middle line:90% They're closer to the inventors. 01:02:34.500 --> 01:02:37.980 align:middle line:84% And let them have the right to license it and keep 01:02:37.980 --> 01:02:39.720 align:middle line:90% the benefits from the license. 01:02:39.720 --> 01:02:44.220 align:middle line:84% Oh, and by the way, they can license it exclusively. 01:02:44.220 --> 01:02:45.120 align:middle line:90% So they did. 01:02:45.120 --> 01:02:47.520 align:middle line:84% And this is what Bayh-Dole requires of universities. 01:02:47.520 --> 01:02:51.500 align:middle line:84% They have to retain ownership of innovations. 01:02:51.500 --> 01:02:55.060 align:middle line:84% They have to file the inventions patents. 01:02:55.060 --> 01:02:59.860 align:middle line:84% They have to give licensing preferences to small businesses. 01:02:59.860 --> 01:03:02.900 align:middle line:84% They do provide the government with a royalty-free license. 01:03:02.900 --> 01:03:06.180 align:middle line:90% Rarely an issue. 01:03:06.180 --> 01:03:08.770 align:middle line:84% They have to develop programs to commercialize this. 01:03:08.770 --> 01:03:11.930 align:middle line:84% And they have to share royalties with the inventors. 01:03:11.930 --> 01:03:14.690 align:middle line:84% As a result, most of the research universities 01:03:14.690 --> 01:03:20.770 align:middle line:84% came up with technology licensing offices to do this. 01:03:20.770 --> 01:03:24.890 align:middle line:84% The one at MIT is called the Technology Licensing Office. 01:03:24.890 --> 01:03:30.470 align:middle line:84% Interestingly enough, MIT historically in my experience 01:03:30.470 --> 01:03:33.090 align:middle line:84% is the easiest one to deal with because of the way 01:03:33.090 --> 01:03:35.370 align:middle line:84% they're structured and what their goals are. 01:03:35.370 --> 01:03:37.770 align:middle line:84% If you deal with other universities, 01:03:37.770 --> 01:03:42.010 align:middle line:84% their primary goal is getting revenue. 01:03:42.010 --> 01:03:46.090 align:middle line:84% MIT says, look, we want to make sure this stuff gets out there, 01:03:46.090 --> 01:03:51.210 align:middle line:84% and only secondarily do we care about the royalties 01:03:51.210 --> 01:03:53.330 align:middle line:90% and what we can get for it. 01:03:53.330 --> 01:03:56.850 align:middle line:84% That also makes it organizationally easier 01:03:56.850 --> 01:04:00.610 align:middle line:84% to report up the chain, to saying we're doing it. 01:04:00.610 --> 01:04:04.130 align:middle line:84% But that's the mission of the TLO. 01:04:04.130 --> 01:04:08.120 align:middle line:84% What is the ownership policy at MIT? 01:04:08.120 --> 01:04:10.432 align:middle line:90% I haven't vetted this recently. 01:04:10.432 --> 01:04:12.140 align:middle line:84% I don't think it's changed fundamentally. 01:04:12.140 --> 01:04:16.560 align:middle line:84% But go to the Technology Licensing Office 01:04:16.560 --> 01:04:20.800 align:middle line:90% site, which is tlo.mit.edu. 01:04:20.800 --> 01:04:25.480 align:middle line:84% MIT owns the patent if it's significant use of MIT 01:04:25.480 --> 01:04:28.960 align:middle line:84% facilities or MIT administered funds 01:04:28.960 --> 01:04:32.920 align:middle line:90% were used, say, for research. 01:04:32.920 --> 01:04:38.200 align:middle line:84% They never assign ownership of the IP. 01:04:38.200 --> 01:04:40.760 align:middle line:90% They only license it. 01:04:40.760 --> 01:04:45.320 align:middle line:84% And they do guarantee sponsors of the research the first rights 01:04:45.320 --> 01:04:49.760 align:middle line:84% to the invention, so first right to license. 01:04:49.760 --> 01:04:54.000 align:middle line:84% You heard Ali last night saying she 01:04:54.000 --> 01:04:55.580 align:middle line:84% did her stuff as an undergraduate, 01:04:55.580 --> 01:04:56.840 align:middle line:90% so that was a good thing. 01:04:56.840 --> 01:04:59.800 align:middle line:84% But she also went to the Technology Licensing office 01:04:59.800 --> 01:05:01.760 align:middle line:84% and said, can you just give me something 01:05:01.760 --> 01:05:04.780 align:middle line:84% that says MIT doesn't have ownership in this? 01:05:04.780 --> 01:05:09.240 align:middle line:84% And so there were no sponsor rights in what she was doing. 01:05:09.240 --> 01:05:14.740 align:middle line:84% She didn't use significant MIT facilities, didn't use funds, 01:05:14.740 --> 01:05:19.340 align:middle line:84% and didn't use MIT's facilities to reduce the practice. 01:05:19.340 --> 01:05:20.900 align:middle line:90% That last one is interesting. 