Transcription
Rabi Narula 0:04
Thank you. Thank you for everybody for coming out today. So yes, the title of this panel presentation is IP issues, what really matters from all perspectives, and we have a great panel here, I'm gonna let them introduce themselves. And as they go through the introductions, you're going to see that we have people from all perspectives of due diligence, the acquisition side, investment side, and also from the company side. So I'll just let them start, David.
David Beylik 0:27
Perfect. I'm David Beylik. I'm a vice president at Ajax Health. We invest primarily in medical devices, we have a couple dozen portfolio companies across cardiovascular electrophysiology, few other therapeutic areas. We like to take a very active role in investments at a minimum a board seat, but oftentimes taking executive level roles, kind of wrapping our arms around the companies. And most recently, we were part of a billion dollar transaction where we acquired Cordis from Cardinal Health and through that we set up a special $300 million vehicle to invest in cardiovascular technologies for Cordis. So through that, I've kind of had an opportunity to wear a venture investing hat, and also at the head of a strategic and a potential acquirer. And we've done everything from incubating technologies from scratch, to buy very mature medical device companies to series A and kind of everything in between. So it's good to be here.
Leah Brownlee 1:17
Thank you. Leah Brownlee, I am President and General Counsel at Lazurite. We have the first FDA cleared wireless surgical camera. Also in my career, I've spent about half of it at big law, being a corporate deal lawyer in the life science and venture space, and another six years at a publicly traded biotech company.
Bryan Wahl 1:41
Hi, I'm Bryan Wahl. I'm the General Counsel and Head of Business Development at Tarsus pharmaceuticals, versus a publicly traded registrational stage I carry pharmaceutical company with what we hope is going to be the very first FDA approved treatment for Demodex blepharitis, especially mites living in your eyelid. And I'm in charge of all legal and BD activities, including search and evaluation and licensing licensing. Part of that was a partner at Knobbe for over 15 years working with Rabi, and prior to that background as a physician and internal medicine. Honored to be here today.
Anthony Williams 2:10
Hi, I'm Anthony Williams. I'm a partner at Healthquest capital. We're a growth stage investor in healthcare course. But we invest across the spectrum. So devices diagnostics course, but healthcare IT and digital health and tech enabled services in pretty much anything in healthcare, certainly down the proverbial fairway for us. We've got about $2 billion under management. And we write checks called between 20 million on the low end 60 million on the high end. Like David, we're fairly active in our portfolio companies take board seats, pretty much 100% of time as well. Also happy to be here.
Matthew Miessau 2:47
Hi, everybody. My name is Matthew Miessau, I'm a senior associate with epidemics. Capital epidemics is a an early stage Life Science venture firm based in the US in the UK, where company builders, we invest in seed and series A opportunities in the medical device and therapeutic space. We'd like to work with innovators and entrepreneurs and help the licensed technologies out of the university, excuse me out of the university setting. And from an IP perspective, we're comfortable investing before companies have issued IP when things are still in in filing. So thanks so much for having me.
Rabi Narula 3:16
Right. So the first question, I want to start with Matthew, David, and Anthony, from an acquired investor perspective, how important is IP due diligence? And if I hadn't, you know, every deal is a little different. But what are your pet peeves? What do you consider the kind of most important things in your kind of career when you look at IP due diligence? So do you have any?
Anthony Williams 3:36
Yeah, so, you know, this is med tech conference, right? So you talk about the world of med tech, IP is incredibly important. Right? You know, as the current stage investor, you're really bad outcome for us lead a big round and the company find out they can't sell the product that they pitch to us, or somebody else can do exactly the same thing. So it's important to us fundamentally, I mean, it is a critical diligence point. In terms of most important issue, there are several but if I had to pick one, I would say is just getting IP ownership right. You know, it's not that hard to do that it is astounding when companies don't get it right. But you know, assignment conventions language in your employment agreements, the equivalent language in your consulting agreements, is fundamentally blocking and tackling but if you don't get those things, right, if you kind of think about the evolution of a company and employees leave and consultants finish their engagements and move on, you're it's almost impossible to clean that up after the fact. It it'll impair value down the road almost certainly if you don't get it right.
