Intellectual Property Plays a Big Role in Silicon Valley Deals

Intellectual Property Plays a Big Role in Silicon Valley DealsSilicon Valley is home to the most valuable intellectual property in the entire world – including patents, logotypes, symbols, copyrights, trademarks, and many other valuable IP. Therefore, Silicon Valley has also become home to some of the most famous intellectual property disputes ever litigated.

With this much intellectual property that is worth billions of dollars, and as countless high-profile deals continue to churn, Silicon Valley technology companies should focus most of their attention on their valuable IP assets. At all stages during the acquisition process, companies need to keep a pulse on their IP and identify risks or gaps in ownerships that could complicate or even derail a deal. Even companies that aren’t actually involved in a deal may need to survey their IP assets to prepare for potential growth or acquisition down the road.

Today, Silicon Valley technology companies will often do almost anything to gain competitive advantage. Lawsuits relating to stolen trade secrets, missing files and suspicious hires are a big part of the Silicon Valley ecosystem currently. In fact, Apple spent most of the last decade in court with Samsung fighting over smartphone patents. And Snap accused Instagram of copying Snapchat Stories. In the 1990s, Apple vs. Xerox and Apple vs. Microsoft fought over copyright infringement. Another recent example, which recently settled for $245 million, is the Waymo lawsuit, which sought $1.8 billion in damages, alleged that Anthony Levandowski, a former Uber engineer who previously was an engineer at Google, pilfered 14,000 confidential documents from Google, where he helped run its self-driving division, to start Otto, a company in the same field, back in 2016.

“It is Silicon Valley’s trial of the century, when it comes to trade secrets,” said Jed Ferdinand, an intellectual property attorney, in a recent Barron’s article.  This particular case highlights the countless problems that plague the system of protecting IP in Silicon Valley today. Ultimately, Waymo kept the inventions as trade secrets instead of patenting them – and trade secrets give a perpetual monopoly on new technologies so long as the invention remains secret.

Amidst all of what is happening, IPWatchdog sat down with John Brockland, technology and IP transactions partner at Hogan Lovells, to discuss the importance of protecting company IP in Silicon Valley. Throughout his career, he has handled many prominent matters across the full technology spectrum, representing companies ranging from startups to large multinationals in many industries.

“When we represent a client doing an acquisition of a technology company, the IP (along with the talented employees) is among the most important assets of the company,” he explained. “The same is true for strategic investments and partnering deals. Particularly for early-stage companies, the company’s technology and IP often drive valuation, even more than existing revenues from customers.”

Since technology and IP are so important today, it pays for companies to focus attention on properly managing their IP assets, which includes making sure appropriate employee agreements are in place, carefully reviewing and negotiating inbound and outbound licensing agreements, devising an appropriate patent strategy, and many other significant tasks.

So, how big of a role does IP play in Silicon Valley deals? According to Brockland, IP is especially central to Silicon Valley deals. He advises many large technology companies who are repeat players in the market, doing multiple transactions each year—some very large and some small and works with them to tailor IP diligence for each deal.

“In almost any size transaction involving a technology company, our client asks us to look carefully at the company’s IP and the agreements the company has entered into with third parties to secure rights in IP and to permit others to use that IP,” he said. “Depending on how a transaction is structured, the terms on which IP is assigned or licensed between the parties in a deal can also be a critical area of focus for our client.”

At all stages during the acquisition process, companies need to keep a pulse on their IP and identify key risks or gaps in ownerships that could complicate or even derail a deal. Brockland says that the good news is that many of the problems we encounter with a company’s IP and its related contracts can be fixed. However, it is almost always easier to fix those problems early, and not when the company is undergoing or has just undergone an acquisition or other strategic events.

In addition, even the problems that can be solved tend to slow things down and generate uncertainty that both parties to a transaction would rather avoid. Companies that aren’t involved in a deal sometimes need to survey their IP assets to prepare for potential growth or acquisition down the road. The dynamism, which can make Silicon Valley such a great place to work (including practicing law), also generates uncertainty.

“Nobody knows what transactional opportunities could arise next month or even next week,” Brockland explained. “If a company maintains a good handle on its IP assets and its related agreements, then the company will be better prepared to take advantage of opportunities when they arise and avoid complications and headaches that result from having to fix IP problems under time pressure and when a strategic deal is on the table.”


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3 comments so far.

  • [Avatar for Night Writer]
    Night Writer
    February 28, 2018 08:49 am

    My experience is that a start-up still needs patents to get investment and to be bought. I have written the patent portfolio for companies that have been funded (in the millions.)

    But, there is no doubt that no matter how high the quality of the patent, they aren’t worth much now. Any patent could go down on 101 or an IPR.

  • [Avatar for PTO-Indentured]
    February 27, 2018 01:36 pm

    Silicon Valley is the epicenter, if not the godfather, of a systematic crushing of U.S. IP-value.

    The invention they’re most proud of: Efficient Infringement. Fanned by mega-buck lobbying of the PTO and patent rule-makers, yielding the likes of AIA/BRI/IPRsssss.

    Anyone care to do a real-world valuation of efficient infringement? Hint: think inversely proportionate to the rank of the U.S patent system and the devaluing of its patents, still in a downward spiral at 13th ranked, yet to hit rock bottom.

  • [Avatar for angry dude]
    angry dude
    February 27, 2018 09:47 am

    IP, IP, IP….

    What kind of IP are you talking about ?

    Certainly not patents for early-stage high-tech companies

    Publicly disclosing your secret tech to the entire world via patent route is a big NO NO in Silicon Valley or elsewhere