Episode 6: IP Protection and Dumpster Diving

ilanit Appelfeld Hi guy. Welcome to protecting your value podcast. Thank you for joining us today.

Guy Levi Thanks for having me.

ilanit Appelfeld For those who don’t know you. I would love you to explain a little bit about what you do how you got to doing what you’re doing. I mean I know you used to work at Unilever and in PepsiCo as a process engineer. But tell us a bit.

Guy Levi I started my career in the United States in accounting a small company called General Foods it is a part of a huge conglomerate by the name of Altria which used to be Philip Morris. I got my first job in 1989 . So I think and um I finished my bachelor’s degree in food science in Rutgers University and I passed the interview and later on I found out that the only reason I got my job was because I could lift a bag of flour from a 50 pound bag of flour above my head. Nothing to do with mental capacity. I continued to do directly for my PhD in  physical chemistry of bio polymers after which I came back to Israel and worked for Teva Pharmaceuticals for a while .Um sitting on the seam between R&D and the production doing mostly scale up work .How do you go from you know 300 tablets an hour of acamol and how do make it about three hundred thousand tablets of acamol per hour.

ilanit Appelfeld So a lot of a lot of industry experience.

Guy Levi Yeah. Sixteen years plus as a process engineer proper.

ilanit Appelfeld very impressive.

Guy Levi In the chemical and pharmaceutical industry chemical processing industry and PhD in P Chem

ilanit Appelfeld An MBA in technology management and you haven’t mentioned.

Guy Levi A degree in a JD. I’m an attorney U.S. attorney.

ilanit Appelfeld Okay. So. So I want to tell our listeners very briefly how we met because it was very scary for me at the time. I was a partner in another law firm and I was beginning a new way. And I was looking for someone who could assist my clients in drafting patent applications. That was uh I had um well I what I was looking at the US because we were buying and selling patents and the quality of the patents was critical in that way. It had to be strong enough to withstand litigation. And I was looking at what am I going to do with clients who had good inventions mostly medical devices and I was introduced to you we met and it was a strange meeting. I remember asking you about your experience and you mentioned you know all your experience seems to be all over the place and we just said hey let’s start to work together and let’s see how it goes with this client of mine that needs help in drafting a U.S application and I remember I was really worried about how someone who writes a patent in the U.S. Can work with an Israeli inventor. Well we know that inventors need help handholding over Skype to discuss the invention and you know start brainstorming about the patent strategy and what happened in that call was it was magic because I realized that you can be a far better listener. Um when you’re on the phone you don’t necessarily need to sit in front of the person and sometimes it actually helps the less distracted. Right. So, I think what happened in that call is that my mind opened to the idea of it’s not important where we sit. And I loved the way that you think and we’ve been working together ever since and I think that I can only do what I have said to me. So yeah. Seven or eight years and I can tell you that my clients are really happy with the work that you’ve done so far and I want to thank you for that.

ilanit Appelfeld What I thought we could do today is talk about the mistakes that companies do from our experience so that maybe through the mistakes our listeners can hear our practical tips for our listeners. I feel that when I hear stories, I get the most insight because I see you know I learned through a story. what do you think are the most common mistakes companies do when it comes to you know for example just the other day we saw a company going into a financing round not ready unprepared for what was. um disclosed to investors and we had to rush things for the company we had to sit with the founders and tell them what they’re going to look at in terms of the timeline of the patent, so. let’s take that example. You know preparing for an investment round for a finance round. what do you think the mistake companies do with that?

Guy Levi You know we’ve been on both sides of due diligence an investor or a potential purchaser looks at the company. I have several questions that come to mind. Question number one is obviously leading people what is their experience in creating equity for the company and. What’s the need for the product and what is unique about the company? what’s a business model that will help them get to where they need to be.

Guy Levi One of the things that can be improved is for those companies to have a very clear idea of where their added value is to the market and from that derive everything else. what is their core strength? Well when it comes to these things so and. it doesn’t matter if it’s a startup or a mature company though they will all have to do the same thing and decide. This is where we add value to the market. Whether it’s a product whether it’s service whatever it is what do we do better than anybody else.