David Beylik 4:51
So I would agree mostly with Anthony but maybe with one distinction that might be a little bit contrarian. I think we do a lot of investing in the cardiovascular space. lot of PMA projects. And I think in our opinion, the freedom to operate is incredibly, incredibly important. Last thing you want is an injunction. So you can't commercialize your product at the end of that road. So we place a lot of weight on FTO. But in terms of assessing the offensive coverage of the company's claims, I think from our perspective, it doesn't really matter. To be totally honest, I think the reason for that is there's so many other sources of a competitive moat with those types of technologies, the technical execution, the clinical data, the regulatory approval, even things like having robust manufacturing processes, being able to deliver low cogs and attractive margins at scale, avoiding recalls, all of those things are so difficult that I think in our view, if a company can get those things, right, it doesn't matter if the another company could quote, copy their IP, because their practical ability to do that is going to be very, very low likelihood or very delayed, at which point the company might have, you know, number one or number two position in the market. So I think for us, it's almost all about FTO. In terms of looking at the offensive coverage, what we care most about is that they have a good IP lawyer, someone like Rabi, who's kind of at has a seat at the table, pursuing the right claims, making them as broad as they can reasonably be given the category. And if the if they have the right IP team around it, we kind of trust them that you'll get the best claims you can get. They're not going to be a huge, huge deal at the end of the day. But the FTL again, is like live or die for us. So very important.
Rabi Narula 6:25
Just real quick, I'll turn it over just FTO for the audience, if you're not, you know, into the lingo freedom to operate, or basically, are you worried about a third party patent, and that you might be infringing that packet.
Matthew Miessau 6:36
So agree with what's been said so far to to add to it for us, I'd be diligence or IP and obviously be diligence are absolutely critical. They help us to understand the defendable, unique differentiators of a technology and then how that fits into the marketplace in competitive landscape. And further to that the novelty really, for us is a big driver, we invest in very early stage technologies that really by definition need to be novel and different in order to success or to be successful. And they eventually get to the market or in the hands of a possible acquirer. So for us, novelty is really big.
Rabi Narula 7:05
Cool. All right, for Leah and Bryan, you kind of taking the company's perspective, can you talk to us about, you know, how important or how long it takes you to kind of prepare a company for IP due diligence? What are you really concerned about when you're kind of tasked as the person that get the company ready for an IP due diligence, and that process. So the first are
Leah Brownlee 7:27
Happy to. So we have a fairly large IP portfolio for our stage of the company. So we are early commercialization, and we have 36 issued patents worldwide. And, and numerous more pending, as well as trademarks and domain names and other things. So preparing the company has happened from day one, which was like seven years ago. And that is hiring people with the right technical expertise, not just the right law firm. So it's getting that that right, we have an optical product, so that person with the right optical expertise within the law firm, and we've moved along with our lawyer to multiple firms. So that's number one. In later stage, and I came into the company about two and a half years ago, one of the very first things I did was abroad to worldwide trademark search. And that resulted in changing the company's name. And so preparing for launching a product on a different type of IP that we don't always talk about having the wrong name can invite a lawsuit. And so preparing for IP due diligence in that way meant an entire process.
Bryan Wahl 8:44
Now, as Leah mentioned that you want to do it on a continuous basis and but you know, well ahead of any financing or any other sort of diligence of that as you can. So keeping your data rooms up to date with you mentioned, you want to make sure your employment agreements and your IP assignment agreements are all signed by the inventors. Because sometimes though, you know, leave the company before chance to do that to make sure that's up to date. And your patent portfolio, make sure all your counts are right. If you have pending continuations, that's very valuable. And as far as freedom operate, as well. So you can do regular searching, for example, on the landscape, to make sure that you're up to date on any competitors and any risks there. And that's usually good too, as opposed to having to do a search, you know, week before your term sheet or something like that.
Rabi Narula 9:25
And for David and Matthew, how prepared you expect the company to be for IP due diligence, is there any kind of red flags that you've seen in the past that kind of maybe have you lose faith in the company or scare you off early in the process?
