2 global platform largest law firm in the world with 4,200 lawyers in 30 countries and 76 offices...
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2
Global Platform
Largest law firm in the world with 4,200 lawyers in 30 countries and 76 offices throughout Asia, Europe, the Middle East and the US
1st in M&A deal volume globally
Ranked #1 among the world’s leading global law firms
1st in Venture Capital and Private Equity deal volume
Ranked in the top 5 for US IPOs by US Issuer Adviser
More than 550 DLA Piper lawyers ranked as leaders in their fields
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Global IP and Technology Practice
More than 400 IP and Technology lawyers – 56 offices in 24 countries
Highly-ranked, full service, global IP practice
Litigation, prosecution and transactions
Patent, trademark, copyright, trade secrets, domain name, Internet, anti-counterfeiting, anti-piracy, privacy
Acquisition, development, licensing, enforcement, technology transfer
Global patent litigation and patent enforcement
Full service law firm advantage – benefit from cross-practice knowledge base
Regulatory and government affairs, litigation, antitrust, etc.
United States
Germany
UK
Netherlands
Italy
Asia
Australia
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Navigating the New IP World: The Future is Foggy
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IP Monetization: Shareholder Pressure
Carl Icahn to Motorola Mobility (July 21, 2011)
“patent portfolio, which is substantially larger than Nortel Networks’ and includes numerous patents concerning 4G technologies, has significant value … There may be multiple ways to realize such value given the current heightened market demand for intellectual property in the mobile telecommunications industry”
Starboard Value LP to AOL (Feb 24, 2012): “(i) a significant number of large internet-related technology
companies may be infringing on these patents, and (ii) AOL's patent portfolio could produce in excess of $1 billion of licensing income if appropriately harvested and monetized. Unfortunately, several of these parties have expressed severe frustration that AOL has been entirely unresponsive to their proposals regarding ways to take advantage of this underutilized asset”
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IP Monetization
AOL Patent Sale: Value Difficult to Predict
$1.1 billion from Microsoft Microsoft resells 650 patents (approx) to Facebook for $550M
M-Cam Estimate (March 29): $290M
Copyright
US Copyright Group
Righthaven LLC
Trademark
Liz Claiborne: $200M secured financing
Tupperware: $400M secured financing
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Patent Sales
2010 - 2012 Patent Sales
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Craig Opperman, DLA Piper
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It Could Be Worse
Average US Patent is worth $50k to $75k
And that’s the average
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No, It’s Not Number of Patents
Patent Sales: 2010 to 2012
$1,05BN
$550M
$39,5M
$2,38BN
$4,5 BN
$3 BN
$12,5 BN $75M
$120M
$60M
$11M
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
- 5,000 10,000 15,000 20,000
# of Patent Properties on X-axis/ Bubble Size = Transaction Size
Pri
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Craig Opperman, DLA Piper
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2010 - 2012 Patent Sales
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Craig Opperman, DLA Piper
Buyers Drive Price …
strategic
strategic
strategic strate
gic
strategic
financial
financial
financial
strategic
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Forms of Monetization
Monetization of IP Royalty/Revenue Streams
IP Rights Monetization
Monetization and Financing of Content and Technology
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Why Companies Care: Top Ten Damage Awards (1995-2010)(PWC Patent Litigation Report)
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Currently 62 ITC investigations pending
ITC investigations have increased 11% annually since 1996, and 18% since 2003
Patent related lawsuits have nearly doubled in the past 15 years, at an annual compounded growth rate of 4.3%
~2.5x increase in U.S. patent applications since 1996 at an annual compounded growth rate of 6.7%
Patent applications have increased 3% annually since 1996, led by the U.S., Japan and Germany
Source: World Intellectual Property Organization.
Note: 2009 & 2010 patents issued not available.
Source: U.S. Courts; Director’s Annual Reports.
Source: U.S. International Trade Commission.
18% increase in 2010
81% increase in 2010
N.A.
ANNUAL GLOBAL PATENT APPLICATIONS AND PATENTS ISSUED
ANNUAL US PATENT APPLICATIONS AND PATENTS ISSUED
ITC SECTION 337 INVESTIGATIONS FILED ANNUALLY
US PATENT LAWSUITS FILED ANNUALLY
Source: U.S. Patent and Trademark Office.
