Wednesday, November 17, 2010

When University Commercialization Offices Turn Troll

Bloomberg reports that the patent licensing office at the University of New Mexico has launched a lawsuit against Intel alleging infringement of a UNM patent for a process of making circuit boards.

The lawsuit comes on the heels of rumoured successful negotiations by UNM with Samsung and Taiwan Seminconductor in respect of the same patent.

This seems to me to be an imminently sensible (and potentially far more profitable) route for university commercialization offices. Are there any hero patent lurking in the bowels of Canadian tech transfer offices?

Tuesday, November 16, 2010

What to do When Blackberry KIKs You to the Curb

This morning the blogosphere was abuzz with news that Blackberry had removed KIK from the Blackberry APP World store, without apparently providing any reason for doing so. It's not clear whether this is actually the case, but let's assume for the moment that it is. Can distributors like RIM lock out app vendors with impunity?

Anyone who has sold through AppWorld and read its vendor terms can tell you that (like most distribution channels) RIM has reserved for itself the right to remove products from its storefront when it sees fit. However, actually exercising that right and removing apps like KIK can raise anti-competitive issues. If I were KIK, I'd be asking my lawyers, does RIM's leveraging of its rights as a distributor to remove a possible competitive threat to Rim's own Blackberry messaging constitute an unfair trade practice?

This kind of issue has already become the subject of a wave of litigation in the US -take a look, for example, at Skyhook Wireless' September lawsuit against Google (more later on this one). Stay tuned.

Thursday, September 23, 2010

Founder CEOs and Severance Agreements: Drafting tips from Mark Hurd

The value of a severance agreements for departing CEOs lies not only in how much they promise to pay, but in what protection it preserves. Mark Hurd's agreement with HP sets out some of the subtleties that you should ensure your own arrangement addresses:

1. Continuation of Indemnity. Most severance agreements will stipulate that, once a has made a lump sum payment to the departing employee, the company's obligations to make any further payments cease. Make sure that any indemnity the Company provided youa s an officer/director survive your departure, so that you are adequately protected in any future litigation brought against you or the company.

2. Non disparagement/cooperation: Companies often require that departing employees agree not to disparage the business in any manner after they leave. Of course, this becomes awkward if you are approached by future investors or, say, asked to speak to a Congressional hearing. It's important to specify whether cooperation with respect to due diligence or other matters is agreed to.

You can view the full agreement at various sites on line.

Wednesday, September 22, 2010

Not Now. I'm Having a Bad Day.

Look, I'll talk to all of you tomorrow. Right now, I'm going back to bed. It's barely morning and already there are all kinds of signs that the day is not going to go well.

First, a blow to women executives everywhere. Hillary Clinton sends the message that, even if you break through the highest of glass ceilings and become Secretary of State, no one will help you with your hair:

All across Canada, board search committees are looking at this photo and thinking, maybe we don't need to address gender diversity on our board of directors right now.

Then, I read that some mandarin within the federal government has been picking on a veteran, causing me to wonder whether veterans are as poorly served by the legal profession as they seem to be.

According to this morning's Globe & Mail, some chuckleheads within Canada's Veteran Affairs ministry decided that it was perfectly fine to use personal medical information about veteran Sean Bruyea in a briefing to the Minister in charge. At the time (2005), Mr. Bruyea was a vocal critic of Ministry's draft Veterans Charter and presumably, ministry officials were looking for a way to silence him.

To be clear, this is not a matter of a few overzealous bureaucrats digging for dirt. The Globe reports that 614 people in Veterans Affairs accessed personal data, which included Mr. Bruyea's psychiatrist's notes. 150 of them shared emails about his medical treatment and Veteran's pension, and a further 243 liberal and conservative party staffers appear to have received briefing notes containing the same materials. It's a systemic disregard for privacy rights.

How is this possible? Somewhere, somehow, someone decided it was acceptable to have Veterans sign away broad rights to their data if they wished to get Veterans benefits. And somehow, we've led an entire ministry to think this is acceptable. Don't even get me started on how this kind of widespread abuse impacts Canada's reputation as a leader in other emerging areas such as telemedicine, where control of medical records and data is important. Thank you very much indeed, Veterans Affairs.

As lawyers seek out new practice niches, may I suggest some of you take a look at how specializing in veterans matters? Yikes.

Tuesday, September 21, 2010

The BDC: A Board Level View

This morning Mark McQueen eloquently pointed out that, despite its expanded mandate to invest in entrepreneurs, the BDC has resolutely remained....a bank. Even though it was allocated nearly $500 million for venture capital investing, Mark reports, the BDC has deployed a mere $58 million and change in venture capital investments, at a time when the need for investors (and for VCs, investing partners) has never been greater.