Matthew Miessau 9:41
Sure, thanks. Yeah, absolutely. So we work a lot with with university spinouts and help to bring things out of the university setting. So we appreciate that filings done in the university setting might be different from those through the patent process or strategy for a startup or growth stage company. So we appreciate that. And as a result, we helped to really put up have in place a strong patent strategy in place as a part of our our investment. And for companies. It's absolutely crucial, as David and others have already mentioned, to really work with the right kind of patent counsel early on. And so again, as being an early stage investment group, we're fine with, you know, we understand companies might not work with large firms immediately upon incorporation. But we would expect that a company would move to the right IP counsel as a part of the investment process. And this is something that we assess during our diligence process as well, and not to beat it to death. But working with a strong counsel, as noted helps to really translate your novel engineering findings and processes here as a device conference to the right kind of strong patent portfolio. And so again, that's absolutely critical. Some red flags could include when companies equate the number of filings with with novelty or strength, and it's absolutely not the case, it's quality over quantity. And and when companies don't do a strong enough effort or job to really understand the competing landscape of patents around them, and that's where things of course, blow up. During diligence. We can talk about that later as well. So
David Beylik 11:03
yeah, I think that's really well said, I agree with everything. I think I would just add, you know, it's a sliding scale, depending on if it's a very early stage company, obviously, our expectations are relaxed. If it's much later stage gearing towards an acquisition, they have to be a lot more buttoned up. But in general, I think I would say two things. One is, if it's a scenario where there was some platform technology that was part of the formation story, if it's coming at a university or a lab or something like that, I think the most important thing that they have prepared is the very clear chain of title basically, in terms of the new licenses, having it all buttoned up so that they actually own what they think they own. We've seen deals where that turned out not to be the case, and good solid through documentation. But that makes us very nervous, obviously. And I think the other piece is not to beat on the FTO drum too much. But I think having a pretty sophisticated awareness of the landscape and what other patents are out there is important for us not only to assure us that they have the freedom to operate, but also, I think indirectly it helps us assess their strategic thinking, do they really understand the competitor technologies out there at a level of nuance and sophistication, where they thought about design trade offs, they thought about what they can, and they can't do that thought about how this changing this angle or this length, or whatever it is, might actually impact the customer's perception of the technology and the usability. So I think we spend a lot of time on FTO. But sometimes it's as much strategic and about the product market fit and what the customers think, than it is about whether you infringe a particular patent. And we get a lot of comfort when the company knows every patent that's out there. And by extension, every competitor that they're going to have to compete with in the marketplace.
Rabi Narula 12:38
Pitch decks, we talked about this kind of in the pre call preparation, we're going to see a lot of companies going to be presenting their story, their company, how do you think IP should be presented in a pitch deck? Is it 10 slides? One slide? What do you like to see? Under that?
Anthony Williams 12:55
We'd be happy to go first, you know, I think about that pitch deck is the is the roadmap for the first call. Right? You so you think about that pitch calls can be, you know, maybe 45 to 60 minutes, what, we're probably going to skip the IP side. Because there's just not enough time, we're lucky to get through the deck anyway. I think if you're gonna put something in there, if you think it's important to your story, or you just want to signal that you're aware that IP is important. I think a slide is sufficient, we're going to get to IP at some point during the sort of ongoing dialogue with a company. But you probably need an entirely separate deck to go over IP, and I'm not sure I would make your pitch deck longer to cover.
Matthew Miessau 13:42
Yeah, just to add to that, so agreed to be factual, concise, maybe not any, don't add commentary over it of what's greater strong, let let the patent speak for themselves. Include dates and things. But in addition to that, if you're an early stage company, if you do have an issued patent that could be a differentiator, so make sure to call that out. And then practically, if on an investor call investors want to know more, it's a good opportunity to offer to introduce them to IP counsel to really have that conversation. That's how they can be an advocate
Rabi Narula 14:09
We'll probably go right back to you, Anthony, because we talked about this. What about some other IP issues like privacy, cybersecurity? My sense is that's becoming a bigger issue nowadays. So it's not just about reading them operate patent owners ownership of IP, but also how are you protecting your customer lists and stuff like that?