Guy Levi And the issue is that what you think as the company is your added value is not necessarily the right thing. What you should do is find out from your competitors. What they think you do better than anybody else that is your core strength.

ilanit Appelfeld But what if you’re a startup?

Guy Levi If you’re a startup. Exactly. So, if you’re a startup. Try and focus on the market need that brought you to the solution that you have.

ilanit Appelfeld That’s Excellent.

Guy Levi So if you know where was the gap what is the current state of affairs. What is the issues with the current state of affairs and where do you fit exactly that. That solves some whole of them. That particular gap that technology gap whether again whether it’s services or whether it’s a product that is what you should protect.

ilanit Appelfeld Excellent. So, you’re saying forget about the patent. Define first what your core strength is.

Guy Levi Yes. And where’s the gap. And how you how you address that particular gap and align your IP and align your unique solution.

Guy Levi Unique solution. So again. The wider scope of protection for the longest time. At the cheapest possible cost too.

ilanit Appelfeld Right, Of course that is it.

Guy Levi And based on that. See. See if you are going to file a patent. Not going to file a patent trademark trade secret design.

ilanit Appelfeld So this is this is almost impossible to do when you have a financing round and your patent attorney asks you questions like well what is your core strength. the court strength is to get this finance round to bring the money into the bank. And don’t be in that situation. Plan ahead and your IP is going to be much stronger as a result.

Guy Levi Yeah. Or go to your department heads if you have any if not as a founder you decide. This is my core strength. This is what I need to protect and going into the financing round. Have that defined somehow. and at least at the very least create yourself some sort of a trade secret. That is where you think your idea your concept your device your service gives you a competitive advantage.

ilanit Appelfeld Right. Yes. I was going to I was going to get into trade secrets but maybe if we if we complete the finance round preparing your company for a round also means getting your paperwork in place getting your employment agreements and the assignments and what have you for the investors the attorneys to dig into. What do you think about the startups that you or bigger companies that you work with that come into the investment round?

Guy Levi Oh yeah. Again, here depends which investment round it is. Okay so if we’re talking about like seed money, we’re talking about you know first the first investment round. So that needs in terms of IP and the first investment rounds are a foundation or what are your foundation or if you have a foundational patent which pretty much. He’s sort of. Let’s take um. If you’re a chemical company what is the principle of the principle of whatever it is that you’re doing that. Get it the way you need to be in terms of the result. If it is artificial intelligence again what defined the narrow what improvement seeking. Whether you with your solution even if it is artificial intelligence it’s a medical device.

Guy Levi Not so much. I’m not looking for a particular indication in terms of whether it’s epilepsy or multiple sclerosis or something like that but have a defined broadly as much as you can on a foundational patent do not the narrow will come much later on services same story. Try and think the widest array that you can because that will define your so the boundaries of where you’ll need to narrow down based on the feedback that you’re going to get from investors.

ilanit Appelfeld Right to find foundational do the foundational work. Define your IP in terms of uh you know my my Seed IP which can be narrowed down later. And you’re ready to go when you’re in foundational stage of your company life and then companies um a company.

Guy Levi At a later stage then your IP should protect. Shall we say that the product that are in the market I think there is a statistic now saying that the number of patents that are uh the percentage of patents that are protecting products in the market is around between 3 and 5 percent.

ilanit Appelfeld Which is unbelievable which is unbelievable because it means that patents are filed irrespective to the product. Yes. And it means that company files patents that are not highly correlated to the products that they file it for the sake of filing them.

Guy Levi one thing to remember though that um that it includes IBM and that and no not just that. But if we take a startup company and that that’s another mistake that we see by the way and that is the um. Not always the IP prosecution. Well you know they’re in the process of obtaining their IP is aligned with the product development. And one of the mistakes or one of the issues that we see is that. Especially when using large firm is that there is sort of a diversion during the prosecution and the product development stage.

Guy Levi So that you end up with a product which is not covered by the IP.

ilanit Appelfeld I totally agree.