Just between us girls, this is no great surprise. In 2009 the BDC was saddled with the gargantuan task in of overseeing and implementing credit stimulus programs to preserve cash flow for SMEs; it's fair to say their hands have been full. But BDC's sidelining of venture capital support is not simply an oversight. BDC's CEO has always made clear that he prefers to focus is on companies with strong balance sheets and assets. And when I look at the board of directors of BDC, I question not only whether this is likely to change, but whether there is even anyone likely to ask if it should.

BDC's board is first-rate. As a group, they tick all the boxes any board recruitment committee would want, save one: there is no representation from the start-up or venture capital community. Entrepreneurs and VCs, who form the cornerstone of Canada's innovation agenda are for all intents and purposes locked out of the board room.

Oversight of the BDC should be conducted by a group that includes those who can evaluate BDC's performance from the high risk capital side of the table. I'll nominate Mark on your behalf; he already has the shirts for it.

Monday, September 20, 2010

The Challenge of Adding a Corporate Investor

The corporate VC is the unicorn of high risk investing: while many sing of them, few have ever really seen one up close. This is why I recommend to start-ups who find themselves dealing with corporate investor that they should assume they are engaged in a business development exercise and frame their disclosures and their deal terms accordingly. Here's why:

With the exception of a notable few (Dell, AT&T), few corporations establish separate corporate venture funds. More often, companies establish venture "programs" for which specific funds are notionally budgeted, but not reserved. Investments are tightly linked to corporate strategy, and often made to test out new lines of business and/or as a first step in an acquisition.

This loose structure makes most corporate venturing models inherently unpredictable. In some cases, taking investment from a large corporate investor can ultimately cost you market share. Just ask Craiglist, which has for the last few years been locked in a litigation battle with its shareholder, eBay.

On Sept. 9, the Delaware Chancery Court issued the latest ruling in the ongoing dispute between Craigslist, its founders, and eBay, which had invested $32 million in Craigslist in 2004 in exchange for a 28.4% stake in the business.

eBay's investment had a typical structure: it received a board seat and special approval rights over certain corporate decisions. The stockholders agreement even provided that if eBay opened a business that competed with Craiglist, eBay would lose forfeit its approval rights, leaving the founders free to remove eBay's board seat and to run the business.

The problem with these terms is that they did not incent the investor to grow Craigslist. There do not appear to be restrictions in the stockholders agreement on who eBay's could place on the Craigslist board, nor on who at eBay could access confidential information about Craigslist, its technology or its business model. The absence of any controls in some ways incented eBay to create its own alternative to Craigslist.

When a corporation places one of its employees on an investee board, a clash of cultures often results. I've seen this happen time and again: nominees from mature companies often equate the looser startup atmosphere with incompetency. This often leads to the inevitable "we could do it better ourselves" way of thinking. The board books distributed to directors each month enable this further, by providing nominee directors with the kind of information that, coincidentally enough, is the same information an employee would want to collect in order to draft the business case for an internal new product proposal at his business.

eBay's investment in Craigslist seems to have taken this course. According to Business Net, eBay even admited that it used the confidential information it obtained as a board member and investor about Craigslist to help Kijiiji, eBay's competitive classified service. The lawsuits continue.

For me, Craigslist is a cautionary tale on the problems that come if you assume that a corporate investor should be treated in the same fashion as any other institutional investor. Corporate investor 101:

1. Do your homework and understand what kind of investor you are dealing with.

2. Unless you are dealing with the fabled unicorn, you need to assume that there is a risk your shareholder will become a competitor.

3. Insist on a Chinese wall between those who are managing the investment in your business, and those in your investor's operations who might compete with that business. The two worlds should never co-mingle.

4. Avoid corporate investors who could easily displace your company if their corporate strategy shifted. The bigger the partner, the bigger the risk to you if they set up their own competitive business. It may not be enough to reduce their shareholder role in the business if your investor has cannibalized your position in the marketplace.

Tuesday, September 14, 2010

Mobile and Med Tech Start-Ups: the Next Great Wave in Ontario?

Last week Barry Gekiere, the tall drink of water who is the new chief of Ontario's Investment Accelerator Fund, coyly announced that he has a fresh $7 million available for life sciences and med tech startups. This leads me to ask application developers, what are you waiting for?

Ontario has one of the largest telemedicine networks in the world. The province is poised to be one giant early adopter of enabling services and technologies that would leverage this network. We also have one of the most highly skilled populations of application developers, and a track record for building profitable services plays(if there's one thing Canada has always done well, it's build service providers - look at the sale this June of Stream the World to Triton Digital Media).

Teledialysis, remote monitoring of medication regimes, wireless monitoring of cardiac performance - start-ups trying to deliver solutions that streamline healthcare services delivery have found ample venture (and strategic backing) south of the border. Ontario has significant drivers of growth in this space - stay tuned.