An Intellectual Property Licensing Primer for Founders: The Five Basic Elements

The BIP, The FIP, The FOU, The Future IP, and Exclusivity

As a tech founder, you're at the forefront of innovation and, on occasion, will need to license intellectual property (IP). When we created and launched ventures at Stanford Research Institute (SRI), licenses to our startups were a crucial part of the value that SRI provided.

To explain these elements, let’s assume that your venture, "NewCo," wishes to gain a license from another entity, let's say "BigTech." The license that NewCo wishes to gain can be of five different types, and it is important to consider all five types of licenses when you negotiate terms.

1. The Background IP (abbreviated as the BIP): The background IP refers to the existing intellectual property owned by BigTech that your venture NewCo wishes to license. It will often be the groundwork upon which your future innovations will build.

2. The Foreground IP (abbreviated as the FIP): Imagine your venture, NewCo, working under a contract with BigTech. Any new IP developed under this contract, whether by NewCo or BigTech, falls under Foreground IP.

3. The Future IP: Think long-term. Future IP encompasses any intellectual property that might be created by either NewCo or BigTech after your initial contract has concluded. It's about securing innovation potential for the days ahead.

4. The Field of Use (FOU): This is about boundaries. When licensing IP, you might be limited to using it within specific sectors or applications. BigTech might impose these restrictions to safeguard their rights in other domains.

5. Exclusivity: Exclusivity refers to a specific type of agreement where the patent holder grants the rights to use, make, sell, or distribute the patented invention to a single licensee, often for a particular geographic region or market sector. During the term of this exclusive license, the patent owner agrees not to grant similar rights to any other party, effectively giving the licensee a competitive advantage in the market.

Tempo.AI’s Journey with the Five Basic Elements of Intellectual Property Licensing

Let's dive into a real-world scenario to better understand these concepts: the Tempo.AI venture's creation and launch. SRI launched Tempo.AI in 2011, with Raj Singh as CEO. The vision of Tempo was to be an artificial intelligence-based calendar application that would assist the user in their daily life. Tempo would link to both the user’s calendar as well as their email to provide content that would be helpful to the user. For example, before a meeting, users would open up Tempo and review emails, documents, and LinkedIn profiles that are relevant. Or they would bring up driving directions to the meeting location and send automatic messages if you’re running late. Before a flight, the app can notify you of changes to the flight status. And if you have a conference call, Tempo would handle the dial-in and passcode. Tempo.AI was acquired by Salesforce in 2015.

As an aside, I’m stunned by how simple and obvious it is today to perform the Tempo.AI functions that we envisioned at the time. All that is needed today is generative AI using a calendar and email with the appropriate prompts. We truly are in the midst of an AI revolution.

Here are the five basic elements, as listed above, of the licensing arrangement between the Tempo.AI venture and SRI:

1. Background IP (BIP): The Tempo.AI venture licensed multiple patents from SRI. SRI had developed them over multiple years before the creation of Tempo.AI. These patents were the basis of Tempo.AI’s ability to analyze the email and calendar and provide timely and important inputs.

2. Foreground IP (FIP): Raj Singh was given a contract by SRI to work with SRI researchers for the development of Tempo.AI, to function as an “Entrepreneur in Residence,” and to potentially form a venture. If the venture were formed, the agreement was that Raj would become the CEO. The intellectual property developed by Raj, Corey Hulen, Thierry Donneau-Golencer, and a few SRI researchers under this contract was the Foreground IP that SRI licensed to Tempo.AI.

3. Future IP: Once the Tempo.AI venture had external investment and left SRI, there was no continued funding or contract from SRI. They were invested in by several top-tier VCs, including Relay Ventures. There was no contractual agreement that any future development of intellectual property from SRI would be licensable to Tempo.AI, nor was there an agreement that anything the Tempo.AI venture created would be licensable to SRI.

   I am sure that the choice not to grant any Future IP was entirely right. Many startups or major companies alike make a terrible mistake in wanting to gain ownership of future work from another company, regardless of the fact that they don’t fund the work, don’t know what the work might be, or how valuable it might be. This kind of licensing is deadly. It demotivates any of the parties from continuing to do the work.

4. Field of Use (FOU): The license agreement between the Tempo.AI venture and SRI had no field of use constraints. This is also, in my opinion, the right choice. When a startup has a license to a technology and is seeking investment, venture capitalists always want to be sure that the startup is capable of “pivoting.” Sometimes, pivoting involves moving to sectors or uses that were not originally conceived of.

   From the point of view of SRI, having no field of use constraints was also the right choice. Offering fields of use for multiple ventures in multiple market areas was an unmanageable problem. It was easier to offer unlimited fields of use with a non-exclusive license.

5. Exclusivity: In the license agreement between the Tempo.AI venture and SRI, there was a fair approach to exclusivity and non-exclusivity. SRI gave non-exclusively the type of intellectual property that was the basis for many of our AI projects, thereby allowing our continued research. However, the intellectual property that was specifically related to how Tempo.AI functioned was licensed exclusively. This gave the investors comfort that SRI could not (and would not) enable a competitor to be created.

Of course, these intellectual property elements have many nuances, but these are the basics.

Your Venture Coach,

Norman