Role of IP Due Diligence in Corporate Finance

A panel moderated by Jim Hesling, at Wilson Sonsini Medical Device Conference, with Eric Bell from Spring Rock Ventures, Mir Imran from Incube Ventures, and Gwen Watanabe from Teleflex, discussed the role of IP due diligence in corporate finance.  The panel offered great advice and insights for medtech startups.

From the buy side perspective, InCube Ventures invests in mid to late stage companies and focuses specifically on disruptive innovations that change patients outcomes, said Imran.  While their focus area may be in white space of IP, depending on the technology, Incube does thorough investigation of IP, said Imran.  Also early on they assess if it is incremental innovation of existing solution or a truly disruptive concept.

Also from buy perspective, Watanabe said, during the acquisition process, they like to see entire application, talk with the team and then do complete due diligence on the patent portfolio.  Watanabe said when buying “we also deconstruct claims for validity”.  She added, “we don’t stop at patents, IP also includes grants, know hows, and any other secrets”.  Teleflex also uses software tools to map out the IP area and it operates in 160 countries. They have an external counsel going through the FTO and they pay specific attention to any potential for patent infringement.  Eric Bell from Springrock Ventures, said, they use external counsel to do thorough assessment and clearly consider issued patents versus filed patents, because when issued it provides contextual validity.

Speaking from the sell side perspective, Imran offered lot of great advice to the entrepreneurs. Imran is a serial entrepreneur with several successful companies, and advised that entrepreneur hire a litigator to review their patent portfolio to point out holes and weaknesses as well as areas of strength.  A litigator can have a vastly different perspective than a prosecutor, said Imran.  Both Bell and Imran also suggested that entrepreneurs continue to focus on the IP as the technology moves forward.  Many founders focus strongly on IP earlier and specially when fundraising but then put it on the back burner.  However, as direction changes occur, they become lax on IP and it may not allow for product to be fully covered and it can impact subsequent fundraising.  Also the patent landscape is too crowded and freedom to operate is very important, said Imran.

Panelists asserted that while ongoing IP commitment is extremely important, they agreed that IP alone does not create value.  Real value is created from total context including patient outcomes, regulatory approvals, reimbursement etc.  Some young CEOs do a press release when a patent is filed or approved and Imran advised, they not do it and Watanabe chimed in that they do it when they get FDA approval.  “One thing I do is to step back and think about how I would get around my own patents and then file more patents, so I think like a competitor”, said Imran, himself a holder of hundreds of patents.  Imran said, while patent filings are very expensive and companies can’t do it frivolously, he also suggested that companies file patents in other countries with substantial markets like India and China.  Founder should formalize the process internally in the company so that employees are keeping good lab notebooks and everything is documented to be able to defend obviousness claim, said Imran.  

PS – Please check out exciting jobs offering opportunities to work with disruptive technologies in JOBS category on this blog & please send leads or resume at wd_darshana at hot mail dot com.

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