BIONYM

Negotiation Exercise
The following situation has been developed for educational purposes and is not
reflective of an actual event.

Instructions:

1. In your 10 project groups, each will pair together with another group. One
group will be Team Bionym and the other will be Team Golden Years
Corporation.
2. Read materials prepared for your team. Both teams have received the
same information for “The Case” and “The Negotiation.” Each team has
individualized instructions for “Your Negotiating Position.” Please keep the
information in “Your Negotiating Position” secret until the debriefing period.
3. After you have read over the materials, meet with your team for ~ 10
minutes to consider the alternative strategies and choices you face as you
enter the negotiation.
4. Convene the negotiation with the other team assigned to you. The
negotiation phase should last ~20 minutes. Attempt to reach a negotiated
outcome (choosing among the three designs described in “The
Negotiation,” or perhaps creating a variant of your own).
5. Choose a member of your group who will report on the outcome of the
negotiations once the entire session re-convenes.
 BIONYM1 CASE

Karl double-checked that his prototype was working as he sat in the waiting area.
He had been working with his co-founder, Foteini, for over a year on their start-
up Bionym. Prior to incorporating Bionym, they had each invested six years in
researching authentication technologies. Their product, HeartID, used a novel
technique that allowed users to be authenticated based on the unique patterns of
their heartbeats. Bionym had packed HeartID to be a license that would allow
customers to use the hardware designs and the software developed by Bionym in
their own products.

Today, Karl was waiting for a meeting with a group of senior executives at Golden
Years Corp., a multinational manufacturer of medical and health tracking devices
for the elderly. He had met one of the executives at a tradeshow, and after a few
follow-up calls, she had invited Karl to demo the product to her senior team.
Foteini had worked hard with their engineers at Bionym to develop a prototype of
Bionym’s HeartID technology integrated into a mobile device. Though far from a
polished product, the prototype could demonstrate the functionality of the
technology in a hardware product. For example, the phone automatically
unlocked when HeartID authenticated the identity of the user.

As he anxiously watched the clock countdown to his scheduled meeting, Karl

could not help but reflect on the past year. They had accomplished a lot from
hiring their first employee to filing for several patents to pitching numerous
potential clients; and they had kept the lights on by preserving their frugal
graduate student lifestyles. Both Karl and Foteini however, felt the stress of a
dwindling bank account – they knew they needed to sign a first licensee very soon.
Perhaps Golden Years Corp. could be the opportunity they had been waiting for?
Karl was interrupted from his thoughts as the secretary approached, “they are
ready for you now.”

Transitioning from Academia

In late 2011, Karl Martin was a newly minted doctorate of electrical and computer
engineering, but unlike most of his colleagues, he knew a career in academia was

1
This case was developed by Scott Stern and Jane Wu solely for the purposes of classroom
discussion. It is not intended to illustrate either effective or ineffective handling of an administrative
situation, nor as a source of data. Some case details have been adapted to facilitate the learning
objectives of the case. It should not be quoted, reproduced, distributed, or shared in hard copy,
electronic or any other form without express permission from the authors. Feedback is welcome to
sstern@mit.edu.

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not for him. During the last few months of his PhD, Karl had been involved with
a unique project, leading the scientific team on a project for the Ontario Lottery
and Gaming Corporation (OLG). He developed a privacy-protected facial
recognition system that could scan and identify patrons inside a casino. Karl’s
work had been implemented in almost every casino throughout the province,
allowing problem gamblers to sign up to be self-banned from casinos. In addition
to facial authentication, Karl and his co-inventor also helped implement a special
privacy feature, dubbed “biometric encryption” that ensured that in the event the
data was intercepted, it could not be tied to the user’s identity. When the project
was concluded as a huge success, it wasn’t just Ontario’s problem gamblers that
were impacted: Karl realized he wanted to continue working on applied
innovation with direct, tangible impact. With a deep conviction that the traditional
path of academic research was not for him, he filled his post-doctorate time
working on consulting projects. He was however, still itching to find something
that he could develop and grow himself, and kept his eyes open for the right
opportunity.

Shortly thereafter, Karl met Foteini Agrafioti, a doctoral student in the same
department at the University of Toronto finishing up her thesis. Foteini had come
from Greece to further her studies in Canada, where she quickly established
herself as a rising star. Her research in biometric technology and telemedicine was
gaining lots of attention in the academic community, with rumors of her and her
co-inventors being front runners for the prestigious “University of Toronto
Inventor of the Year” award. Her HeartID project was particularly novel, as she
had developed technology capable of authenticating a user’s identity using cardiac
rhythm as a biometric. The HeartID technology was also capable of recording a
user’s heart rate, breathing rate and blood pressure.