Anthony Williams 14:31
Yeah, you know, I actually think about them a little bit differently than the way I think about IP just sort of conceptually, but I think they're also important. You know, I would say, to commercial stage we vessel a bit later, the companies we interact with privacy, rarely an issue, right? These companies sell to hospitals, to health systems to providers, who are very attuned to the risks of privacy, but just because of the exposure under HIPAA. Cybersecurity little bit different. You know, we think about cybersecurity, I, you know, you've got sort of garden variety cybersecurity, I hate to call it that, but you know, financial fraud, and ransomware attacks and things of that nature. Those are important, you need to have a plan, but a lot of companies will have policies and procedures in place that are at least designed to address as they may or may not be effective, you know, hopefully we'll never find out. But you know, where the air you know, sir areas, it's a little more complex is the world of connected devices, right, just you sort of imagine that havoc that, that a hacker could cause if they, for example, got access to a platform that controlled an implantable pacemaker, right, and the risk to the, to the patient's lives. So as a medical device manufacturers, they really need to have robust security, they there and make sure that there is just a patient safety is protected. You know, in in areas, it's getting some sort of airplay at the moment is older device, older, connected devices, or it's the hospitals in the current environment are trying to extend the useful lives of these devices, many of them want to know that, you know, the operating systems can be upgraded patches can be installed, to manage against new and evolving risks. And we know there'll be new and evolving risks as you just cannot overestimate the creativity and the malevolence of bad actors. But you know, from a hospital, they really want to know the device, they're going to work, the patient is gonna be safe, the device is going to work as intended. And so manufacturers or manufacturers, medical devices need to be able to save this device will continue to work, as we told you it would. And hospitals are we hear that more and more nowadays, from hospitals, again, as they're thinking about, you're making a device, it was probably designed to last two or three or five years, last six, or seven or eight.
Leah Brownlee 17:04
If I can just a couple comments. So we have the first wireless cam camera, and we're launching it right now. So the questions that we get from the IT architecture review, consistently are around that. And really a big question is do we rely on the hospital's Wi-Fi system? Do we rely on Bluetooth, for the video from the camera system to make it to the monitor? Because if the Wi Fi goes down in the middle of surgery, we can't lose the visualization. During surgery, ours stays up. But that's always a gating question. And we've only gotten to about a dozen hospitals so far, but it's been consistent and across the board.
Rabi Narula 17:40
For the end, Bryan, we talked about this, before the idea of licensing in technology or licensing out technology, kind of your I think you both had that done that successfully. And then I'll turn it over to kind of the other side and how you view kind of licensing them out. So maybe Brian start with you on some examples of successfully licensing out or in it.
Bryan Wahl 18:02
Sure, Rabi, you know, here tarsis licensing has been extremely valuable to our company. So for example, our key active pharmaceutical ingredient was actually inlicense from a veterinary animal health company. And we were able to have some innovative formulations and get exclusivity for all human use. So that's been a great partnership there. As far as our licensing, we're able to license and have a partnership in China, for our drugs bring as many patients as we can around the world. So our licensing territorially involves some international IP production, which has some capital requirements associated with that, but it can add significant value can help you to extend your reach with patients. So I would encourage companies to you know, consider that international IP protection and then continue to partnering it so you can also use that non dilutive financing potentially, to go back into your US and other operations your pipeline.
Leah Brownlee 18:56
And from my experience, I have to go one company back and we had an inlicensed technology from Cleveland clinic that was developed there. And so we had milestones that we had to reach in the development pathway of that technology. But we also had the ability to sub license without going back to the license war, which was very critical for the commercialization strategy and going out to other territories around the world to do our licensing activity. And to license out specific indications. We had gone out to China, as one of a kind of a fundraising effort to non dilutive li raise additional funds for the company and out licensed at target that was not on our primary path in the US.
