.75 Law & Legal CLE Credit – A/V Approval #1089773 Recording Date - December 6, 2018 Recording Availability – December 7, 2018

Meeting Location Date Time Topic

King County Bar Association 1200 Fifth Avenue - Suite 700

Seattle, WA

Thursday, December 6, 2018

12:00 PM to 1:15 PM

Are You Buying a Business? - IP Due Diligence from the

Perspective of a Patent Prosecutor

AGENDA 12:00 PM Introduction 12:10 PM Presentation: ‘Are You Buying a Business? - IP Due Diligence from the Perspective of a

Patent Prosecutor’, by Patrick Njeim, Kilpatrick Townsend 1:15 PM Adjourn

SPEAKER BIOGRAPHY Patrick Njeim, Kilpatrick Townsend – Patrick Njeim focuses his practice on patent preparation and prosecution, due diligence matters, infringement and validity opinions, portfolio analysis, patent litigation, and post-grant proceedings. He represents clients in a wide range of technology areas, including artificial intelligence, virtual reality, augmented reality, computer software and hardware, virtualization and cloud computing, networking, wireless communications, electrical engineering, mechanical engineering, medical devices, and various related technologies.

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© 2018 Kilpatrick Townsend

Are you buying a business? IP due diligence

from the perspective of a patent prosecutor

KCBA

December 6, 2018

1

Agenda

• Introduction

• Business scenario

• IP risk

• Business decision

• General strategy considerations

3

Patrick’s Bio

• Patent Prosecutor– Artificial intelligence, virtual reality,

augmented reality, computer software and

hardware, virtualization and cloud computing,

networking, wireless communications,

electrical engineering, mechanical

engineering, medical devices

• Litigation support

• Post grant-proceedings

• Portfolio analysis– Due diligence

4

Business Scenario

• “Wheels Bot” started in 2005– Software application for a personal

assistant

– Help with booking vehicles

– Grows to about 50 employees

– Has $50M in revenue

5

Business Scenario

• “Super Fast Wheels” also

started around 2005– Direct competitor

– Has similar revenue

• Both companies attend same

trade shows, are aware of

their competing platforms,

etc.

6

Business Scenario

• Fast forward to 2018– “Big Corp” is interested in “Wheels Bot”

– New market

– New knowledge

• “Big Corp” retains a law firm to

assess legal risks

7

IP Risk

• Has “Wheels Bot”

protected its technology– Patent portfolio

– Other IP protections

– Open source software licenses

• Will others sue us for

patent infringement– Previous/existing lawsuit

– Freedom to operate

– Competitor’s portfolio

8

Business Scenario- Patent Portfolio

2005

20052008

Recession

2012

Artificial Intelligence

Artificial Intelligence

Abandon Ride Sharing

Technology:

- AI

- Ride Sharing

Patent Portfolio

- 10 abandoned AI patent

apps

- 0 patents

Technology:

- AI

- Ride Sharing

Patent Portfolio

- 20 patents

- Ongoing patent

prosecution

2012

Ride Sharing

9

How Attractive is Wheels Bot’s IP Portfolio?

• Not so much

• 0 patent protection

• Maybe trade secret– AI algorithm would not be since patent

applications were published

– Ride sharing software could be protected

• Software copyright

• Trademark

• Open Source Software– Grant of patent rights

– Right to use, copy, modify, etc.

10

Patent Lawsuit Risk

• No previous/existing lawsuit– Not a good argument

• Freedom to operate– Siri, Alexa, etc.

– Uber, Lyft, etc.

– But, good news: Wheels Bot do things

differently

• How about potential Super Fast

Wheels lawsuit?

11

Super Fast Wheels Lawsuit?

• Super Fast Wheels Portfolio is strong:– 4 out of the 20 patents cover many aspects of the Wheels Bot platform

• Wheels Bot is too small to sue– Too expensive to sue, not enough gain

– Super Fast Wheels IP Strategy: laissez faire, we will have a better

product

• If Big Corp purchases Wheels Bot– Attractive target, deep pockets

– Super Fast Wheels IP Strategy: if we do not act, Big Corp can put us out

of business

– No patents in Wheels Bot to counter

12

Reporting Back to Big Corp

• On paper, business deal

looks great

• Bearer of bad news:– IP Risk is too high

• Deal hinges on IP– Ways to reduce risk?