Karl and Foteini found overlap in their interests in privacy and identity
authentication. Moreover they were both keenly interested in applying the
emerging technologies they were working on tangible problems. Their
conversations revolved around the potential impact of bringing their research to
market, and eventually lead them to incorporate a company together. Though
neither of them had business nor manufacturing experience, Foteini and Karl were
excited to build a business around the HeartID technology. They could imagine
licensing the technology for integration into real products.

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Brief context of the technology

Biometrics, defined as a behavioral or physiological trait that is unique to an

individual, had its first modern recorded use in 1891 when fingerprints were
collected for Argentinian criminals.2 Fingerprints grew to become the dominant
biometric used for identification and authentication across many verticals
including customs and border control, correctional facilities, and security systems.
This resulted in an authentication industry dominated by fingerprint
authentication companies3 (AuthenTec, Validity, Fingerprint Cards and Idex).
Beyond fingerprints, additional biometric authentication technologies included
iris recognition, palm prints, DNA, facial recognition and ECG waveforms.4 The
2012 Apple acquisition of AuthenTec for $356MM5 was significant for the industry
as the move to embed fingerprint authentication in the iPhone was a strong
endorsement for the adoption of biometrics into the massive market of consumer
technology and applications.

ECG as a biometric

ECG refers to the non-invasive recording of the patterns of electrical activity in the
heart using electrodes attached in various positions. It was first developed by
Nobel Prize winning physiologist Willem Einthoven in 1903 and was quickly
adopted as a key tool in clinical cardiology. Its entry into biometrics was more
recent with the academic discussions of using it as an authentication technology
beginning in 20016 and focusing on extracting distinctive characteristics from ECG
waves. Early development in ECG as a biometric mirrored existing features of
fingerprint and face recognition systems: ECG data was collected at discrete
intervals in time, and then analyzed for distinct characteristics in wave height and
distance.

Bionym’s underlying technology

Foteini and Karl initially planned to incorporate their innovative research in facial
recognition, ECG biometrics, and biometric encryption into an authentication

2
http://www.usmarshals.gov/usmsforkids/fingerprint_history.htm
3
ttp://qz.com/143659/these-companies-are-about-to-strike-it-rich-thanks-to-the-iphones-
fingerprint-sensor/
4
http://biometrics.cse.msu.edu/info/index.html
5
http://dealbook.nytimes.com/2012/07/27/apple-to-acquire-authentec-for-356-million/
6
Biel, L., Pettersson, O., Philipson, L., Wide, P. “ECG analysis: a new approach in human
identification”. In IEEE Transactions on Instrumentation and Measurement. 2001.

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product that could be integrated into existing devices. After some
experimentation, they realized that integrating facial recognition with the ECG
biometrics technology would be very costly, and decided to focus their efforts on
the more novel technology of HeartID.

Based on Foteini’s research, this would allow for the authentication of users from
their cardiac rhythm using ECG, which could be captured through interaction
with fingertips, arms or the chest. The key competitive advantage for Bionym was
that Foteini had been researching this since 2007, and had co-developed a method
for analyzing an entire ECG waveform instead of discrete points. This made it
possible for the first time to analyze ECG data at a high speed while still capturing
its unique characteristics.

The Bionym product would allow for multiple-factor authentication. For example,
if a client wanted to ensure high security, they could require two-factor
authentication: possession of the main device (e.g., a mobile health device) and an
ECG match. Furthermore if a client already had an existing biometric system,
Bionym could offer biometric encryption to improve the security of the existing
database. Foteini and Karl felt their competitive advantage would be their
combined track record of frontier research in biometric authentication.

Founding the company

As researchers aiming to commercialize their inventions, the founders qualified

for several government grants and free workspace. This gave Bionym a small
amount of non-dilutive initial capital to hire two extra engineers, and start refining
the technology and begin sales pitches. Karl and Foteini chose to divide their
responsibilities with Foteini leading the efforts in the lab to improve their ECG
authentication accuracy rates, and Karl focusing on the early sales discovery and
licensing process.