PATENT APPLICATIONS PATENT LAWSUITS & INVESTIGATIONS
U.S
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Rapid Growth in Patent Applications and IP Lawsuits (Lazard)
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Why Companies Care: SmartPhone Litigation
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Avistar
Public company in Unified Communications 50 patents
VOIP, IM, Video conferencing Pre dated ICQ (original instant messaging company)
Valuation vs. reality Ocean Tomo: Estimated net present value $300-500M (March 26,
2008)
Sold to IV for $11M (and $3M license to eBay/Skype) Spun out to Pragmatus and suing Facebook/LinkedIn/Google
Problems Patents put into re examination by Microsoft
Company lacked cash
Failure to exploit aggressively
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IP M&A: The History of Asset Sales
Nortel: $4.5 Billion (Apple, Ericsson, EMC, Microsoft, RIM & Sony)
6,000 patents
AOL: $1.1 Billion (Microsoft) (resale of 650 patents to Facebook for $550M)
Astella Posidion: $609 Million (Royal Pharma)
DPP IV patents
Novell: $450 Million (Microsoft, Apple, EMC & Oracle)
882 patents
RealNetworks: $120 Million (Intel)
190 patents/170 patent applications (codec development team)
Friendster $40 Million (Facebook)
18 patents
Unova: $24 Million (Broadcom)
150 patents/patent applications
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Company Based M&A IP Transactions
Target Acquiror Price
Motorola Google $12.5 Billion
Sirna Therapeutics Merck $466.2 Million
($1.035 B total)
Mosaid Sterling Partners $590 Million
Intertrust Sony/Philips $453 Million
Cryptography Research Rambus $343 Million
S3 Graphics HTC $300 Million
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Patent Sale Myths
Less (information) is more
Lack of necessary information will get your transaction tossed to the end of the line so provide all of the information requested
Force a tight decision timeline to create multiple offers
A short decision timeframe means more corporate buyers are likely to exit the process. Understand your buyers process and decision timeline
There are no comparables so pick a high price
Information transparency has arrived. Comparables exist and Buyers are using them
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Patent Sale Myths
Never reveal encumbrances
See point #1. Would you buy a house without an inspection? Enough said
Take lots of liberties with the truth
Deals get done based upon relationships and credibility. Questions about either will slow or crater a deal
500+ patents in a transaction will net a higher price
Maybe … but more likely the Buyer will pick the top ten and discount the rest (and the price)
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Due Diligence
Critical Issues
Chain of title
Licenses
Covenants not to sue/immunity
Liens (may be covered by bank or other security interests)
Foreign issues
Potential fraud on patent office
Past behavior
Future assistance
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Due Diligence
Goal: Disclosure of all prior relevant documents
Assignments in the chain of title
Licenses
Covenants not to sue
Liens or other encumbrances
Prosecution files
In some cases, full disclosure by seller is impractical or impossible so representations and contract remedies will be critical become important
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Representations
Representations widely vary and price will be a factor
Seller prefers “AS IS”
Critical buyer issues: Ownership
Licenses, covenants not to compete, liens and encumbrances
Prosecution history (e.g., no fraud committed on any patent office), no terminal disclaimers
No pending or threatened lawsuits, interference proceedings, etc.
No government funds used
Validity/enforceability
RAND obligations to standard bodies
No patents or applications that are ‘related’ to the transferred patents exist
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Less Critical Buyer Issues
Other Buyer issues
Return of ownership rights in the future
Future assistance in lawsuits
Terminal disclaimer
Inventor payments
Future assistance in prosecution
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Assignment
Assignment language needs to include all patents/patent applications and other matters that should be assigned
Are there pending applications?
Counterparts filed in other countries?
A right to file applications in other countries?
