Preparing Your Medical Device NewCo For IP Due Diligence

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OCTANe Medical Device and Investor ForumPreparing Your Medical Device NewCo

For IP Due Diligence October 23, 2013

© 2013 Knobbe, Martens, Olson & Bear, LLP all rights reserved. 2

The Panel

• Reza Zadno

– Venture Partner, InterWest Partners, Menlo Park

– Visiogen Inc. (Abbott Medical Optics)

– PercuSurge, Inc. (Medtronic)

• Spencer Schneider, Esq.

– IP Counsel, HealthCare Royalty Partners, Stamford CT

– Dewey & LeBoeuf

– Ropes & Gray

– Cooper & Dunham

• Sabing Lee, Esq., Partner, Knobbe Martens, Irvine

– IDev (Abbott Vascular)

– ev3 Inc. (Covidien)

– Flex-Foot, Inc. (Össur hf)

– Endius, Inc. (Zimmer)


What is Due Diligence?

• Buyer/investor

– Investment in company

– Acquire company

– Acquire or license in IP/technology

• Target

– Company raising money

– Company selling or licensing IP/technology

– Selling the company


Hypothetical Company: LaunchPad NewCo

• Technology: new intraocular lens invented by UCI professor

• Market: $3 billion dollars by 2018

• Market Participants: Bausch & Lomb, AMO, Alcon

• FDA clearance expected in 2016

• Series A round – seeking $5 million


What are

investors/

acquirers

looking for?


Key Issues

• Ownership (Do you own your IP?)

• Patent protection (How good are your patents?)

• Right to practice (Are you going to get sued?)


How does

investor/investor

counsel

approach IP

diligence?


How Does Investor/Investor Counsel Approach IP

Diligence?

• When do you start?

– Term sheet

– Non-disclosure agreements

• How much to spend?

• Who pays?

• How do you obtain information?

• How long does it take?

• How risk averse is the investor?


How do you

prepare a target

for diligence?


What’s Wrong With These Statements?

1. Strong IP portfolio based on innovative University

technology

2. Numerous patents filed worldwide

3. Completely novel technology with no competitors, so

LaunchPad NewCo has freedom to operate


How Do You Make Yourself Attractive?

• Consistency with business objectives and revenue model

• Clear articulation of important patents

• Clear indication of how patents protect market space

• Identification and management of third party patent risks


How Do You Prepare Your IP For Diligence?

• Prepare status reports

• Check assignments

• Perform searching

• Establish patent monitor

• Have positions ready for problem patents

• Make sure file histories have been reviewed


How do you

eliminate

ownership

issues?


Ownership Checklist

• Assignments

– Confirm assignment trails

– Record assignments

• Look for potential ownership “leaks”

– Prior employment obligations

– University affiliations

– Outgoing obligations in NDA and other agreements

• Licensing relationships

• Review standard agreements

• Keep good records of inventions


How do you

evaluate the

strength of a

patent portfolio?


What, When and Where?

• What?

– Are patents being filed to cover specific products or to exclude competitors?

– Do pending or issued claims cover markets/competitors of interest?

– Do patents track with business objectives?

– Are claims patentable?

• When?

– Were patents filed before public disclosures?

– In view of AIA, are new patents being filed quickly?

– How old are the patents?

• Where?

– Are patents being filed to cover important markets?

– How do you evaluate patents worldwide?


How Can A Target Company Create An Attractive IP

Portfolio?

• Quantity versus quality

• Issued patents versus pending applications

• Expedited versus normal examination

• Maintaining continuations/divisionals


How do you

give/obtain

comfort on

infringement

risk?


Managing Infringement Risk

• Have infringement searching process

– Periodic searches

– Monitor key competitors

• Have a process for screening patents identified in searching and

monitoring

• Record-keeping of the process

• Process for dealing with problem patents

• Opinions of counsel

• Threats of litigation


5 Common IP Diligence Mistakes

• No claims on what the investor believes to be the invention

• An employee agreement that does not require assignment of all

IP

• Not preparing adequately as a team to present the company's IP

story

• Holding back bad information

• Not periodically doing an internal audit

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Preparing Your Medical Device NewCo For IP Due Diligence