01:05:20.900 --> 01:05:24.820 align:middle line:84% The reason Kendall Square exists in large part 01:05:24.820 --> 01:05:29.160 align:middle line:84% is you have a technology in the lab, like what was it, 01:05:29.160 --> 01:05:30.740 align:middle line:90% Louis's last night? 01:05:30.740 --> 01:05:33.380 align:middle line:90% He's going to get a license. 01:05:33.380 --> 01:05:35.120 align:middle line:84% He's not going to do the work at MIT. 01:05:35.120 --> 01:05:38.420 align:middle line:84% He's going to go across the street to a commercial building. 01:05:38.420 --> 01:05:40.580 align:middle line:84% And maybe Bob Langer will come over 01:05:40.580 --> 01:05:42.820 align:middle line:84% on his consulting day or whatever, 01:05:42.820 --> 01:05:46.580 align:middle line:84% but they're going to build their stuff outside of the University. 01:05:46.580 --> 01:05:50.860 align:middle line:84% And that's the whole Kendall Square thing. 01:05:50.860 --> 01:05:56.920 align:middle line:84% You could voluntarily, if you convince the TLO to do it, say, 01:05:56.920 --> 01:06:00.580 align:middle line:84% I want to assign my invention that you otherwise don't own. 01:06:00.580 --> 01:06:03.410 align:middle line:84% And if they accept it, then you'll 01:06:03.410 --> 01:06:07.030 align:middle line:84% just be like the same manner as other MIT inventions, 01:06:07.030 --> 01:06:12.130 align:middle line:84% including royalty-sharing agreements with the inventors. 01:06:12.130 --> 01:06:16.750 align:middle line:84% Now, as a startup, you've got an interesting thing. 01:06:16.750 --> 01:06:20.470 align:middle line:84% You're trying to figure out, what market am I going to go to? 01:06:20.470 --> 01:06:21.742 align:middle line:90% Where's my customer? 01:06:21.742 --> 01:06:22.950 align:middle line:90% You're going to explore that. 01:06:22.950 --> 01:06:25.250 align:middle line:84% You're going to try to raise money. 01:06:25.250 --> 01:06:29.490 align:middle line:84% Meanwhile, you've got this IP that you need to get out of MIT. 01:06:29.490 --> 01:06:32.322 align:middle line:84% If you sneak it out the back door, 01:06:32.322 --> 01:06:34.030 align:middle line:84% the investors are going to figure it out. 01:06:34.030 --> 01:06:35.410 align:middle line:90% So what do you do? 01:06:35.410 --> 01:06:38.850 align:middle line:84% Well, one thing is to get an option. 01:06:38.850 --> 01:06:40.450 align:middle line:84% Go to the TLO and say, look, I would 01:06:40.450 --> 01:06:44.950 align:middle line:84% like an option to obtain a license on this thing. 01:06:44.950 --> 01:06:47.702 align:middle line:90% 01:06:47.702 --> 01:06:48.910 align:middle line:90% And here's some of the terms. 01:06:48.910 --> 01:06:55.330 align:middle line:84% I haven't checked this recently, but it's a modest upfront fee. 01:06:55.330 --> 01:06:57.610 align:middle line:84% It allows time for you to go out and test the market 01:06:57.610 --> 01:06:59.890 align:middle line:90% and go talk to investors. 01:06:59.890 --> 01:07:03.260 align:middle line:84% So the idea with investors is, hey, here's my technology. 01:07:03.260 --> 01:07:05.600 align:middle line:90% Here's our proof of concept. 01:07:05.600 --> 01:07:08.020 align:middle line:84% With these customers, we need this much money. 01:07:08.020 --> 01:07:09.720 align:middle line:84% And oh, by the way, we have an option 01:07:09.720 --> 01:07:13.040 align:middle line:84% to acquire a license to this technology. 01:07:13.040 --> 01:07:16.600 align:middle line:84% All we need is your money and we're ready to start rolling. 01:07:16.600 --> 01:07:20.080 align:middle line:90% It's a pretty good way to work. 01:07:20.080 --> 01:07:25.560 align:middle line:84% So what are typical license financial terms? 01:07:25.560 --> 01:07:27.540 align:middle line:84% Again, I haven't vetted this currently, 01:07:27.540 --> 01:07:30.000 align:middle line:90% but it'll give you some idea. 01:07:30.000 --> 01:07:35.040 align:middle line:84% In the case of where the university doesn't take equity, 01:07:35.040 --> 01:07:38.000 align:middle line:84% the issue fees-- that is, the license issue fees-- 01:07:38.000 --> 01:07:41.880 align:middle line:90% could run $50,000 to $150,000. 01:07:41.880 --> 01:07:44.560 align:middle line:84% You'll have to pay a license maintenance 01:07:44.560 --> 01:07:48.480 align:middle line:84% fee, which can be anywhere to 50% of expected running 01:07:48.480 --> 01:07:50.640 align:middle line:90% royalties. 01:07:50.640 --> 01:07:54.002 align:middle line:84% You have to diligently try to take the thing to market. 01:07:54.002 --> 01:07:55.460 align:middle line:84% You can't just put it on the shelf. 01:07:55.460 --> 01:07:57.920 align:middle line:84% They want to make sure it gets out there. 01:07:57.920 --> 01:08:01.560 align:middle line:84% Royalty is a percentage of sales, anywhere from 3% to 5%. 