After numerous pitches to companies spanning multiple verticals, Karl heard the
energizing reaction of a potential client - “it seems like it would be a perfect
marriage.” The sales lead was a manufacturer of military monitoring devices,
targeted for monitoring the location of a solider in the field. The concept of
ensuring the monitoring devices were being used by the right individual appealed
to them. Foteini and Karl were enthusiastic to begin investigating how to integrate
HeartID into the compact devices, and both were confident it could be done with
a little hardware and software work. As they started exploring what the

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integration would require, Karl consulted pro-bono lawyers for advice on drafting
a licensing contract.

After the initial excitement subsided, Karl and Foteini were still awaiting an
affirmative decision from their contact. Each week, as they gained more data from
the ambiguous emails with the client, their enthusiasm was replaced with worry.
Finally, it became clear that this potential client was actually facing their own
issues with securing customers, and they did not have the financial capacity to
afford a license. In addition, Karl’s market research indicated that the specialized
niche of military health was extremely limited, with only a few key buyers in the
entire industry.

Licensing to consumer technology

Karl and Foteini had no choice but to restart the process of identifying a customer
and brainstorming the best applications of their technology. Around that time,
there had been significant media coverage on the limitations of traditional
passwords, driven by major password breaches such as the one involving the Sony
PlayStation in 2011,7 the website Gawker.com in 2010,8 RockYou.com in 2009.9
Foteini and Karl felt that the field of authentication was undergoing a renaissance,
and they believed that new user authentication technologies could appeal to those
in consumer electronics.

Foteini had also made enough progress in the lab for them to provide prospective
clients with a sample beta product to test with. They hoped that providing a
physical beta product could help these prospective clients feel more confident
about adopting Bionym’s new technology, and also separate Bionym from other
startups pitching vaporware or unfinished products. With their new focus on
consumer technology, Karl resumed customer prospecting, attending trade shows
and conferences. He pitched a diverse pool of potential customers ranging from
videogame console developers to corporate security providers, but each time, their
lack of track record as an unknown start-up curbed conversations. These
companies were simply unwilling to take on the risk of plugging such an early,
untested startup into their supply chain for a relatively non-critical feature. Still,
the founders maintained hope that they could eventually secure a first license.

7
https://www.privacyrights.org/top-data-breach-list-2011
8
http://www.theguardian.com/technology/2010/dec/13/gawker-hackers-security-password-protect
9
http://techcrunch.com/2009/12/14/rockyou-hack-security-myspace-facebook-passwords/

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Finally, at a trade show, Karl met a representative of a multinational medical
device manufacturer, Golden Years Corp., who seemed particularly interested in
the Bionym technology. She saw the potential for Bionym to be integrated into
their health-tracking device designed for elderly people and their caregivers. The
device was a wristband that monitored daily vitals and activity levels, and also
vibrated to remind users to take medication at certain times of day. It also had the
capability to notify caregivers of anything unusual in the users vitals or activities
(e.g. blood pressure is too high, or they are not exercising enough). The Golden
Years Corp. had been struggling to eliminate the ill-suited password from the
device without compromising the security of the data. They had invested much of
their research team’s time into developing a new authentication alternative to the
password, but up until now, had not been able to create something as novel as
HeartID. The representative was interested in experimenting with using Bionym
in their devices and invited Karl to meet with her Innovation Leadership Team.

A few weeks later, Karl was getting ready to meet with the Innovation Leadership
Team at Golden Years Corp. He knew that he and Foteini were facing a “chicken
and egg” problem with Bionym’s lack of a customer track record holding back
potential clients from signing on. Sales had been a frustrating process, and Karl
hoped this conversation would finally be a turn of the tides for Bionym. Grant
money only afforded them a limited runway, and without a flagship customer,
Karl could feel the clock ticking. As he followed the secretary into the big
boardroom, he took a big breath - this was going to be an incredibly important
meeting for Bionym...

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Appendix

Figure 1: Example of the distinguishable differences between individual’s ECG

readings.

Figure 2: Screenshot of Bionym’s HeartID software authentication screen.

Figure 3: Early demo prototypes of Bionym’s HeartID.

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 BIONYM NEGOTIATION
TEAM BIONYM
Case Excerpt

At a trade show, Karl met a representative of a multinational medical device

manufacturer, Golden Years Corp., who seemed particularly interested in the
Bionym technology. She saw the potential for Bionym to be integrated into their
health-tracking device designed for elderly people and their caregivers. The
device was a wristband that monitored daily vitals and activity levels, and also
vibrated to remind users to take medication at certain times of day. It also had
the capability to notify caregivers of anything unusual in the users vitals or
activities (e.g. blood pressure is too high, or they are not exercising enough). The
Golden Years Corp. had been struggling to eliminate the ill-suited password
from the device without compromising the security of the data. They had
invested much of their research team’s time into developing a new
authentication alternative to the password, but up until now, had not been able
to create something as novel as HeartID. The representative was interested in
experimenting with using Bionym in their devices and invited Karl to meet with
her Innovation Leadership Team.

