BIONYM

Negotiation Exercise – TEAM GOLDEN YEARS CORP

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

Instructions:

1. Divide into groups of 3, and pair together with another group of 3. 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 at your table. The negotiation
phase should last ~ 15 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.

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 BIONYM 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 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

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@[Link] © 2019

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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.

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.1 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 companies 2 (AuthenTec, Validity,
Fingerprint Cards and IDEX). Beyond fingerprints, additional biometric authentication
technologies included iris recognition, palm prints, DNA, facial recognition and ECG
waveforms.3 The 2012 Apple acquisition of AuthenTec for $356MM 4 was significant for

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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 20015 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 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.

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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 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 2011,6 the website
[Link] in 20107 and [Link] in 2009.8 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

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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.

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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Exhibit

Figure A: Example of the distinguishable differences between individual’s ECG readings.

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

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

Source: Company

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 BIONYM NEGOTIATION
TEAM GOLDEN YEARS CORP
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.

• 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

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 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 GYC

Your objective is to attempt to reach an agreement with the other team that facilitates your ability
to create and capture value 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 GYC, you are intrigued by the novel identity authentication
technology the Bionym team has developed. Furthermore, the research your marketing
team has conducted indicates that there is a strong interest in your customer base for
better authentication solutions to the traditional password.

Meeting with Bionym will be an unusual experience, as your GYC usually conducts
research and development in-house, or runs a competitive bidding process among your
preferred development partners, all of whom have extensive track records and prior
experience working with your company. In rare instances, your company has acquired
start-ups that own intellectual property GYC is interested in integrating. You want to
verify that the technology does work as described, and plan to ask questions about the
specific technological details of the product.

Your team has been prioritizing the need to replace passwords but progress has been
slow in-house. You believe the HeartID product could solve that problem and be an
important source of differentiation. Both parties have exchanged information and agreed
that, if they device could be successfully integrated, they would be able to sell 1 million

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units per year with this feature, with a price premium on the product of $12.50. Prices
and profits will decline after five years due to imitation and competition from other
manufacturers.

Your team has provided the following analysis of the negotiation options facing you in
your upcoming meeting with Team Bionym:

• The Licensing Option. With an exclusive manufacturing license from Bionym, an

upfront sunk investment of $2.5 million. Units could be produced (internally) with
high reliability at a cost of $2.50 /unit.

• The Exclusive Supplier Option. As a manufacturer, Bionym’s inexperience is likely

to result in both a high per-unit cost and uneven reliability. At $5/ unit, your team
estimates that Bionym has only a 75% chance of successfully filling your
production requirements (as opposed to 100% reliability internally).

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

allows GYC to both determine whether Bionym is likely to be able to be an
effective manufacturer and also gain access to the technology in order to reverse-
engineer it (at minimal cost) in case that Bionym is deemed unreliable. Once GYC
reverse-engineers the technology, manufacturing costs would be similar to those
provided in the “licensing option” data provided above. If Bionym is deemed
reliable, GYC would end up paying $7.50 / unit in the context of an exclusive
supplier relationship. Your attorneys have noted that Bionym has filed for patents
on the technology but those patents have not yet issued.

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References

1“The Fingerprint Sourcebook,” U.S. Department of Justice, [Link]

accessed June 2019.

2Leo Mirani, “These companies are about to strike it rich thanks to the iPhone’s fingerprint sensor,”
Quartz, November 5, 2013, [Link]
the-iphones-fingerprint-sensor/, accessed June 2019.

3Biometrics Research Group, “What is Biometrics?” Department of Computer Science and Engineering
Michigan State University, [Link] accessed June 2019.

4Evelyn Rusli, “Apple to Acquire AuthenTec for $356 Million,” The New York Times, July 27, 2012,
[Link] accessed June 2019.

5L. Biel, O. Pettersson, L. Philipson and P. Wide, “ECG analysis: a new approach in human
identification”. in IEEE Transactions on Instrumentation and Measurement, (IEEE, 2001).

6“Data Breaches: A Year in Review,” Privacy Rights Clearinghouse, December 16, 2011,
[Link] accessed June 2019.

7Josh Halliday and Charles Arthur, “How hackers breached Gawker’s security — and how to protect
yourself,” The Guardian, December 13, 2010,
[Link]
accessed June 2019.

8Nick Cubrilovic, “Rock You Hack: From Bad To Worse,” TechCrunch, 2010,
[Link] accessed June
2019.

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