Posts Tagged: "venture capital"

Last week, the World Intellectual Property Organization (WIPO) issued the Global Innovation Index (GII) 2020 report jointly with Cornell University, INSEAD and the 2020 GII Knowledge Partners, which included The Confederation of Indian Industry, Dassault Systèmes – the 3DEXPERIENCE Company, and The National Confederation of Industry (CNI) – Brazil. The report showed that the United States remains in third place behind Switzerland and Sweden in WIPO’s ranking of global economies in terms of innovation capacity and output.

There is a symbiotic relationship between innovation and patents. The innovation that we say we most want is cutting-edge innovation that requires time, money and determination to bring into being.Unfortunately, paradigm shifting innovation does not come cheap. And patents are the lifeblood of this type of disruptive innovation. Those within the industry know this to be the case, and today the Alliance of U.S. Startups and Inventors for Jobs (USIJ) released a report detailing a comprehensive study that confirms the importance of patents and the consequences of a patent system in the United States that has veered away from strong protections for innovators and toward rules and laws that make it ever easier for implementers to copy the innovations of creators without remuneration.

In an article we published on this blog in November 2015, we documented the findings of a study of Unicorns (startups with valuations of over $1 billion) and their patent holdings. In that study, we discovered that over 60% of Unicorns held immaterial patent portfolios (10 assets or less). We have subsequently concluded that these Unicorns are likely to fill the gap in their patent holdings through organic filing and patent acquisitions, as they approach an exit event or as they enter a major new market. Fast forward to October 2019, and WeWork, a member of our Unicorn “Class of 2015”, has been in the news under very unpleasant circumstances. The WeWork planned IPO was called off in October 2019, after questions emerged related to, among other things, the viability of the company’s business model following financial and operating disclosures included in its S-1 filing with the SEC. This led to a series of events where, eventually, SoftBank acquired a controlling interest in the company at a valuation of $8 billion, a fraction of its most recent valuation of $47 billion, while in the process removing Adam Neumann, the company’s co-founder and CEO, and buying out his shares.

The bipartisan STRONGER Patents Act of 2019 took an important step forward last week, as the Senate Judiciary Subcommittee on Intellectual Property held a hearing on the proposed legislation. Senators Tillis and Coons, the Subcommittee’s Chairman and Ranking Member, should be commended for holding the hearing and focusing attention on our patent system’s role in promoting American innovation and job creation. As several of the hearing witnesses made clear in their testimony, our patent system has been dangerously weakened in recent years through a series of judicial, legislative, and administrative changes. These changes have undermined patent rights and made it difficult for inventors to protect their innovations from infringement. Meanwhile, our foreign competitors, including China and Europe, have strengthened their patent rights. This has put us at a competitive disadvantage and helped contribute to a trend of both innovation and venture capital increasingly moving overseas. For example, the U.S. share of global venture capital fell from 66% in 2010 to 40% in 2018, while China’s share increased from 12% to 38% in the same time period. And despite more than a decade of economic growth following the Great Recession of 2007-2009, startup formation has failed to return to its pre-recession levels.

Patent broker Brad Close notes that encumbrances can have the effect of reducing a patent’s value by up to 100 percent, practically rendering a patent valueless on the market. “If the only companies which are potential targets for a license are already licensed, then the intellectual property is essentially worthless,” Close said. “If a startup is considering entering into an agreement that would place an encumbrance upon a patent, I would advise them to be very sure that what they’re receiving in return offers adequate value and to take into consideration both their investors and the future of the business,” Close said.

One panel witness, Rachel King, CEO of the Rockville, MD-based biotech firm GlycoMimetics, said that she was greatly concerned by the effects of the IPR process and how it weakens the company’s ability to enforce its own patents. “There are very few areas of the nation’s economy that are as dependent on patents as the biotechnology industry,” King said. “Our investors rely on the strength of patents in order to make investments in companies like ours and we need to make sure that these rights are robust and enforceable.” King was very supportive of the STRONGER Patents Act as a piece of legislation that properly addresses the current deficiencies with the IPR process.

