Many start-up companies have a short “end game.” The company has a great idea and is focused on taking that idea from proof of concept to bench scale demonstration. Then it looks to sell to others who will take the technology to prototype stage and eventually commercial products. The value of these companies is most likely tied to the value of their patents. Some companies conduct research and development looking to build a patent portfolio around several technologies with the idea of licensing to others to commercialize the technology. The value of those licenses also depends upon the value of the patents. Regardless of how companies secure profits, build value, or monetize their patent portfolio, the following formula is true:
IP = $$
In fact, recent studies have shown that intangible assets, the results of a company’s creativity and innovation, make up 80% or more of a company’s value. If IP equals value, then the following equation is also true:
IP = $$/x
No matter how small any cloud over title to your IP may be, once the cloud is discovered, the value of the IP, and correspondingly the value of the company, becomes a fraction of itself.
Start-ups and R&D companies often get their funding from government grants. Failing to comply with government contracting provisions under the Bayh Dole Act or federal acquisition regulations is one way to create a cloud over your IP title. Certain government contract patent provisions give the government the right to request title to government-funded inventions in the event of non-compliance. So how does a company avoid value reduction of its most important asset? Simply stated, discover the cloud before your buyer or licensee does, and remove it.
One of the best ways to discover any clouds that may exist over your government-funded IP is to conduct an internal IP/Invention Audit. The first step of an IP/Invention Audit is to find the government contracts. This isn’t always as easy as it sounds. Some companies have been around for a long time and files get stored in some unique places. Check the obvious places, like the legal department and accounting department. And the not so obvious places, like the office of the scientist that responded to the government’s request for a proposal.
The second step is to determine which inventions were created or reduced to practice using at least some of the government grant money. Start with the principal investigator listed on the face of the award. Check the Title and Statement of Work listed in the government grant and the dates of contract performance. Search your company’s patents and published patent applications on the USPTO website for the names of the scientists responsible for performing under the government grant. Search those patents and patent applications for technologies related to the Title and Statement of Work. Especially those filed during or after the dates of the contract. Also check for the Statement of Government Support required in patent applications covering government-funded inventions.
Third, for each invention made in whole or in part with government funding, know the patent rights clause, the pertinent FAR clauses, and any agency-specific clauses that can affect title to the invention. Determine whether Patent Waivers were timely requested, the invention was timely disclosed, title to inventions were timely requested, patents covering the invention were timely filed, and the remaining requirements were complied with.
Finally, use the resources at hand to fix any issues of non-compliance. The best of these is probably the Contracting Officer listed on the Face Page of the Award. Government contract regulations also allow for extensions of time in certain instances and other methods to show that you are in compliance with government contracting provisions. And most importantly, document your fixes and your findings so you can show the buyer or licensor that there is no cloud over the IP title, at least as far as your government contracts are concerned.