Include right to bring suit and recover for past infringement as well as future infringement
Consider including future rights that the seller may acquire with the patents and applications
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Continuing Obligations
Buyer
Potential license back to seller
Limit on enforcement
Indemnification
Seller
Assistance in perfecting rights
Assistance on prosecution during transition period
Payment of maintenance and prosecution fees coming due for transition period
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Licensing Program
IBM Program Started in early 1990s
Revenues of over $1 Billion per year
Budgets for each division
Licenses of software, trade secrets as well as patents
Rambus Public company
Licenses semiconductor patents
MPEG LA Licenses patents from multiple companies for certain digital music
standards
Move to third party organizations
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IPXI: New Options for Monetization
IP Market Problem IP Exchange ResultIncomplete or insufficient market information
Detailed prospectus, published pricing, consumption data reporting, bid/ask
TRANSPARENCY - enabling more efficient IP asset management and R&D decisions
Arbitrary or unilaterally determined IP value
Market-based pricing reflecting the value of a technology and increasing buy-side confidence
PRICE DISCOVERY – ensuring fair and reasonable pricing
Lack of standards, including course of dealing, contract terms, and pricing
Standardized tradable license rights accessible to all market participants
LEVEL PLAYING FIELD – accelerating technology transfer and innovation
Time and transaction cost inefficiencies associated with bilateral licensing
Central marketplace with market enhancing solutions, such as standard contracts, outsourced auditing, and alternative dispute resolution processes
EFFICIENCY - providing easy access, liquidity, and increasing transaction volume
A more efficient and transparent IP marketplace
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IPXI Status Update
In December of 2011, IPXI completed a $10 million funding round by a group of U.S. and European investors including CBOE Holdings, Inc. (Nasdaq: CBOE), the world’s largest options exchange, and Royal Philips Electronics (Philips)
IPXI has received commitments to sponsor ULR Contracts with an aggregate target market value of $300+ million, and is reviewing many other submissions
IPXI will begin trading of ULR Contracts in 2012
IPXI is partnering with regional government and strategic partners to establish support in building IPXI model in multiple jurisdictions around the world
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IP Strategy Economics: IPXI vs. Other Monetization Methods
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Failed IP Asset Strategy: SCO & Linux
Copyright claim based on use UNIX code in Linux
Lawsuits
SCO v. IBM
SCO v. Autozone
SCO v. DaimlerChrysler
SCO v. Novell
SCO is bankrupt after spending over $80M
Fundamental mistake
Failure to confirm title
Selecting IBM as defendant
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Monetizing IP Royalties: History
Music and Film Royalties
Bowie Bonds – backed by revenues from David Bowie music catalogue – rate A3 by Moody’s – closed in 1997
Four additional music copyright deals closed in 1998 with same rating
DreamWorks -- $1 Billion revolving credit facility backed by 36 film properties – closed in 2003
Village Roadshow Films -- $900 million facility backed by 27 films – wrapped by MBIA – closed in 2004
Universal Film Funding -- $950 million facility backed by 125 films of Vivendi Universal – wrapped by Ambac – closed in 2004
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Royalty Streams Monetization
Drug Royalty LP 1--Series 2012-1--
• Total securities issued--$195 million• BBB rated • Term bonds maturing in 2024• Sponsor is Drug Royalty Corp. Inc (DRI), a Canadian privately held investment management company focused on the health care
industry• DRI business model is to purchase royalty assets (either in whole or an undivided interest) in commercialized pharmaceutical
products from inventors, universities, hospitals, biotech firms, pharmaceutical companies and other parties who own royalty interests in pharma products
• Collateral for this transaction consisted of 18 royalty streams on 14 patent-protected drugs and technologies
Domino's Pizza Master Issuer LLC--Series 2012-1--
• Total securities issued--$1.675 billion• Expected final maturity--2019• Legal final maturity--2042• Rated BBB+• Collateral securing bonds consists of franchise royalty and license payments, Domino's intellectual property and profit from
distribution arrangements• The IP collateral is held by Domino's IP Holder LLC, a bankruptcy-remote special purpose entity which is wholly owned by the issuer
of the bonds. The IP Holder holds all the Domino's IP and licenses it to the issuer and various other domestic and international affiliates
Miramax LLC--Series 2011-1
• Total securities issued--$550 million• Senior securities ($400M) rated BBB and subordinated securities ($150M) rated BB• Collateral consists of rights to IP (including distribution rights) and film materials relating to a portfolio of 700 films and 14 TV series,
mini-series and specials, and shorts, plus rights in over 240 books and 300 development projects• Most films are older, seasoned films • Legal final maturity--2021
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Royalty Streams Monetization
Major pause in the market
Few recent deals
Recent Patent Financing Deals
Astella Poseidon: $609M
Stereotaxis: $40M
Recent Trademark Financing Deals
Liz Claiborne: $200M
Tupperware: $400M
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Summary
IP Strategy and Assets: New Focus of C Suite
Dynamic market, but still early
Kodak Bankruptcy
Trident Bankruptcy
Moving to private companies
Friendster
WOWD
Increase in options for exploitation
RPX
Open Source Model: Hortonworks spinout from Yahoo
IPXI
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Questions?
Thank You
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