In addition to these other areas of policy interest, however, Phyllis Schlafly had a strong and enduring interest in issues relating to invention, patents and other forms of intellectual property (including copyrights).  These intellectual property and innovation issues were very important to her and fundamentally underpinned her views on why America was a great, successful (and unique) country. The importance of the American system of invention and patents was a theme that she returned to again and again over the years.

What if your startup is a university startup based on university developed and patented technology? The goal is not only to create a domestic corporation, but also to create a local corporation that leverages university technology. Moving to China isn’t an option for a university startup, regardless of the technology and likelihood of attracting funding from venture capitalists. Fortunately it is not as difficult to find investors as you may think. Equity crowdfunding is on the path to surpass venture capital as the preferred way for startups and small businesses to raise capital. In a nutshell, equity crowdfunding is the sale of equity (or debt) in your business directly to investors using an online platform instead of a stock brokerage firm.

HTIA’s letter argues that venture capital funding and startup activity have grown in recent years, further proof of their view that the federal government has properly pursued patent system reforms. Using data tools available through PwC MoneyTree, the HTIA cites data indicating that venture capital investments in the U.S. have increased from $32.8 billion in 2012 up to $61 billion in 2016, representing an 86 percent increase in that time. Of course, the letter easily lets go of the fact that the graph shows that venture capital funding actually dropped significantly by about $15 billion between 2015 and 2016 alone, a point the HTIA’s own data graphs prove. As for startup activity, the HTIA collected data from the Kauffman Index of Startup Activity to make its argument that startup activity has increased by 194 percent between 2012 and 2016. Again, there’s no acknowledgement of a concerning recent data point, here the absolute stagnation of new startup activity between 2015 and 2016.

Once your patent has been awarded you may still need additional capital to turn that patent into a business. Fortunately it is not as difficult to find investors as you may think. Equity crowdfunding is on the path to surpass venture capital as the preferred way for start-ups and small businesses to raise capital. In a nutshell, equity crowdfunding is the sale of equity (or debt) in your business directly to investors using an online platform instead of a stock brokerage firm.  It is also less expensive than hiring one. Although direct to investor funding over the internet has been around since the late 1990s, it came of age with the JOBS Act in 2012.   

An unfounded belief persists that entrepreneurs are the primary innovators. However, in a study of the top 30 innovations of the last 30 years up through 2009, as judged by Wharton professors, shows innovations that most affected society were conceived by company workers, not entrepreneurs, according to Dr. Kaihan Krippendorff, a Wharton alum and self-described study author… So in order to encourage innovation, these characteristics of employee-innovators should be developed early on, according to Krippendorff. Logically, not only would that increase the level of innovation but also ease the task of innovation management.

Most CEOs won’t make a move without first consulting their general counsel or other legal adviser. But the general counsel seldom rises to the CEO spot. Why is that? Many corporate counsels work in large companies where each department—including legal—has very specific responsibilities and boundaries. Therefore, it’s harder for attorneys to get involved with key business, non-legal, initiatives that could demonstrate C-level potential. But the path from general counsel to CEO is becoming a lot more common.

The engine that made America a greatest economic power was a patent system that led to tremendous innovation by incentivizing entrepreneurial inventors.

In what can only be characterized as a bizarre, rambling, and intellectually dishonest article, ‘The Economist’ has inexplicably taken the position that patents are not necessary for innovation. The complexity of innovation today and the required investment necessary to innovate, as well as the highly speculative nature of innovation, seems lost on the author. It is surprising, and disappointing, that a publication like The Economist would turn a blind-eye to the underlying financial realities of innovation. Truthfully, The Economist owes its readers a sincere apology for this entire article. Some could, and probably should, call into question the motivations for building an anti-patent argument upon such a rotten foundation.