Guy Levi And a huge problem because this cycle. Let’s look at this this way. Um.

ilanit Appelfeld We can we can give an example of.

Guy Levi Several any medical devices. We’ve done this with dental implants that we found out that you know the um the product of um. Well we won’t mention names but we have that the. We had to file a continuation in part on a patent because of the product development did not come from the patent that we actually got the first.

ilanit Appelfeld The way it happens is the investor does his due diligence on the company he wants to invest it. Now it’s a snapshot and it’s a snapshot. And then he asks us as the team representing the investor to see whether the patents have real commercial value and then we look at the patents we interview the inventors and we see that there is a gap between what the inventors wanted the products to be and what the product is at R & D wise and what the patent office records show. Yes.

Guy Levi Um happens more than once.

ilanit Appelfeld So I think that the practical tip here would be make sure that the patent is aligned in some foundational aspect with the with the product.

Guy Levi Product development.  Just it’s all a question of communication. That’s another thing that we I think we should talk about and communicate with your patent attorney. Yeah. In other words, it’s not release and forget it’s not a third generation missile. You know once you got it you’ve got to maintain communication especially if during the product development there’s uh. You see a major change just talk. On one hand on the other hand as companies you have to insist or insist as may or may be a strong buy try the preference should be for the same patent attorney to handle your prosecution. Throughout the development process otherwise you’ll lose the institutional memory. Oh, and your um. And the probability that something will go awry.

ilanit Appelfeld Increase don’t switch between patent attorneys. Uh too much.

Guy Levi Not even within the same firm. If you’re dealing with the same firm. Try and ask them whether it’s us or somebody else trying to ask to make sure that it’s the same pattern attorney that is handling your prosecution.

ilanit Appelfeld So let’s talk about your experience of diving into dumpsters.

Guy Levi for um I guess exposure reasons I will need to refrain from mentioning the companies but let’s say a major international conglomerate A and of the major international conglomerate B is a competitor and I was sitting on the seam between our R&D and legal for that for corporation A and um as an assignment we were looking to do competitive intelligence we were looking actually at marketing plans not necessarily you know formulation secrets but if you know one of the biggest issues in competitive intelligence is to find out what are the plans of your competitors going forward so you can prepare for them.

Guy Levi So there is a law in the United States saying that a trash can on a curb is free for all. It does in other words you don’t have property rights. So there was a large dumpster of cooperation B.  right next to the corporate headquarters and we essentially jumped in it and started looking for corporate plans. It was November and we found it and it was a great success. Now. What it does is what it does is it pretty much it opens your eyes to to how little attention people give to the whole concept of um of trade secrets and all that.

ilanit Appelfeld Hold on. I want to you were asked to look into marketing plans of competitors or information regarding.

Guy Levi To collect competitive intelligence.

ilanit Appelfeld Okay. So, you jump into the you dive into the dumpster. Yes.

ilanit Appelfeld What do you wear when you dive into dumpsters.

Guy Levi Mm hmm. Well you come in with street clothes you don’t you don’t put masks or anything like that. You come in the street clothes usually late afternoon uh not wearing your Sunday best but you going in. The interesting thing is this is you know this is the United States that nobody pays attention to this nobody paid attention to us. It was amazing.

ilanit Appelfeld So you should dive into the dump. What do you find?

Guy Levi Well. It’s not exactly that you do this out of the blue. Just come in. You know usually you do it like Friday afternoon. Okay. Oh well Friday afternoon and I’ll tell you I think you do it Friday afternoon between September and November because corporate plans start in August. The budget is being closed around November. So imagine. Between September and November. Every Friday you dive into the dumpster and you collect. You know you’re looking for very shiny brochures because in these high large corporations you know you get to you do presentations. And the key to you haven’t given a lot of them. The key to a good to a good presentation when you’re presenting to upper management is A, be there early B finish early. Leave them time for questions which they never do because they want to leave on Friday afternoon. They want to leave. Go home and give them handouts. Okay so they print a lot of handouts so they print a lot of handout very shiny very you know. This is corporate So budgets are all there. Were. I don’t know what’s happening now but. Very shiny. So, you got yourself and you always print out more than you need because you never know who’s going to show up in terms of upper management. So, you print on more and then when you’re done. The proper way of doing this to shred it. But no they just somebody you know a lot of these upper management types also you know just dump it in the bio waste basket on the way out and the cleaning lady has no idea about trade secrets so she goes and shoot them she throws it outright. When we come in. Okay so we come in we collect marketing plans. And very interesting if you do this in sequence you also see the development of the plan. So, you may find out where it’s going where the plan is going and you can have a better assessment of where it’s going to end up.