01:08:01.560 --> 01:08:04.620 align:middle line:84% I'm going to show you some more detail on that in a moment. 01:08:04.620 --> 01:08:07.820 align:middle line:84% You have to pick up the patent costs, 01:08:07.820 --> 01:08:09.940 align:middle line:90% depending on what they are. 01:08:09.940 --> 01:08:14.300 align:middle line:84% And you're not required to sponsor any research. 01:08:14.300 --> 01:08:17.260 align:middle line:84% If you say, look, I want to-- and one of the big things 01:08:17.260 --> 01:08:20.700 align:middle line:84% that MIT did was realize that they were licensing 01:08:20.700 --> 01:08:23.282 align:middle line:84% this all to big companies, and that it 01:08:23.282 --> 01:08:24.740 align:middle line:84% was the smaller companies that were 01:08:24.740 --> 01:08:26.120 align:middle line:90% the more innovative companies. 01:08:26.120 --> 01:08:31.020 align:middle line:84% So they should think about, how do we license smaller companies? 01:08:31.020 --> 01:08:34.660 align:middle line:84% And the idea is, well, we could take some equity. 01:08:34.660 --> 01:08:38.020 align:middle line:84% And that's opened up a whole bunch of what's going on. 01:08:38.020 --> 01:08:42.300 align:middle line:84% The terms are basically the same, except the royalty is less 01:08:42.300 --> 01:08:45.819 align:middle line:90% and MIT would get an equity. 01:08:45.819 --> 01:08:50.260 align:middle line:84% Typically a single-digit ownership, 01:08:50.260 --> 01:08:56.220 align:middle line:84% which remains fixed through the first round of financing. 01:08:56.220 --> 01:09:01.729 align:middle line:84% Meaning if, let's say, the MIT got 5% ownership, 01:09:01.729 --> 01:09:05.890 align:middle line:84% and now an investor comes in and invests 01:09:05.890 --> 01:09:10.810 align:middle line:84% and gets 20% of the company, MIT still has 5% of the company. 01:09:10.810 --> 01:09:13.130 align:middle line:84% They're not diluted through that first round. 01:09:13.130 --> 01:09:15.010 align:middle line:84% Thereafter, they're proportionally diluted 01:09:15.010 --> 01:09:17.130 align:middle line:90% with everyone else. 01:09:17.130 --> 01:09:21.410 align:middle line:84% And we'll talk about anti-dilution provisions 01:09:21.410 --> 01:09:24.609 align:middle line:84% a little bit later in the presentation if I have time. 01:09:24.609 --> 01:09:28.210 align:middle line:84% And there will be future participation rights. 01:09:28.210 --> 01:09:31.830 align:middle line:84% Here are some typical royalties for university patents. 01:09:31.830 --> 01:09:33.450 align:middle line:90% These are a few years old. 01:09:33.450 --> 01:09:41.330 align:middle line:84% You can go to the Association of Technology Managers-- 01:09:41.330 --> 01:09:42.609 align:middle line:90% AUTM it's called. 01:09:42.609 --> 01:09:46.130 align:middle line:84% And these are typical ranges of royalties back when I 01:09:46.130 --> 01:09:48.729 align:middle line:90% looked at this a few years ago. 01:09:48.729 --> 01:09:52.050 align:middle line:90% You can go validate it. 01:09:52.050 --> 01:09:53.569 align:middle line:90% OK, timeline. 01:09:53.569 --> 01:09:55.330 align:middle line:90% We're running out of time. 01:09:55.330 --> 01:10:00.800 align:middle line:84% But legal entity, if you don't do anything, 01:10:00.800 --> 01:10:02.900 align:middle line:84% you could very well have a general partnership. 01:10:02.900 --> 01:10:08.920 align:middle line:84% It's one or more persons engaging in business for profit. 01:10:08.920 --> 01:10:10.540 align:middle line:90% And so what does that mean? 01:10:10.540 --> 01:10:13.480 align:middle line:84% You don't need a written agreement. 01:10:13.480 --> 01:10:16.460 align:middle line:84% What it does mean is you have joint and several liability. 01:10:16.460 --> 01:10:19.600 align:middle line:84% So if anything goes wrong, I can sue either one of you 01:10:19.600 --> 01:10:22.360 align:middle line:90% or both of you. 01:10:22.360 --> 01:10:25.220 align:middle line:84% The ownership, if you don't set it forth in an agreement, 01:10:25.220 --> 01:10:27.140 align:middle line:84% is based on the amount of money invested. 01:10:27.140 --> 01:10:29.520 align:middle line:84% It doesn't work very well for a founder, 01:10:29.520 --> 01:10:31.640 align:middle line:84% because the founder isn't putting in 01:10:31.640 --> 01:10:33.623 align:middle line:90% much relative to the investor. 01:10:33.623 --> 01:10:35.040 align:middle line:84% And investors aren't going to want 01:10:35.040 --> 01:10:38.560 align:middle line:84% to come in because they don't want the personal liability. 