Rabi Narula 19:42
That's right from the investor side. What do you think of these licensing agreements? Are they going to be scrutinized a lot or are they red flags to you or just kind of part of the business?
Matthew Miessau 19:53
Sure, thank you. So again, from the early stage, the majority of our portfolio our university spin out so licenses from Universe CDs really play an absolutely critical role and are heavily scrutinized as part of our diligence process. As noted, we can also help to really move the needle on the licenses, if there are key terms that are not not favorable for a company, our goal is to make sure that the license is not overly burdensome to the company, and to help them but they wouldn't prevent them from raising additional money or partnering. So we also are thinking about the needs of a potential partner required down the road as well from that early stage at really company creation. And as a part of our process, just a few things we think about in the IP side, really are gaining access to the improvements on the technology that we've licensed, say from the the inventors lab and the research setting, as well as control of IP count of IP processes and prosecution where we'd like to shift that from the university to say, patent counsel, as soon as possible, really a company creation.
Anthony Williams 20:48
Yeah, so I certainly agree with that, you know, you know, companies that get spun out of universities, you're there's just going to be a license, right? There aren't any universities left, it'll transfer ownership of the patent, which is fine. So you know, but you want to be careful when you're negotiating that and make sure that the rights are being granted, fit not only with what you're going to do now, but where you think you're going. And you think about Wayne Gretzky in skating, where the puck is going to be, you have to think about that in terms of fuel to use, and make sure that you can continue to evolve because you had that state, of course, companies are gonna evolve pretty radically. Unlicensed is out, you see a fair amount in pharma and biotech see a lot less than med tech, you know, into so when we see it actually caused us to wonder why in there may be valid reasons, right? Maybe you're licensing rights to it to China, because you're never gonna go there. And there's non dilutive funding that comes with it. But every time you do that, you are reducing the potential in the future to create value inside your organization. And so, you know, from our perspective, there needs to be a pretty compelling reason for it to happen. Otherwise, you might be better at it, or keep that keep that asset in house.
David Beylik 22:04
Yeah, I would agree with that. And the only thing I would add is, if you're, you know, Founder CEO, negotiating that license with the university, just keep in mind, every basis point of that license is going to make its way in a financial model of your potential acquirer. And as they look at gross margins, you know, that's straight off the top line. And that's going to impact the valuation. Some of these contracts, I imagine are kind of, you know, boilerplate, there may not be a lot of room to negotiate with a large academic hospital or something like that. But I would just say, reduce the kind of economic overhang to the maximum extent you can. And similarly, if there's any way to limit the term, or the duration of the kind of royalty payments that are owed, so that there's at least a path to total freedom for the ultimate acquirer, I think those are the types of things that are gonna matter a lot when they're assessing your gross margins, and having, you know, an NPV in a model that's going to impact your term sheet. So just encourage you to get the best deal you can.
Rabi Narula 23:00
Alright, so we've been focusing a lot on patents. And I think, Leah, you mentioned some other IP rights, but I thought we'd just give those other IP rights a little bit of time here of trademarks, copyrights, trade secrets, maybe some of the panels comments on the value of those, and a company might depend on the industry, I would think too.
Leah Brownlee 23:17
So I'd love to hear from the funders on the group too. But metal medical devices, including the one we have is designed specifically for user centric design. And so one of the pathways that we've gone down with the final form factor of our device is also protecting it through the design patent pathway. So we have trademarks, design patents, regular patents, mask works, copyrights, and domain names. And part of that is our devices, you know, is a thing, compare, every competitor is going to open it up. And they're gonna try to copy it. So why not just put a label if it costs a couple $1,000 It says, By the way, I protected this
Rabi Narula 24:03
will be brand trademark, important?
Bryan Wahl 24:04
or surely I think trademarks are important, especially when you're gearing up for commercialization. And one thing is, you know, when you file your trademark and usually become public, within a few days, it's always important to register your domain name as well as social media that you may use like Instagram, Facebook, Twitter, etc names, because there are cybersquatters out there that will get them and see your company and try and take them from you beforehand and cause you to spend a lot to get it. So it's better to do that in advance on your checklist.