Guy Levi That’s going a bit in the weeds but one of one thing that you always look for when you’re doing competitive of intelligence is the. Your competitor threshold return on investment what they are looking for. Because that will educate you on exactly how much risk they are going to take how much budget they are going to put into certain marketing for instance of things that compete directly with your product. This sounds like a manual on how to do competitive intelligence but that’s not the issue. The issue is that the awareness of the importance of maintaining and Keeping trade secrets. Is lacking in many companies that we deal with.

ilanit Appelfeld I agree which is a which is why statistics show that around 80 percent of the claims brought against current and former employees. Well it’s 80 percent of cases brought in in the field of trade secrets are against employees or contractors and we see that a lot. We see companies spending a lot of money on patents but not taking care of their trade secret protection plan which is how do we say. Which is.

Guy Levi Unfortunate. So that’s why again I have to say that. It’s not so much and we can discuss the difference between know how and trade secrets and there is a major difference. Trade secrets does not contain what a person learns in them. In the framework of their work in the framework of their experience. Trade secret does and that’s the major difference. Right. An employee would not have the knowhow that encompasses trade secrets but for their exposure to that trade secrets vs. know how. Um which in terms of strategy is very important especially when you get into collaboration with other company.

ilanit Appelfeld Well I think that we share this experience from companies not keeping their trade secrets. And we’ve recently done a trade secret protection plan for a company who had a very bad experience in. With one of its contractors I think a practical tip here would be create a trade secret plan that employees would be aware of one of the reasons why we want employees to be aware of is that to help them understand the difference between their know how. What they are allowed to keep and what they have every right to go to it to care or to go to the next place with you and the company’s trade secrets which is the company’s asset. And the times this difference is the line between these trade secrets and know how is blurry. And we’ve developed this strategy on how to create the difference between knowhow and trade secrets. Right. How do we create that separation between know how and trade secrets.

Guy Levi I think it all goes to communication and awareness. Then like you said there is no there’s no way you can. It’s known the freedom of employment. You cannot stop people from using their experience when they move between companies.

ilanit Appelfeld Correct. Say I’m a CTO I come for advice I’m a CTO I have a company I have ten employees I have a lot of technology being developed most of my budget goes to R&D we have a few patents pending and we have a lot of technology being developed what do I do.

Guy Levi First of all. I guess the first thing is when any employee coming in in order to reduce the company’s exposure to third party claims on trade secret misappropriation you have to ask the employees on their entrance to the company to sign a statement saying they have not brought one they have not taken any trade secrets from the previous company. That’s number one. Number two you have to you should I guess. Explain to the employees that during their employment they will be exposed to trade secrets and the company’s expectation is that while we will not stop you from moving should you want to. You have to understand that those are our trade secrets and we expect you not to take it with you either. And when you leave you’ll have them signed another statement saying I haven’t taken anything. Third thing is any processes within the with during employment. Any processes whether it’s a service company or a manufacturing company. As a manager of this thing. So whoever manages it should manage it in such a way that an employee could not be exposed to the whole process or to the whole service unless they absolutely need to be.

ilanit Appelfeld So. So, we create the trade secret.

Guy Levi We create the trade secret we um and we make sure that only those Only those parts they uh that they need to be exposed to because that’s part of the um part of the requirements of maintaining a trade secret legally.

ilanit Appelfeld Okay. Okay. Yes. So. The CTO. Who manages the team of developers? Here is about the termination of one of the employees a key developer. what do we do.

