Finnegan, Henderson, Farabow, Garrett & Dunner, LLP Crowdfunding for University Start-Ups Scott Popma

2 2 Overview Crowdfunding and the JOBS Act Potential Drawbacks and Risks IP Protection Due Diligence

3 3 Crowdfunding Method of using Internet to raise capital from a larger number of investors –Donation-based or securities-based Raise money by sharing information about projects to engage public Projected to raise $2.8 billion in 2012

4 4 JOBS Act Jumpstart Our Business Startups Act Signed into law on April 5, 2012 Encourage funding of small businesses by relaxing securities regulations –“Emerging growth company" is company with less than $1 billion revenue in the last 12 months

5 5 Current Law Register with the SEC and conduct an initial public offering or qualify for an exemption Does not allow general solicitation or mass advertising Limited to accredited investors –Entities with at least $5 million in assets OR –Individuals with over $1 million in assets or over $200,000 in annual income

6 6 Summary of JOBS Act Changes Accredited Investors Only? Money Limit Adverts and Solicitation Permitted? SEC Registration Hurdle? Title IIINo1 Million Yes*Low (but may be high) Title IV Reg A+ No50 Million YesMedium Title II Reg D 506 YesNo limit YesMedium

7 7 Crowdfund Provisions of JOBS Act Title III “Crowdfunding” –Allows collection of investments from large numbers of unacreddited investors in small amounts through brokers or registered websites –Can raise up to $1,000,000 annually –Individuals can only invest the greater of $2,000 or 5% of their net worth/annual income if less than $100,000 OR the lesser of 10% or $100,000 if greater than $100,000

8 8 Crowdfund Provisions of JOBS Act Title III “Crowdfunding” –Raise is all or nothing –Must use a regulated portal or broker to conduct the offering –May not directly advertise- except to direct potential investors to the portal –subject to periodic reporting requirements

9 9 Crowdfund Provisions of JOBS Act To promote transparency and honesty, Act contains disclosure requirements Must provide: –‘‘a description of the business of the issuer and the anticipated business plan of the issuer’’ –‘‘a description of the stated purpose and intended use of the proceeds of the offering sought by the issuer’’ Investors can sue company for material misstatements and omissions

10 Crowdfund Provisions of JOBS Act Title IV- “Reg A+” –Raises Reg A limit from 5 Million to 50 Million –Public Offering Allows General Solicitation and Advertising –Non-Accredited Investors –Requires Filing of an offering statement with the SEC –Allows companies to “test the waters” prior to filing with the SEC

11 Crowdfund Provisions of JOBS Act Title II- Reg D, Rule 506 –Accredited Investors Only –Removes ban on General Solicitation –Allows for unlimited raise –“restricted securities” limitations on resale

12 Potential Risks

13 SUCCESS!?

14 3 Weeks Later

15 3D System’s Complaint

16 3D System’s Complaint

17 Before You Start Crowdfunding Secure freedom to operate Work with patent attorney to make sure pursuing your idea won’t infringe any patents (avoid infringement suits) Understand what the competitive landscape looks like Assess patentability Determine whether your idea is new Understand how crowded the field is and what the scope of any patents may be

18 Disclosures and Patents Crowdfunding efforts, offerings, and disclosures may jeopardize IP rights Bars to patentability for disclosures, sales and offers to sell, printed publications –One-year grace period –Giveaways may count as sales –Sale of equity versus sale of invention Stakes may be higher under new patent laws and for foreign patents

19 Crowdfunding & Patents: Sales Potential pitfalls for crowdfunders: Proposing pricing schemes Suggestive marketing materials Product giveaways Using product as investment incentive Pre-selling product to raise money Unclear promotional materials or confused investors Effects of social media

20 Crowdfunding & Patents: Bayh-Dole Potential pitfalls for crowdfunders: Determining which disclosures trigger Bayh-Dole deadlines Ensuring government rights or potential rights are adequately disclosed to investors Proper valuation based on potential rights of government

21 If Federally Funded Once the funding agency has been informed, immediately make a written election and file a patent application to comply with the BDA If offering equity, make sure to elect title to any invention relied upon for valuation Disclose all government rights or potential rights, even if election has been made and applications were filed Limit BDA’s applicability

22 USE IP TO ENHANCE YOUR CROWDFUND OFFERING

23 Patents Increase Value Patents may be one of your company’s core assets Generate revenue –Infringement action –Extract license fees –Sell patent Protect revenue –Prevent/enjoin competition Build leverage –Cross-licensing –Partner (strategic alliances, joint ventures, or other collaborative arrangements) Generate VC interest

24 Patents and Crowdfunding Patents and crowdfunding can be used to generate VC interest or traditional types of funding Patents can signal serious intent to produce technology and allay fears of ‘vaporware’ Investors will know technological investment is protected Patents can protect funds raised through crowdfunding by ensuring continued revenue streams Patents can transform a start-up into a serious competitor

25 Thank You Scott J. Popma advises clients on a wide variety of intellectual property matters, including portfolio analysis, pre-litigation strategy, licensing, and due diligence

26 Disclaimer These materials are public information and have been prepared solely for educational and entertainment purposes to contribute to the understanding of U.S. intellectual property law. These materials reflect only the personal views of the authors and are not a source of legal advice. It is understood that each case is fact specific, and that the appropriate solution in any case will vary. Therefore, these materials may or may not be relevant to any particular situation. Thus, the authors and Finnegan, Henderson, Farabow, Garrett & Dunner, LLP cannot be bound either philosophically or as representatives of their various present and future clients to the comments expressed in these materials. The presentation of these materials does not establish any form of attorney-client relationship with the authors or Finnegan, Henderson, Farabow, Garrett & Dunner, LLP While every attempt was made to insure that these materials are accurate, errors or omissions may be contained therein, for which any liability is disclaimed.