01:10:38.560 --> 01:10:40.880 align:middle line:90% So what do you want to do? 01:10:40.880 --> 01:10:48.360 align:middle line:84% Well, typically you'll want to do probably a corporation. 01:10:48.360 --> 01:10:51.720 align:middle line:84% And if you're a company that's going to likely raise 01:10:51.720 --> 01:10:54.700 align:middle line:84% a bunch of money over time if you need to in order to be 01:10:54.700 --> 01:10:57.220 align:middle line:90% successful, probably Delaware. 01:10:57.220 --> 01:11:01.340 align:middle line:84% Delaware has a more defined corporate law. 01:11:01.340 --> 01:11:04.780 align:middle line:90% More cases, it's more certain. 01:11:04.780 --> 01:11:06.940 align:middle line:84% And you should incorporate sooner than later 01:11:06.940 --> 01:11:09.340 align:middle line:84% to avoid that personal liability, 01:11:09.340 --> 01:11:12.780 align:middle line:84% to avoid liability for a partner, 01:11:12.780 --> 01:11:14.600 align:middle line:90% minimize personal taxes. 01:11:14.600 --> 01:11:16.740 align:middle line:84% We're going to talk about that in a moment. 01:11:16.740 --> 01:11:18.980 align:middle line:84% There's a YouTube video that I did 01:11:18.980 --> 01:11:20.560 align:middle line:90% on all of this in more detail. 01:11:20.560 --> 01:11:24.520 align:middle line:90% 01:11:24.520 --> 01:11:26.020 align:middle line:84% If you do get a corporate thing, you 01:11:26.020 --> 01:11:28.540 align:middle line:84% want to make sure you observe the formalities. 01:11:28.540 --> 01:11:31.700 align:middle line:84% Do things in the corporate name, maintain separate records. 01:11:31.700 --> 01:11:34.460 align:middle line:90% 01:11:34.460 --> 01:11:34.960 align:middle line:90% Pick a name. 01:11:34.960 --> 01:11:38.660 align:middle line:84% I talked about DiVA the other night. 01:11:38.660 --> 01:11:40.740 align:middle line:90% There's tax considerations. 01:11:40.740 --> 01:11:45.680 align:middle line:84% A corporation is a person-- not a warm, fuzzy person, 01:11:45.680 --> 01:11:46.520 align:middle line:90% but it's a person. 01:11:46.520 --> 01:11:47.683 align:middle line:90% It can be taxed. 01:11:47.683 --> 01:11:49.100 align:middle line:84% And if you don't do anything, it's 01:11:49.100 --> 01:11:54.240 align:middle line:84% taxed under Subchapter C, which means the corporation is taxed 01:11:54.240 --> 01:11:55.990 align:middle line:84% and anything that goes to the shareholders 01:11:55.990 --> 01:11:58.810 align:middle line:90% is taxed-- two layers of tax. 01:11:58.810 --> 01:12:04.593 align:middle line:84% A way to avoid that is to elect to be a Subchapter S, which 01:12:04.593 --> 01:12:06.010 align:middle line:84% is a pass through, meaning there's 01:12:06.010 --> 01:12:07.970 align:middle line:90% no tax at the corporate level. 01:12:07.970 --> 01:12:09.450 align:middle line:84% The owners of the corporation have 01:12:09.450 --> 01:12:17.570 align:middle line:84% to pick up any taxes on their own tax returns. 01:12:17.570 --> 01:12:19.070 align:middle line:90% You have to qualify for it. 01:12:19.070 --> 01:12:21.550 align:middle line:84% You have to have fewer than 100 shareholders. 01:12:21.550 --> 01:12:24.410 align:middle line:84% You can only have one class of stock. 01:12:24.410 --> 01:12:26.670 align:middle line:84% You have to file within, I think, 01:12:26.670 --> 01:12:28.650 align:middle line:90% three months of incorporation. 01:12:28.650 --> 01:12:31.330 align:middle line:84% You can't flip back and forth easily. 01:12:31.330 --> 01:12:38.170 align:middle line:84% Some stockholders will not qualify for S. Mainly 01:12:38.170 --> 01:12:40.830 align:middle line:90% it's human beings, some trusts. 01:12:40.830 --> 01:12:42.470 align:middle line:84% So if a venture capital firm comes in, 01:12:42.470 --> 01:12:46.050 align:middle line:84% it's going to blow your Subchapter S status. 01:12:46.050 --> 01:12:49.410 align:middle line:84% So the question is, why do we care? 01:12:49.410 --> 01:12:52.052 align:middle line:84% Look, hey, Joe, I'm going to run losses for a few years. 01:12:52.052 --> 01:12:53.260 align:middle line:90% I'm going to take this money. 01:12:53.260 --> 01:12:54.427 align:middle line:90% I'm going to do development. 01:12:54.427 --> 01:12:55.900 align:middle line:90% I'm going to be losses. 01:12:55.900 --> 01:12:57.400 align:middle line:90% I'm not paying taxes. 01:12:57.400 --> 01:12:59.580 align:middle line:84% Well, it comes when the exit occurs. 01:12:59.580 --> 01:13:02.180 align:middle line:84% Many acquisitions, especially smaller acquisitions, 01:13:02.180 --> 01:13:04.320 align:middle line:90% are done of assets. 