Investing in Universities - Webinar Series, Intellectual Property Due Diligence: A Critical Prerequisite to Funding Startup Companies

07.22.21

On July 13, Winstead hosted a webinar entitled “Intellectual Property Due Diligence: A Critical Prerequisite to Funding Startup Companies,” its second installment in a series of webinars regarding investing in university startup companies. The presenters were Lekha Gopalakrishnan, Ph.D. (Shareholder, Winstead), Frank Amini, Ph.D. (Of Counsel, Winstead), and Jonathan Van (Chief Operating Officer, Technium).

Summary:

  • How a startup company’s intellectual property (IP) can play a determining role in its success or failure
  • How to ascertain that the startup company owns or controls sufficient IP to protect different aspects of its commercialization goals
  • How to confirm that the IP is valid and enforceable
  • Special IP due diligence considerations for university-derived startup companies

Speakers:

During the webinar, the presenters discussed an array of important intellectual property matters that need to be thoroughly examined through due diligence for venture capital transactions. Here are some of the key takeaways from the webinar:

  1. A strong IP position by start-up companies can aid in maintaining market exclusivity for both its products and services. This will then result in the ability to maintain market share, as well as help with both profitability and the return on investment.
  2. Before investing in a start-up company, venture capital firms should make sure that the company’s current and future products/services have sufficient IP protection. For example, does a company have issued or pending patents? Likewise, an investor will want to find out if the start-up company has pending or registered trademarks and registered or unregistered copyrights, as well as proper control over domain names, social media accounts, and websites.
  3. Additionally, a firm should ensure that a company’s products/services do not infringe on a third party’s IP rights. For instance, a firm would not want to make an investment into a start-up company only to discover that one of their products actually infringes on someone else’s patents. This could lead to both lawsuits and ultimately a loss of money.
  4. In order to safeguard against potential infringement issues, there are a number of steps an investor should take. They should conduct patent searches related to the company’s products and services. Similarly, they should do trademark searches for the company’s brands. It is also necessary to look into whether or not a company is utilizing proprietary materials that were obtained from third parties.
  5. During the due diligence stage, investors should find out if a startup company’s IP is subject to any potential encumbrances. For instance, are there security interests? Liens? Are there other agreements in place that result in restrictions on the IP? All of these factors can impact the overall value of a company’s IP portfolio.
  6. Also, it is critical for investors to research if the company’s IP is both valid and enforceable. This includes checking if their patent/trademark maintenance fees have been paid, ensuring that their IP rights have not expired, and investigating that reasonable measures have been implemented to protect trade secrets.
  7. For investors, it is important to understand how a start-up company owns their IP. For example, does the company own their IP through assignment agreements? If so, do these assignment agreements have a traceable chain of title? Or perhaps the company controls its IP through license agreements. In this case, investors will want to take a deeper dive and find out if the agreements provide sufficient rights.

View Webinar

Media Contact

Stephen Hastings
Director of Communications & Media Relations  
214.745.5485
shastings@winstead.com

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