Guy Levi Well one thing is there’s two ways of doing this and that depends on the company policies ahead of time. For instance. Was it the company or was it um BYOD Bring Your Own Device. Or was it Don’t bring your own device. So, assuming it’s Bring Your Own Device then I cannot clean their device or take that device or anything like that so they’ll need to sign a statement saying I haven’t taken anything with me. Now all I have destroyed or I have wiped out anything that I did take. So, you have to get that because you have to establish a baseline for the employee moving out. That’s number one. Number two. I have to review. Employees activities to this point. You know those the wiping off of e-mails immediately as possible. And also review the process which this employee was exposed to and then see if the next employee that’s coming in. If they’re coming in at the same level make sure that they’ll be exposed exactly to the same material no more no less. Or actually less it is possible.

Guy Levi So you’re compartmentalizing each person’s influence on the whole process.

ilanit Appelfeld So as little as people as possible see the whole process. OK I think that’s an that’s an excellent strategy. I think that for companies choosing not to take the patent Road which happens a lot. I think the companies need to be aware of the human factor involved in misappropriation of trade secrets. And I saw a report of this cyber cybersecurity company saying that there is a feeling of ownership when it comes to top level employees ownership over the IP assets because they feel that you know they feel that they’re part of the company and part of their knowledge is used to creating that value for the company. So, when they leave they almost feel that is also theirs. It’s also theirs to use. So, what you’re saying makes a lot of sense in terms of the process. And I think that awareness is key in that area.

Guy Levi One other thing to remember when it comes to these kinds of Especially in very complex processes that involved a lot of software. They cannot they cannot be a situation in which only one person knows the whole process. Because then you’re open to challenges regarding whether or not this is a this was a trade secret there was not trade secret. So, for each and every process there has to be a group of people. Depends on the size obviously but two and about at least two that know the whole process one which is let’s say issue the document that says um this is our trade secrets that defines a trade secret and another one that says another person that can sign off on this and say Yeah I read this I understand this and yes this is a trade secret only once only once those two right sign off on that particular document. Does it become the company’s trade secret and then from that you can derive the processes that will keep it as such.

ilanit Appelfeld I think that the trade secret part is uh critical. My only addition to what you’re saying and I love to hear what you think about that. I feel that sometimes managers. Themselves feel that they have no right to exclude an employee from owning stuff that he created. I see that I’ve seen that in a couple of cases where they almost feel uncomfortable enforcing some policy that actually says to an employee which they work closely with. Yes. You created this for the company but no this is the company’s asset and I think that. Once the manager understands the difference between the trade secret and the know-how. Yes, I think it’ll become easy for everyone.

Guy Levi some companies have um an incentive program in place. And if you want we can discuss incentive programs but they have incentive programs for people who contribute to trade secrets just as they do for inventors of patents.

ilanit Appelfeld That’s a great idea. I think everyone should do that.

Guy Levi Well again there’s research after research after research that says that the notion which we also experience a lot of my paying their salary therefore they should feel they should feel committed to the good to the cause and invent for us. That is not always the case especially when it’s a fast-growing startup.

ilanit Appelfeld I guess it’s challenging to incentivize on an ongoing basis.

Guy Levi Exactly. But you see the thing is the thing is that companies need to understand the incentive program does not necessarily always mean money. I mean it’s not always financial it’s recognition it’s it is buy them a meal every now and again let’s give them some money to go and get a meal someplace uh mention them in some assembly or stuff like that. incentives do not necessarily need to be financial though work. But going back to the trade secret I think that will go a long way for managers to say look thank you very much. Here’s our incentive program you’re a part of it. We really appreciate what you’re doing. Um. But you have to understand that contribution to trade secrets are different than ownership. And we are the owner of that particular contribution to the intellectual property of the company.

ilanit Appelfeld Absolutely. I couldn’t agree more. I think that’s all we have time for today. So, thank you so much for coming today. Guy I really appreciate it. Um if you have any questions about my interview with Guy please write to us mail@Ipfeld.com go to our Web site. It’s been a real pleasure having you guy. And um see you soon.

Guy Levi Thank you.