01:13:04.320 --> 01:13:06.580 align:middle line:84% You don't buy the stock, because if you buy the stock, 01:13:06.580 --> 01:13:09.660 align:middle line:84% you get everything that's associated with that. 01:13:09.660 --> 01:13:12.080 align:middle line:84% If you come in and buy just the assets, 01:13:12.080 --> 01:13:14.360 align:middle line:90% assume certain liabilities. 01:13:14.360 --> 01:13:18.540 align:middle line:84% So in that case, the corporation, if it sells assets, 01:13:18.540 --> 01:13:21.840 align:middle line:84% is going to have a gain on those assets taxed 01:13:21.840 --> 01:13:24.520 align:middle line:84% at the corporate level, if it's a C corp. 01:13:24.520 --> 01:13:27.685 align:middle line:84% If it's an S corp, no tax at the corporate level, 01:13:27.685 --> 01:13:29.060 align:middle line:84% pass through to the shareholders. 01:13:29.060 --> 01:13:35.120 align:middle line:84% A little example here, it'd be like a 13% difference in tax. 01:13:35.120 --> 01:13:38.000 align:middle line:84% The DiVA people that I talked about the other day said, look, 01:13:38.000 --> 01:13:39.708 align:middle line:84% we're not going to be able to do anything 01:13:39.708 --> 01:13:41.320 align:middle line:90% unless we take venture capital. 01:13:41.320 --> 01:13:44.800 align:middle line:84% So I'm not going to worry about Sub S. I said, humor me. 01:13:44.800 --> 01:13:45.580 align:middle line:90% Just do it. 01:13:45.580 --> 01:13:48.320 align:middle line:84% And as I explain, they got acquired in two years. 01:13:48.320 --> 01:13:53.300 align:middle line:84% They saved about $2 million in taxes 01:13:53.300 --> 01:13:56.740 align:middle line:84% just because they filed as Sub S. 01:13:56.740 --> 01:13:57.660 align:middle line:90% All right. 01:13:57.660 --> 01:13:59.000 align:middle line:90% This is a really important one. 01:13:59.000 --> 01:14:01.740 align:middle line:84% If you're falling asleep, wake up. 01:14:01.740 --> 01:14:03.420 align:middle line:90% This is a big trap. 01:14:03.420 --> 01:14:07.240 align:middle line:84% It's called Section 83 of the Internal Revenue Code. 01:14:07.240 --> 01:14:08.640 align:middle line:90% And it says the following. 01:14:08.640 --> 01:14:11.820 align:middle line:84% If you receive property in connection 01:14:11.820 --> 01:14:17.240 align:middle line:84% with providing services, you have ordinary income, 01:14:17.240 --> 01:14:21.380 align:middle line:84% which can be taxed federally to 37% or whatever, 01:14:21.380 --> 01:14:24.660 align:middle line:84% equal to the fair market value of the property 01:14:24.660 --> 01:14:30.060 align:middle line:84% you receive minus what you paid for it. 01:14:30.060 --> 01:14:32.220 align:middle line:90% You with me so far? 01:14:32.220 --> 01:14:33.560 align:middle line:90% How does it apply to you? 01:14:33.560 --> 01:14:37.540 align:middle line:84% Well, suppose I give you $1 million 01:14:37.540 --> 01:14:41.260 align:middle line:84% for 50% ownership in your venture. 01:14:41.260 --> 01:14:44.380 align:middle line:84% And I say, let's set up the company. 01:14:44.380 --> 01:14:46.200 align:middle line:90% What's your 50% worth? 01:14:46.200 --> 01:14:51.010 align:middle line:90% 01:14:51.010 --> 01:14:52.850 align:middle line:90% Anybody? 01:14:52.850 --> 01:14:57.290 align:middle line:84% I'm going to give you a million for half the company. 01:14:57.290 --> 01:15:00.430 align:middle line:84% Well, you could say there's a million dollars in cash, 01:15:00.430 --> 01:15:03.310 align:middle line:84% so 50% of the company must be 50% of the cash. 01:15:03.310 --> 01:15:05.230 align:middle line:90% So it could be $500,000. 01:15:05.230 --> 01:15:07.290 align:middle line:90% OK, let's try that. 01:15:07.290 --> 01:15:10.050 align:middle line:90% Your shares are worth $500,000. 01:15:10.050 --> 01:15:13.490 align:middle line:90% What'd you pay for them? 01:15:13.490 --> 01:15:18.750 align:middle line:84% You have ordinary income of $500,000 and a tax rate of 40%. 01:15:18.750 --> 01:15:20.770 align:middle line:90% You owe $200,000. 01:15:20.770 --> 01:15:24.690 align:middle line:84% I'm sure you have that in your back pocket. 01:15:24.690 --> 01:15:26.490 align:middle line:84% But wait, it could get even worse. 01:15:26.490 --> 01:15:30.310 align:middle line:84% Why would I pay $1 million for 50% of the company 01:15:30.310 --> 01:15:32.150 align:middle line:84% if the other half wasn't worth a million? 01:15:32.150 --> 01:15:35.210 align:middle line:90% 01:15:35.210 --> 01:15:39.410 align:middle line:90% Now you owe $400,000. 01:15:39.410 --> 01:15:41.370 align:middle line:90% Oops. 01:15:41.370 --> 01:15:45.520 align:middle line:84% But wait, it's even worse than that. 01:15:45.520 --> 01:15:47.840 align:middle line:90% When do you measure the income? 