Rabi Narula 24:31
Comments on the investor side are
David Beylik 24:33
So one quick comment. Actually the only time so far I've seen IP truly blow up a deal. It was due to trade secret litigation. And the reason for that for us as an investor was that all of the litigation was being maintained under seal. So the company was not allowed to protect the trade secrets of the party that was alleging the violation. They basically had the ability to have all the court documents and everything under seal and so the party that was trying to transact the company couldn't share anything that what was going on in the litigation. So it made it impossible for us to really probe and underwrite and kind of, you know, ring fence the risk. And we looked into insurance solutions, and we'd looked into all sorts of ways to understand it better. But ultimately, it ended up being kind of an uncertain, uncapped liability. So we passed for that reason. So I don't know if anyone has advice on how to deal with trade secrets, trade secrets, but it's a category of IP, I don't normally think about, but it was the one thing that we cannot get comfortable with.
Anthony Williams 25:29
Yeah, you know, so, again, we're so we're commercial stage investors, most of the time we invest people have figured out the trademarks, hopefully not to change their name if they spend too much money marketing, their company, but you know, it does raise the question just topically, about the trade off between patent protection and disclosure of the invention versus trade secrets. And it is something that you do need to think about early on, right? Because once you follow that pattern, and it publishes, the world can see it. patent issues, courts can't do it. But you do really have to think about the relative value, right? I think everybody knows about the old adage that coke never got patent protection on a formula for Coca Cola, and they just kept a trade secret. And so you know, there are some things that you may not want the world to know. And if you do that, of course, trade secret protection, it's actually more complicated than you think. It's fairly straightforward to get right. But you do have to do that analysis relatively early on and think about whether or not you want the world to know how you do what you do.
Matthew Miessau 26:40
And a very simple addition and that we've heard for trademarks, we like made up names, because it really helps to reduce cost on searching.
Rabi Narula 26:46
Yeah, I just want to comment on the trade secrets that has been a trend that we've seen as a law firm in the medical device space is the increase in trade, secret litigation, and trade secret allegations, particularly with former employees that move on from one company to another company, just seems to be a more sensitive issue now than it was, say 10 years ago. And so it's it is something that comes up and due diligence. Where are you? Did your employees come from? You know, that some other competitor? Do they potentially bring anything over? So it's something that you might want to be prepared to answer in due diligence? So one question I had is we kind of touched us, you know, how important is it is to have an actual issue granted patent, there are tools now in the patent office to get a patent fast. And so I know we touched on this a little bit, but wanted to get your is an issue patent important? Not important? Would you spend another 10-$15,000 to try to get an issue patented before due diligence? Does it move the needle at all? Any thoughts on that question?
Matthew Miessau 27:44
So I'll go first. So again, at the early stage, it's nice to have but maybe not necessary, I think we'd rather invest in an opportunity that had a well thought through filing or application filed, rather than issued IP that either wasn't relevant or wasn't well thought through. And again, that that plays in part on again, building the patent portfolio around the foundational patents. So it's helpful but not necessary.
Anthony Williams 28:09
Yeah, I think it depends a little bit on on how critical the invention is to the operation of your technology. Right? You sure you think about it, the ability to design around, right? If you think about so you file a patent in its application, and it ultimately doesn't get issued? Could you make modifications, still same functionality and actually get patent protection? If the device fundamentally isn't going to work, without the invention disclosed in the application, as you might be worthwhile accelerating the process? So you can have that issue patent and is one thing that investor can check off their list short of that. Now, fers? That's doesn't happen all that often right? When you think about medical devices and engineering. But in that case, I could I could see an argument for for spending the extra money and getting it done. Otherwise, you're probably looking at an entire state of applications and probably making some assessment whether or not there's enough in there that will issue and protect the device.
Rabi Narula 29:18
Where to file is often a question that, you know, a startup company has, because it's pretty expensive to file outside the United States, in particular, Japan, Europe, China. So I wanted to get the panel's thoughts on that, you know, is can you get away just US, Europe and China? Is that enough? Is there some countries that you have to file in? Does that depend on the medical device of the market? So any thoughts on the panel on that?
