Business Forum: Patents, projects, and prototypes pose problems

July 5, 2012
A big competitor has filed a frivolous patent infringement lawsuit against us. Should I file a petition for summary judgment to dismiss the case, or file a countersuit for unfair business practices?
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Q: A big competitor has filed a frivolous patent infringement lawsuit against us. Should I file a petition for summary judgment to dismiss the case, or file a countersuit for unfair business practices?

A: It is very hard to sue someone for filing litigation; you have to prove malicious prosecution and to do that you first have to win the suit. And it is extremely unlikely you’ll get a summary judgment without significant work because, in layman’s terms, that’s like saying you have an argument to end all arguments. Not everyone will agree with your opinion when different points of view are involved. Even though the likely outcome is a settlement before it goes to trial, be prepared to spend quality management time to deal with this thorny issue for the next 12–18 months.

Q:My group completed a small research project for a startup company a few months back. Now the company wants me to spend time talking to investors to help them raise capital. How could I get compensated without being taken advantage of?

A: The real issue is that you feel you were not adequately compensated for the research project. But what is in front of you is an unrelated issue. The contract is history and frankly you went in with your eyes wide open. A professor asking for compensation for sharing knowledge or opinion would be considered bad form because that is expected to be pro bono. Consider talking to the investors as a favor to this company; hopefully the goodwill might return some financial benefits to you at a later time. It is customary for professors to get stock options in addition to monetary compensation when they engage in a long-term advisory role, and you can also do consulting work or take on another research project, which you can price appropriately.

Q:We have spent close to $5 million to develop a working prototype of an unconventional solar energy system. The current investor will fund if and only if we can raise half of the capital we need from other sources. We will be running out of funds in four months and so far no takers. Any suggestions?

A: Based on the performance and cost goals you provided, this could be a breakthrough product to serve a number of niche markets. I am not sure how you can get through the “valley of death” given the unfavorable funding environment. You got your initial funding five years ago, when investors were hot on energy generation. Today, even existing solar companies with substantial revenue are not faring well on Wall Street because the price of solar panels has plummeted. Investors now are putting money in web and mobile application startups.

I believe the lack of validation is a major concern. Investors are defensive; they tend to not believe everything you say. And when in doubt, they don’t invest. It would provide great comfort to investors if you had a major development contract from a government agency, a leading investor in the energy field who is a strong advocate, a few orders from knowledgeable customers, or strong recommendations from opinion leaders in the energy space. You have none of that aside from half-hearted support from your current investor.

Given your time constraint, my recommendation is for you to engage at least one energy industry insider who is an opinion leader to provide credibility. You have to act fast. Given the short runway, your opportunity is diminishing rapidly with passing time. You may want to also make an incredibly good offer to an interested investor to get money that will buy time. One other option you might want to plan for is an orderly liquidation. Assuming your technology is viable, trading what you have developed for some upside in an established energy company may yield some benefit for you and your investors.

About the Author

Milton Chang

MILTON CHANG of Incubic Management was president of Newport and New Focus. He is currently director of mBio Diagnostics and Aurrion; a trustee of Caltech; a member of the SEC Advisory Committee on Small and Emerging Companies; and serves on advisory boards and mentors entrepreneurs. Chang is a Fellow of IEEE, OSA, and LIA. Direct your business, management, and career questions to him at [email protected], and check out his book Toward Entrepreneurship at www.miltonchang.com.

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