• Indemnification

• Insurance

• New Deal– Big Corp reaches out to Super

Fast Wheels for acquisition

13

General strategy considerations

• IP due diligence process is well established

• For any acquisition, startup will very likely be subject to

this exercise

• If your plan is to sell, have an IP strategy (otherwise,

sale may fail)

• If your plan is to grow, have an IP strategy for defensive

reasons

• IP strategy: – Assess whether patent protection is needed

– File at least on core technology, even if technology/market changes

over time

– Even after receiving patent, keep some patent applications pending at

least for core technology

DUE DILIGENCE CHECKLISTS

PATENTS

# Subject Date

Requested

Date

Received

Doc. in

Data

Room?

Comments

for follow-

up

1. Obtain schedule and copies of all U.S.

and foreign issued patents and

pending applications, both utility and

design, used in or associated with the

target company (“target”).

2. List maintenance and annuity fee

status for each patent application.

3. Obtain copies of all ownership and

assignment records for patents and

applications. Confirm recordation with

U.S. and other patent offices.

4. Confirm whether foreign patents

been “worked” in countries

requiring working.

5. Identify all opposition, reexamination,

interference, reissue, confirmation of

scope, nullity, inter parties and post

grant proceedings and status or

disposition of each. Provide information

and documents.

6. Identify R&D which may be

appropriate for future patent

protection. Confirm trade secret

status of each.

7. Identify patent claims that

correspond to product(s).

8. Identify key patents and their

respective inventors. Identify

employment status of each inventor.

Confirm assignment of patent rights.

PATENTS

# Subject Date

Requested

Date

Received

Doc. in

Data

Room?

Comments

for follow-

up

9. Obtain and review copies of all

agreements dealing with patents, e.g.,

licenses or interference settlement

agreements, and identify revenue

streams or royalty obligations

associated with each agreement.

10. Obtain copies of all prior art

searches, conclusions, reports and

opinions, whether internal or

external, that target possesses

concerning the validity of its

patents, the infringement of its

patents by others, the infringement

of third party patents by its products

and the validity of such third party

patents. Confirm that material prior

art has been cited to patent offices

that have duty of disclosure.

11. Obtain copies of all correspondence

relating to patent disputes, cease and

desist letters, letters alleging

infringement, warning letters, service

of notice, letters threatening lawsuits

or other legal notices received or sent

by target.

12. Does target conduct product clearances?

Provide copies of clearance procedures

and any results and/or opinions.

13. Obtain all correspondence to or from

target inquiring about a possible

license or the status of a patent or

patent application.

14. Schedule any action to be taken

during the transition or due diligence

periods to protect the patents, e.g.,

PATENTS

# Subject Date

Requested

Date

Received

Doc. in

Data

Room?

Comments

for follow-

up

paying maintenance fees or

responding to Office Actions?

15. Will bar dates or disclosures of new

products necessitate imminent filings

in order to avoid loss of rights?

16. Have patent term extensions been

applied for and obtained for where

appropriate?

17. Have reporting requirements been

met for applications supported

with federal grants?

18. Obtain copies of any valuation analysis.

19. Obtain copies of all patent term

extension applications for U.S.

and foreign marketed devices and

drugs.

TRADEMARKS

# Subject Date

Requeste

d

Date

Received

Doc. in

Data

Room?

Comments

for follow-

up

1. Obtain schedule of all federal, state

and foreign trademark registrations and

pending applications used in or

associated with the target and their

renewal fee due dates.

2. Obtain copies of all ownership,

assignment, and lien records for

trademarks and applications.

TRADEMARKS

# Subject Date

Requeste

d

Date

Received

Doc. in

Data

Room?

Comments

for follow-

up

3. Obtain copies of all Section 8 and 15

filings.

4. Obtain copies of all opposition,

cancellation, inter parties, concurrent

use and registration proceedings.

5. Cross-reference products on

which each trademark is used.

6. Identify any non-use of any

trademarks. For what periods of

time?

7. List and schedule all non-registered

trademarks, the products on which

these trademarks are used, and the

breadth of such trademarks. Are these

trademarks used in interstate

commerce?

8. Obtain copies of all agreements

dealing with trademarks, e.g., consent

letters, mutual use agreements,

licenses or opposition settlement

agreements, identify whether target is

licensee of licensor, and identify

revenue streams or payment

obligations associated with each

agreement.