The Context of the Meeting

In a pre-meeting call, the Golden Years Corp. (herein GYC) representative had
disclosed that their in-house R&D team had been pursuing research on
authentication, however they had yet to produce something as novel as HeartID.
They have conducted market research and estimate that, if they were able to
successfully integrate the technology, they would be able to sell 1 million units
per year with this feature, with a price premium on the product of $12.50. She
explained that if her team shared her enthusiasm for the product, they would
likely consider three options:

• The Licensing Option. Under this scenario, GYC would pay Bionym
$500,000 upfront for an exclusive license to the HeartID technology,
followed by $500,000 upon the sale of their first commercial unit and $0.50
per unit thereafter. Bionym would not be involved in production, and this
exclusive contract would be up for renegotiation after the fifth year of
production.

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 • The Exclusive Supplier Option. Under this scenario, GYC would pay
Bionym to provide an authentication software application and hardware
input device that can be integrated into their health-tracking devices.
GYC would pay $5/unit to Bionym. Bionym would have an exclusive
contract with GYC for five years, after which the deal would be up for
renegotiation.

• The Open-Ended Collaboration Option. Under this scenario, Bionym and

the GYC enter into an informal handshake agreement to collaborate on the
commercialization of HeartID. Bionym would disclose some necessary
details about their technology so the GYC’s engineering team can
integrate into the health-tracking devices, while the GYC would invest
significant resources including engineer hours, marketing spend on the
Bionym-GYC collaboration, and a chance to present the technology with
the GYC at the leading consumer electronics tradeshow next year.

CONFIDENTIAL
Please keep the information below secret from the other team.

Your Negotiating Position – Team Bionym & Team Golden Years

Your objective is to attempt to reach an agreement with the other team that facilitates
Information
your ability to capturetovalue
be provided in class.
from Bionym’s authentication technology. After
considering the information in “Your Negotiating Position,” re-convene with the other
team at your table to consider the following options (or a variant of your own design).

As a member of Team Bionym, you have invested almost seven years of your life
in building this breakthrough HeartID technology, and you believe there is a
massive opportunity for your innovation to transform the identity authentication
space. You are very excited at the prospect of working with a large multinational
corporation like Golden Years Corp. as securing a well known first licensee will
validate your thesis that there is demand to license the technology, and start to
build a track record that can help you secure future customers. Although Bionym
has filed for patent protection on the HeartID technology, you are wary of
disclosing too many details about the product out of fear of reverse engineering,
and hope you can steer the conversation away from specific technological details
and trade secrets of the company.

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You believe your technology will help GYC greatly differentiate in the elderly
health market, and based on your rough estimates, you think that the estimate of
1 million units per year (at $12.50 price premium per unit) is conservative. You
have analyzed the negotiation options facing you in your meeting with Team
GYC as follows:

• The Licensing Option. This option earns immediate returns. At this point,
you’re running low on runway, with only a few months of cash left in the
bank account. You would estimate that the salary you and your co-
founder have foregone over the past year to be approximately $125,000
each. The proceeds from a licensing deal would be split 50% to you and
50% to your co-founder, and, after deducting your accounts payable, legal,
and bank processing fees (estimated to be $100,000).

• The Exclusive Supplier Option. As a manufacturer, you estimate that you

will incur $5 million as an upfront sunk investment, and that you could
then manufacture at $3.50/ unit. GYC has already expressed significant
doubts about your manufacturing reliability, and you are willing to
consider a low per-unit price ($5/unit) in order to account for this risk.
Ever an optimist, you put only a 1% chance on not being able to satisfy
production requirements.

• The Open-Ended Collaboration Option. Informal collaboration with GYC

would allow Bionym to build and demonstrate their competence to GYC
in terms of manufacturing reliability. Once deemed reliable, you believe
that you could hold out for a potentially higher price (maybe as high as
$7.50 / unit) as exclusive manufacturer. As well, if negotiations ultimately
break down, you could still approach other companies (though you have
no direct contacts or information about how that process would play out).
Collaboration also requires immediate disclosure of the technology
underlying HeartID, after which GYC engineers are likely to be able to
reverse-engineer the design if they chose. You have filed for patents on
the technology but those patents have not yet issued and their
enforceability is uncertain.

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