01:15:47.840 --> 01:15:50.620 align:middle line:84% Well, typically stock is vested over time. 01:15:50.620 --> 01:15:54.200 align:middle line:84% If I'm going to give you $1 million for the company 01:15:54.200 --> 01:15:55.840 align:middle line:84% and you're going to get stock, how 01:15:55.840 --> 01:15:58.920 align:middle line:84% do I know you're not going to take off and run? 01:15:58.920 --> 01:16:01.400 align:middle line:84% So you can have that 50% of stock, 01:16:01.400 --> 01:16:04.920 align:middle line:84% but it's going to vest over time. 01:16:04.920 --> 01:16:08.960 align:middle line:84% So if it vests over time, we measure the amount of income 01:16:08.960 --> 01:16:11.240 align:middle line:90% when the stock vests. 01:16:11.240 --> 01:16:13.320 align:middle line:90% So let's make it simple. 01:16:13.320 --> 01:16:17.020 align:middle line:84% Let's say it vests in two years, three years. 01:16:17.020 --> 01:16:19.320 align:middle line:84% I'll give you the actual numbers later. 01:16:19.320 --> 01:16:24.320 align:middle line:84% At the time we start, your idea is a dime a dozen. 01:16:24.320 --> 01:16:28.220 align:middle line:84% When it vests two years from now and you've done a great job, 01:16:28.220 --> 01:16:32.960 align:middle line:90% it could be worth $100 a share. 01:16:32.960 --> 01:16:36.140 align:middle line:84% There was a case in California where they brought in a CFO 01:16:36.140 --> 01:16:38.480 align:middle line:84% finally, after a couple rounds of venture capital. 01:16:38.480 --> 01:16:40.020 align:middle line:90% And they gave him some stock. 01:16:40.020 --> 01:16:43.540 align:middle line:84% He said, here's my 83(b) election. 01:16:43.540 --> 01:16:47.500 align:middle line:84% And they said, what's an 83(b) election? 01:16:47.500 --> 01:16:50.980 align:middle line:84% And they realized they had a whole bunch of stock issued 01:16:50.980 --> 01:16:54.220 align:middle line:90% to employees with vesting. 01:16:54.220 --> 01:16:56.300 align:middle line:90% It was a ticking time bomb. 01:16:56.300 --> 01:16:58.100 align:middle line:90% The company was going great. 01:16:58.100 --> 01:17:00.500 align:middle line:84% Well, the accounting firm and the law firm 01:17:00.500 --> 01:17:03.380 align:middle line:84% all got sued and everything, because nobody had figured out 01:17:03.380 --> 01:17:04.760 align:middle line:90% and told people about 83. 01:17:04.760 --> 01:17:06.980 align:middle line:84% So you have to do an 83(b) election. 01:17:06.980 --> 01:17:11.260 align:middle line:84% If you do it, it says, I want to measure the income now. 01:17:11.260 --> 01:17:15.700 align:middle line:84% And you have to file it within 30 days of getting the stock. 01:17:15.700 --> 01:17:17.360 align:middle line:90% So how do you avoid this trap? 01:17:17.360 --> 01:17:19.900 align:middle line:84% Well, the first thing is, you separate in time 01:17:19.900 --> 01:17:24.260 align:middle line:84% when you get the stock from when the investment comes in. 01:17:24.260 --> 01:17:26.060 align:middle line:84% So if you show up on my-- typically 01:17:26.060 --> 01:17:30.740 align:middle line:84% I'd have people come in and say, we got a term sheet. 01:17:30.740 --> 01:17:32.300 align:middle line:90% Let's incorporate. 01:17:32.300 --> 01:17:35.160 align:middle line:84% Well, the term sheet is for $1 million. 01:17:35.160 --> 01:17:37.900 align:middle line:84% And you gave me the term sheet on Friday. 01:17:37.900 --> 01:17:42.090 align:middle line:84% We're going to incorporate, if I rush, Friday, or maybe Monday. 01:17:42.090 --> 01:17:45.930 align:middle line:90% So what happened between-- 01:17:45.930 --> 01:17:50.530 align:middle line:84% how do I say yours isn't worth $1 million? 01:17:50.530 --> 01:17:54.490 align:middle line:84% Well, if you incorporated four months ago, lots of stuff 01:17:54.490 --> 01:17:55.530 align:middle line:90% happens. 01:17:55.530 --> 01:17:56.990 align:middle line:84% And at the time you incorporated, 01:17:56.990 --> 01:17:59.210 align:middle line:90% it was an issued stock. 01:17:59.210 --> 01:18:01.170 align:middle line:90% It was worth a penny a share. 01:18:01.170 --> 01:18:04.530 align:middle line:90% And you didn't get stock. 01:18:04.530 --> 01:18:08.210 align:middle line:84% You got stock in connection with providing services back then, 01:18:08.210 --> 01:18:12.170 align:middle line:84% not at the time someone put money in. 01:18:12.170 --> 01:18:15.250 align:middle line:84% Question is, why does stock not get issued in time? 01:18:15.250 --> 01:18:16.390 align:middle line:90% Oh, well, we're too busy. 01:18:16.390 --> 01:18:17.790 align:middle line:90% We're not sure who gets what. 01:18:17.790 --> 01:18:19.530 align:middle line:84% I showed you this diagram the other day 01:18:19.530 --> 01:18:26.090 align:middle line:84% of the dynamics of figuring out how to split up stock. 