9. Obtain copies of all searches,

conclusions, reports and opinions,

whether internal or external, that target

possesses concerning the validity of its

trademark registrations, the scope of

rights, geographical limitations,

expansion restrictions, the infringement

of its trademarks by others, and

TRADEMARKS

# Subject Date

Requeste

d

Date

Received

Doc. in

Data

Room?

Comments

for follow-

up

infringement of third party trademarks

by its activities.

10. Obtain copies of all correspondence

relating to trademark disputes, cease

and desist letters, letters alleging

infringement, letters threatening

lawsuits, or other legal notices received

or sent by target.

11. Obtain copies of all correspondence to

or from target inquiring about a

possible license or the status of a

trademark registration or application.

12. Does any action need to be taken

during the transition or due

diligence periods to protect the

trademarks, e.g. paying renewal fees

or responding to Trademark Office

correspondence.

13. Obtain copies of any valuation analysis.

COPYRIGHTS

# Subject Date

Requested

Date

Received

Doc. in

Data

Room?

Comments

for

follow-up

1. Schedule all copyrighted materials,

particularly software and mask works,

used in or associated with the acquired

business.

Provide copies of applications and

registrations, assignment documents, and

security agreements.

2. Schedule and copies of all agreements

dealing with copyrights, e.g., licenses,

identify whether target is licensor or

licensee, and identify revenue streams or

payment obligations associated with each

agreement.

3. Obtain copies of all searches,

conclusions, reports and opinions,

whether internal or external, that target

possesses concerning the validity of its

copyright registrations, the scope of

rights, the infringement of its

copyrights by others, and infringement

of third party copyrights by its

activities.

4. Obtain copies of all correspondence

relating to copyright disputes, cease

and desist letters, letters alleging

infringement, letters threatening

lawsuits and other legal notices

received or sent by the target.

5. Schedule any action that needs to be

taken during the transition or due

diligence periods to protect copyrights.

6. Obtain copies of any valuation analysis.

TRADE SECRETS

# Subject Date

Requested

Date

Received

Doc. in

Data

Room?

Comments

for

follow-up

1. Schedule all trade secrets and know-

how used in or associated with the

acquired business. Identify confidential

information that target licensed or

otherwise acquired from a third party.

2. Obtain copies of all agreements dealing

with trade secrets, e.g., license, secrecy,

or non-analysis agreements, identify

whether target is licensor or licensee,

and identify revenue streams or

payment obligations associated with

each agreement.

3. Obtain copies of all correspondence

relating to trade secret disputes, cease

and desist letters, letters alleging

misappropriation, letters threatening

lawsuits and other legal notices received

or sent by target.

4. Obtain copies of any valuation analysis.

IP GENERAL

# Subject Date

Requested

Date

Received

Doc. in

Data

Room?

Comments

for

follow-up

1. Obtain copies of all litigation and

claims threatened or asserted against

the target involving any alleged

infringement by the target of any

patent, trademark, copyright, trade

secret or other proprietary right of any

other party.

2. Obtain copies of all litigation and

claims threatened or asserted by the

target involving any alleged

infringement by any third party for

violation of any patent, trademark,

copyright, trade secret or other

proprietary right of the target.

3. Obtain copies of all agreements with

directors, officers, employees and

IP GENERAL

# Subject Date

Requested

Date

Received

Doc. in

Data

Room?

Comments

for

follow-up

agents of the target and independent

consultants relative to non-disclosure of

trade secrets, development and

assignment of inventions, non-compete

and similar matters.

4. Obtain copies of all joint venture and

joint development agreements or any

other agreements that contain

intellectual property clauses.

5. List prospective agreements

currently in negotiation that contain

intellectual property clauses.

6. Obtain copies of all sales, distributor,

or other agreements that contain

general or special warranties and/or

indemnifications against any form of

intellectual property infringement.

7. Schedule and describe products

manufactured and/or sold by the target

and the geographical market where

each is made or sold.

REPORTING ISSUES UNDER SARBANES-OXLEY

# Subject Date

Requested

Date

Received

Doc. in

Data

Room?

Comments

for

follow-up

1. Do annual and quarterly SEC filings

accurately and timely report on IP assets,

including a valuation of trade secrets ?

2. Have periodic and compliant audits

been conducted to ensure compliance

with IP- related license agreements?

3. Have appropriate IP-related freedom

to operate searches been conducted?

4. Does the target have internal controls to

account and monitor IP? Are internal

controls in place to monitory

infringement of its rights and the

infringement of third parties rights?

5. Have material events been timely

reported to shareholders ?