Leah Brownlee 29:45
I can talk about how we figure it out. Okay. So we pulled market reports and look at the indications that we're going after and figure out what the prevalence of the type of surgery that we're going after, is worldwide and determine Which countries would fail? And based on the market reports?
Anthony Williams 30:04
I think I think it depends, you know, that's the unfortunate answer. Right. But a lot of these questions, the answer is it depends. You certainly the US, right, just massive health care market. You know, going to Europe, right as well. Anything about the other markets, Japan population is not a huge market, but they reimburse very well. So you might decide to go there. A lot of companies are filing in China, not because they necessarily think that they're going to launch in China, although some do. But it is an easy thing when you're looking for non diluted funding to grant a license to your IP, in China. And so you we see that I don't know that that's strictly necessary. From a funding perspective anyway. But it is a strategy needs to be considered there. But there, of course, are tons of countries where it's not particularly important, just because Mark is not big enough.
Rabi Narula 30:53
Right. Now, one, one process we've done is you looked at go out there and actually look at what the potential requires and look at their patent portfolio and look where they filed, and at least try to cover those countries figuring you know, they're not gonna expect you to file more countries than they even filing, for example. You know, the comments on that topic. But I think
Matthew Miessau 31:13
you've got the answer. So in terms of cost, again, at the early stage, it can you can start down a path and then realize it's going to be very costly to deliver on it. Again, when working with the right counsel, you'll be able to hopefully understand kind of the schedule of costs associated with filing a job or geographies you select. So building that in and thinking about that at the early stage. That's an important budget item to have. And, you know, if you stick by it and stick with those geographies,
David Beylik 31:35
I think I would just add that if if I saw an early stage company or even a later stage company pursuing IP in other jurisdictions, it would raise a lot of follow up questions to me not not negative questions, but I would I would ask, so do you have a testing strategy or a clinical study strategy to get the Japanese approval? If you're getting IP there? Or do you think you'll do it, you know, a non dilutive transaction? Are you planning on selling off these? Right? They would just kind of raise to me the question of what's the US strategy? And is it cohesive? So I think rather than filing just to file having a story around, how do I think about Japan? How do I think about China? How do I think about CE mark under MDR? Like all of these are very big questions that are very important. So I would kind of let the bigger order questions drive what the IP strategy is, as opposed to doing IP just everywhere, and then having a different story for, you know, the exit for the company or something like that.
Bryan Wahl 32:26
It's a business call for sure. But a lot of times we in pharma, or in a drug device combo, you tend to see probably more worldwide production rather than less. But you know, there's ways to strategize to sort of defer your costs by, you know, with your PCT applications and deferring examination and great patent attorneys like Robbie can help with that.
Rabi Narula 32:43
Be fair to say, United States, you're in a pretty decent gap between the next jurisdictions. Okay, I think that's right. Okay. Cool. So wanted to kind of finish up with some questions about war stories, or things that like kind of everybody has a fun due diligence story that they've had in the past that deal that blown up, or what was the issue? So I thought I'd just kind of go that out to the panel, and let them kind of go through and tell us some fun stories that they've had an IP due diligence, I don't know who wants to go first.