01:18:26.090 --> 01:18:30.090 align:middle line:84% So the problem is it can get tricky. 01:18:30.090 --> 01:18:32.330 align:middle line:84% But you don't want to get caught in that trap. 01:18:32.330 --> 01:18:36.170 align:middle line:84% So again, if you incorporate early, 01:18:36.170 --> 01:18:41.440 align:middle line:84% separate in time when you get your stock from an event that 01:18:41.440 --> 01:18:42.760 align:middle line:90% values it and cash. 01:18:42.760 --> 01:18:45.277 align:middle line:90% Investment certainly values it. 01:18:45.277 --> 01:18:46.360 align:middle line:90% Then you have an argument. 01:18:46.360 --> 01:18:49.480 align:middle line:84% And then file the 83(b) election. 01:18:49.480 --> 01:18:54.340 align:middle line:84% OK, we're running into some time issues here. 01:18:54.340 --> 01:18:57.560 align:middle line:90% 01:18:57.560 --> 01:19:00.820 align:middle line:84% A bunch of questions about relationships up front. 01:19:00.820 --> 01:19:04.280 align:middle line:90% 01:19:04.280 --> 01:19:06.720 align:middle line:84% The founders memo in the materials talks about all 01:19:06.720 --> 01:19:07.220 align:middle line:90% of that. 01:19:07.220 --> 01:19:10.360 align:middle line:84% That's a memo I put together after meeting 01:19:10.360 --> 01:19:12.660 align:middle line:84% with three teams from MIT in one week, 01:19:12.660 --> 01:19:14.720 align:middle line:84% answering the same questions over and over. 01:19:14.720 --> 01:19:18.160 align:middle line:84% So I wrote this memo and said, before you come in, read this 01:19:18.160 --> 01:19:19.700 align:middle line:90% and discuss it among yourselves. 01:19:19.700 --> 01:19:21.200 align:middle line:84% So when we get here, we can actually 01:19:21.200 --> 01:19:23.458 align:middle line:84% make some decisions, as opposed to having 01:19:23.458 --> 01:19:26.000 align:middle line:84% me spend two hours explaining to you what you have to go back 01:19:26.000 --> 01:19:28.840 align:middle line:90% and think about. 01:19:28.840 --> 01:19:32.880 align:middle line:84% Founder equity, the amount of equity 01:19:32.880 --> 01:19:36.840 align:middle line:84% and who gets it is about culture and negotiated. 01:19:36.840 --> 01:19:39.360 align:middle line:84% Kenan Systems is a famous example. 01:19:39.360 --> 01:19:41.000 align:middle line:90% Kenan kept all of his stock. 01:19:41.000 --> 01:19:43.940 align:middle line:84% His company was acquired for $1 billion. 01:19:43.940 --> 01:19:45.060 align:middle line:90% He owned it all. 01:19:45.060 --> 01:19:47.513 align:middle line:84% He paid his employees quite well. 01:19:47.513 --> 01:19:49.180 align:middle line:84% And when they got acquired, he gave them 01:19:49.180 --> 01:19:50.740 align:middle line:90% all a bunch of bonuses. 01:19:50.740 --> 01:19:52.820 align:middle line:90% So that was their culture. 01:19:52.820 --> 01:19:55.520 align:middle line:84% When thinking about the amount of equity, 01:19:55.520 --> 01:19:58.300 align:middle line:84% think about the value of past contributions 01:19:58.300 --> 01:20:00.380 align:middle line:84% and the value of what people are expected 01:20:00.380 --> 01:20:02.360 align:middle line:90% to do over what period of time. 01:20:02.360 --> 01:20:04.940 align:middle line:90% 01:20:04.940 --> 01:20:07.128 align:middle line:84% Think about ownership of IP, because you're 01:20:07.128 --> 01:20:08.920 align:middle line:84% going to want to put the IP in the company. 01:20:08.920 --> 01:20:12.900 align:middle line:84% Investors are going to want that, so that has some value. 01:20:12.900 --> 01:20:15.700 align:middle line:90% Sacrifice and commitment. 01:20:15.700 --> 01:20:20.140 align:middle line:84% One example I saw was a company that spun out of Aero and Astro 01:20:20.140 --> 01:20:24.420 align:middle line:84% with a famous professor and one of his postdocs. 01:20:24.420 --> 01:20:27.620 align:middle line:84% And they came in and said, we don't know quite 01:20:27.620 --> 01:20:28.800 align:middle line:90% how to split up the stock. 01:20:28.800 --> 01:20:32.380 align:middle line:84% I said, well, why don't you each go and write down 01:20:32.380 --> 01:20:35.020 align:middle line:84% what you think you're contributing 01:20:35.020 --> 01:20:38.250 align:middle line:84% and what you think you're giving up? 01:20:38.250 --> 01:20:42.330 align:middle line:84% And so the professor went and said, well, I'm well-known. 01:20:42.330 --> 01:20:45.250 align:middle line:90% So that attracts money. 01:20:45.250 --> 01:20:48.190 align:middle line:84% Under MIT policy, I can consult one day a week. 01:20:48.190 --> 01:20:50.413 align:middle line:84% I'll devote that one day to this company. 