Before securing a seed, venture capital, or PE investment, due diligence is necessary, especially around intellectual property. This column provides three tips for preparing for and passing the patent due diligence test.
Tip One: Build a Strategic Patent Portfolio
A funding target’s technology is a major determinant of an investment’s success. Investors want to support innovative technologies that address unmet medical needs or improve patient outcomes, and have large market growth potential. While these factors may drive the initial interest in the technology, investors also want to ensure their investment will be protected by a strong patent portfolio.
Not all patent portfolios are created equal. A portfolio’s strength is not necessarily measured by the number of patents or applications, but by their quality and coverage scope. Surgical robotics involves diverse engineering and scientific disciplines, so building a strategic patent portfolio presents unique challenges. A strong surgical robotics patent portfolio should include claims to the entire system as well as claims to key components and sub-systems, such as medical devices used by the robot, control systems, and specific treatment methods. Building a strategic portfolio requires an interdisciplinary legal team that can address the specifics of patent prosecution in various technological arts. Utility patents covering functional features of robotic systems should be supplemented with design patents covering ornamental features like a graphical user interface or distinctive non-functional component shape.
For maximum protection, surgical robotics companies must keep the patent portfolio current so it covers the contemplated commercial embodiment of the technology. While this seems obvious, companies often file patent applications early in the development process and then fail to update their patent portfolio as the technology evolves. Because the technology can change during the R&D phase, some earlier issued patents or pending claims may no longer cover the current embodiments.
Surgical robotics companies must stay ahead of technological changes by filing continuation applications to obtain more relevant claims or filing new patent applications to cover new or anticipated developments. This allows surgical robotics companies to keep their patent portfolio current and build a proverbial “picket fence” of patent protection around their core technology and incremental improvements, even those that might not be implemented but could have commercial value to a competitor. Investors prefer strong, up-to-date patent portfolios that provide multiple levels of strategic protection.
Tip Two: Secure Patent Ownership Rights
While substance is important, surgical robotics companies should not neglect their patent portfolio’s administrative aspects. Many administrative issues uncovered by due diligence can be fixed, but will usually delay investment.
One of the main tasks of patent due diligence is reviewing ownership. In the United States, employee inventors are initial patent owners, and ownership is transferred to the company by written assignment. It is best that companies require employees and consultants to sign a patent assignment agreement upon being hired, before anything is invented. The patent assignments should include a present tense assignment (i.e., “hereby assign”), and not only a future promise to assign (“agree to assign”). The U.S. Supreme Court has held the present tense assignment can automatically transfer rights in the invention without further actions from the parties. With present tense assignments in place, the company can be named as a patent applicant instead of inventor-employees. For another layer of protection, a specific assignment from the inventors to the company should be recorded with the USPTO that includes the patent application number and filing date for each patent application.
When working with contractors or consultants, companies should strive for assignments to perfect ownership of any business-related inventions. But this can be difficult. Invention ownership may remain with the service provider or the parties can be joint owners based on the inventors’ assignment obligations. If assignment is not possible, the company should include an option to exclusively license inventions to secure rights. When an invention cannot be assigned, a license may be the only option to allow a company to practice the invention. It is also important to secure an exclusive license option for joint inventions. Otherwise, the other owner will have a right to license the invention to a third party without approval. Thus, companies should secure all patent portfolio rights.
Other procedural requirements must also be met. A patent can be invalid if improper inventors are named. Inventorship is determined based on patent claims, so it’s important to review inventorship as claims are added or cancelled. Before the USPTO will issue a patent, each inventor must file an oath or declaration verifying his or her role as an inventor. Since patent prosecution can take years and inventors can leave their employers, it is prudent to obtain and file the required executed documents at the time of filing or shortly after filing the application.
Tip Three: Know the Patent Landscape
Another major focus of patent due diligence is reviewing the relevant patent landscape. Knowledge of the relevant patent landscape before patent due diligence can significantly expedite the process.
Many investors will not proceed without conducting a patent landscape analysis, which could take weeks to perform. However, this timeline can be reduced if patent landscape searches have already been performed.
Another advantage of performing a patent landscape analysis is to avoid surprises caused by prior art. For example, a close prior art patent or article that warrants a deeper review and analysis can be addressed prior to due diligence. In some extreme cases, the company may need to modify its technology to avoid potential infringement. This process is time consuming and may delay or derail investments if close prior art is uncovered during due diligence. On the other hand, a favorable landscape evaluation can help increase company valuation by improving investor confidence and bargaining power.
Despite its benefits, some early-stage companies may decide against performing patent landscape evaluations prior to due diligence due to cost and inherent limitations of patent searches. These companies can acquaint themselves with the relevant patent landscape in more economical ways. Early-stage companies should familiarize themselves with prior art cited against their patent applications. They can also perform more limited searches by reviewing patents to specific competitors or inventors; these searches may not provide a full understanding of the relevant patent landscape, but they may be sufficient for an early finance round.
Knowledge of the relevant patent landscape can expedite the due diligence process and help avoid surprises that can derail or delay investment.
Prepare for Diligence and Investment Success
Investors perform patent due diligence to gain comfort with the target. There are many steps the target can take to prepare for due diligence to make it easier for investors to perform their evaluation. Having a strong patent portfolio, meeting all procedural patent requirements, and understanding the relevant patent landscape can make it easier for investors to become comfortable with the technology and significantly expedite the patent due diligence process.
Roman Fayerberg is a registered patent attorney with more than 15 years of experience in patent and IP law. He advises clients on procurement and enforcement of IP rights, including domestic and international patents, with the focus on robotics, medtech and life science technologies. He can be reached at email@example.com.
David J. Dykeman is a registered patent attorney with nearly 25 years of experience in patent and IP law and is co-chair of Greenberg Traurig’s global Life Sciences & Medical Technology Group. Dykeman’s practice focuses on securing worldwide IP protection and related business strategy for high-tech clients, with particular experience in robotics, wearables, medical devices, life sciences, and IT. He can be reached at firstname.lastname@example.org.
Todd Basile is a shareholder and registered patent attorney. He helps technology firms protect and commercialize their innovations and brands. He also represents technology investors in M&A deals, negotiates technology transactions, and assists clients in navigating IP disputes. He can be reached at email@example.com.