6. Trade Secrets and University Policies
Some form of intellectual property protection is a very important factor in the investment decision of most investors in early stage enterprises. Someone investing in validating a new technology will want assurance that it will not be easy for others who have not made the same investment to step in and compete once the viability of the enterprise has been demonstrated. For most startup companies, the main IP protection is either through patents or through trade secrets, or possibly through patents for some assets and trade secret protection for others. Each of patent protection and trade secret protection has advantages and disadvantages, and companies will ordinarily choose the most suitable form of IP for a particular technology. Only patent protection, not trade secret protection, will usually be available for inventions growing out of university research. This is because all universities have a strong policy favoring an open flow of information that is antithetical to trade secret protection. The initial IP protection strategy for a university spin-out almost always takes the form of an exclusive license from the university on one or more patents or patent applications. Most investors, and their legal counsel, conclude that patents will adequately protect their investment without the availability of trade secret protection. But for those new to university spin-outs, this requires some education. The IP license will have some different features from what one would see if the licensor was a commercial enterprise. If there is a consulting arrangement between the spin-out and a university faculty member, the consulting agreement will also probably need to be different from those in the form files of the investor's counsel (unless that counsel has previous experience with university spin-outs). Of course, the spin-out company can still obtain trade secret status for inventions that grow out of its own internal research.
This issue of the Tech Transfer Update was prepared for "First Look L.A.," a showcase of technology from California Institute of Technology, the University of Southern California and the University of California Los Angeles, held November 7, 2007 in Los Angeles, before an invited audience of venture capitalists and angel investors.