Anthony Williams 33:12
So I'm happy to go. First. We, we could do a whole 40 minute panel on this one, you know, we were part of a syndicate that came together. Last year that was looking at making a fairly large investment medical device company, it was going to be north of $100 million. And shameless plug for you guys. We heard Knobbe Marten being sitting in front row here. And one of his colleagues helped us with it. It was legitimately a mess. Yeah, the founder had started work on the invention while she was a grad student University, which raises issues around whether or not the university has rights to the invention. And so you have to be careful about that you have to document it correctly, there was literally zero documentation, so a lot of uncertainty there. The and then they went and they created an IP holding company and then created a separate company for each indication that we're going to pursue with fundamentally the same transaction. Presumably, because they're going to raise money from different investors based on on the indication. But rather than hiring all the r&d people, the holding company, they had them at each of the operating company levels, and they all did work on fundamentally the same IP. There were no cross entity agreements regarding who owned what several those companies had been subsequently dissolved. I think one went through bankruptcy. And so there was no clear explanation in terms of who owned it. I can't be You don't want to get your assignment of inventions, right. Because a fair number of the inventors had never signed assignment of inventions, agreements with the company. So there was lack of clarity there. I think the conclusion wasn't one of the patents, there was a consultant that actually had the right to practice the pattern, because there was no assignment of vengeance language. You know, these people were all gone, half of them been fired, you know, the company has gone out of business, there's no way we were going to contact them all, and get assignments from them. You know, it was I was telling Rabi earlier. So I went back and took a look at the deck that somebody put together, it was 62 pages long. If the IP diligence results deck is 62 pages long, there is a fundamental issue. But you know, and so at the end of the day, it actually did a really nice job, again, shameless plug, first being walking us through the practical risks. But you know, we think about risk return, right, or risk adjusted return. And so it impaired what we were willing to bid for the asset. Reduced, it not increased it, of course. And we decided that we weren't willing to take unfettered risk in the sort of the normal growth stage return was just not enough. And so we reduced what we were willing to pay. It was a competitive process, we actually ultimately got outbid and passed on the deal.
Leah Brownlee 36:27
So I have a much smaller disaster that I worked with. And this was while I was counsel for an investor. So often, very small investments. And this is a couple million dollar investment into early stage technology company, they bypass paying for IP due diligence entirely. So as a corporate attorney, that has an IP lien in my background, I at least checked who owned the IP for my investor, who said that they didn't want to pay for IP due diligence. And as it turns out, that the company they were investing in did not own any of the IP, that was the base of the company's product, my client went forward with the deal. And we insisted on a side letter that allowed my client to call their investment funds back within a certain amount of time if the IP hadn't been assigned. And so when the company blew up, about two years later, in the middle of bankruptcy excetera, my client called their investment funds, and so they didn't lose money. They didn't obviously, get the investment return. And we're very happy that we had checked and ownership fine.
David Beylik 37:41
So just a couple that are hopefully encouraging more stories, actually, we had a couple of deals where we did one kind of level of IP diligence based on what the company had done up until that point, and maybe paid our attorneys $10,000 or so of work, and basically came back to the company said at this point, like we we think that you infringe this, and we're not satisfied. And that's really important for us. So we have to walk and we tried to be helpful and basically say, you know, these are the categories of things that we would do if we were you to do more work, engage different counsel, etc. And in both cases, actually, they took a little bit of financial risk to do a lot more work on IP, in one case with the different counsel and came back with shockingly positive arguments across non infringement and validity, all sorts of stuff that was really thoughtful, really comprehensive. And we ultimately did get comfortable and ended up doing both of those deals. So sometimes the quality of work really does matter. And sometimes just the stage of the company may be made sense for them not to invest in those types of things at that stage. But as they migrated to, you know, taking institutional capital, it was the right time to do that work. So I say that there's not really war stories, because they ended up working out well. But you know, there's always a deeper level of work and review. And sometimes those details matter a lot to investors. So
Rabi Narula 39:04
any final comments? I think we're just about a minute left. So
Matthew Miessau 39:09
just briefly, David stories were great. And I'm glad they went out, you know, they worked out well, we had a similar case where we save our IP diligence process till till the end of our process once there's a sign term sheet in place. And it didn't work out as well as it sounded for you, when we had IP counsel, take a look. And the technology was interesting. But in a crowded space, there will there was a novel clinical aspect to it that we really liked. So we pushed forward. And our council identified a number of patents that the companies Council just didn't turn up and as a result of that it really killed the deal. So again, very, you know, not normal occurrence, but But it's expected and that's why of course we do the diligence, but unfortunately didn't turn out as well.
Rabi Narula 39:48
You find an answer sometimes, which is great. So cool. Well, that's the end of our time period. So thank you for attending the panel will be around if there's any follow up questions. So thank you for attending.
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