01:20:50.413 --> 01:20:51.830 align:middle line:84% Instead of getting paid the money, 01:20:51.830 --> 01:20:54.982 align:middle line:84% I could get paid by Boeing or whatever. 01:20:54.982 --> 01:20:56.190 align:middle line:90% And a couple of other things. 01:20:56.190 --> 01:20:59.830 align:middle line:84% The postdoc said, I could go get a job at a company. 01:20:59.830 --> 01:21:02.210 align:middle line:90% Here's what the pay is. 01:21:02.210 --> 01:21:04.430 align:middle line:84% I'm going to potentially, if I do this company, 01:21:04.430 --> 01:21:07.290 align:middle line:90% give up an academic career. 01:21:07.290 --> 01:21:10.010 align:middle line:84% You can understand, professor, what that is. 01:21:10.010 --> 01:21:13.130 align:middle line:84% And so they sat down, and each of them describing 01:21:13.130 --> 01:21:14.650 align:middle line:84% what it is, they were able to come 01:21:14.650 --> 01:21:17.810 align:middle line:84% to some understanding about what was fair, where at least 01:21:17.810 --> 01:21:21.610 align:middle line:84% they understood what the other side was talking about. 01:21:21.610 --> 01:21:23.850 align:middle line:84% You should assume that everyone's going 01:21:23.850 --> 01:21:26.450 align:middle line:90% to figure out who owns what. 01:21:26.450 --> 01:21:30.530 align:middle line:84% So have a reason for what you're doing. 01:21:30.530 --> 01:21:35.440 align:middle line:84% Who gets the pie and how big are the slices? 01:21:35.440 --> 01:21:38.960 align:middle line:84% Well, typically, an equity compensation pool 01:21:38.960 --> 01:21:42.600 align:middle line:84% would be like an option or restricted stock. 01:21:42.600 --> 01:21:46.980 align:middle line:84% And typically the amount is for the next two to three years. 01:21:46.980 --> 01:21:49.040 align:middle line:84% And it's tied to your headcount plan. 01:21:49.040 --> 01:21:51.320 align:middle line:84% If we get money in, we're going to hire these people. 01:21:51.320 --> 01:21:56.080 align:middle line:84% In my experience, when you have venture capital, 01:21:56.080 --> 01:22:00.120 align:middle line:84% first outside round, anywhere from 12% to 18% 01:22:00.120 --> 01:22:04.560 align:middle line:84% is reserved for the equity compensation, typically. 01:22:04.560 --> 01:22:06.180 align:middle line:84% It'll be at the lower end of that 01:22:06.180 --> 01:22:08.580 align:middle line:84% if you have more senior people already on board, 01:22:08.580 --> 01:22:11.120 align:middle line:84% it'd be on the higher end if you need to hire or bring 01:22:11.120 --> 01:22:15.600 align:middle line:84% in people that are more experienced. 01:22:15.600 --> 01:22:17.680 align:middle line:84% People that can take place in the plan 01:22:17.680 --> 01:22:23.400 align:middle line:84% include key employees, directors, consultants. 01:22:23.400 --> 01:22:27.960 align:middle line:84% You can go look at and see what people typically get paid 01:22:27.960 --> 01:22:29.800 align:middle line:90% and the like. 01:22:29.800 --> 01:22:31.240 align:middle line:84% And again, there's a YouTube video 01:22:31.240 --> 01:22:33.900 align:middle line:90% going into more detail on that. 01:22:33.900 --> 01:22:37.020 align:middle line:84% This is some example of ownership 01:22:37.020 --> 01:22:39.500 align:middle line:84% that you might expect after two rounds of financing, 01:22:39.500 --> 01:22:44.580 align:middle line:84% just based on some historical stuff. 01:22:44.580 --> 01:22:48.620 align:middle line:84% There's a slide, when we get to the financial projections, that 01:22:48.620 --> 01:22:51.700 align:middle line:84% allow you to calculate the equity dilution. 01:22:51.700 --> 01:22:59.000 align:middle line:84% And given the time, I am going to skip the rest of this. 01:22:59.000 --> 01:23:02.383 align:middle line:90% 01:23:02.383 --> 01:23:03.300 align:middle line:90% You'll see the slides. 01:23:03.300 --> 01:23:06.940 align:middle line:84% I'm going to do a separate recording on it. 01:23:06.940 --> 01:23:11.480 align:middle line:84% It talks about types of equity compensation and how to use it. 01:23:11.480 --> 01:23:13.140 align:middle line:84% We'll talk about instruments that 01:23:13.140 --> 01:23:16.580 align:middle line:90% are used when you do financing. 01:23:16.580 --> 01:23:19.060 align:middle line:84% And as I explained, I'm cramming a lot 01:23:19.060 --> 01:23:20.480 align:middle line:90% into a short period of time. 01:23:20.480 --> 01:23:23.520 align:middle line:84% And so in the interest of our panel that's here, 01:23:23.520 --> 01:23:26.250 align:middle line:84% I'm going to call it quits at this point. 01:23:26.250 --> 01:23:33.000 align:middle line:90%