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INTELLECTUAL PROPERTY ANALYTICS

Patent Portfolio Monetization I

Issues to debate before creating a corporate monetization strategy


Agenda

•  Common patent portfolio Issues •  Monetization program goals & objectives •  Patent family value drivers •  Deal structures to consider •  Monetization mistakes

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Common Portfolio Problem #1: Evolutionary Fugue

•  Unclear patent holdings due to mergers, acquisitions, divestitures, lost records, and lack of a useful grading scale

•  Patent value confusion from changing court and PTO decisions and processes, and a lack of a simply stated inventive distinction and the PTO limitation(s) for each patent family

•  Lack of precision regarding technology and product line areas covered by each family, and how they read on adverse parties

•  Lack of database tools to easily manage the portfolio for BOTH product line and IP departmental success

•  Suspicion that substantial $$ wasted on maintenance fees for worthless patents, but no easy way to determine which ones

Result: lack of portfolio alignment with business objectives

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“Fugue Blanket,” by www.nemobott.com


Common Portfolio Problem #2: Cultural Confusion •  The IP department is typically a cost center, not a P&L center, so

portfolio management is under-resourced and “budget-adjustable” •  Ad-hoc portfolio organization, planning, and decision-support systems

(e.g. spreadsheets, licensing agreements, patent family growth, maintenance payments, product line issues, etc.)

•  Product line groups subconsciously think of a patent as a long term asset to be kept in a safe place for defensive emergencies

•  IP Dept. subconsciously thinks a patent is like like dry ice in the sun, so it needs to be used before it vaporizes over time

•  IP Dept. has no engineering resource; product line groups have it, but need it to maintain product line sales growth; both suffer from lack of portfolio knowledge

Result: Inability to properly address threats and opportunities, and efficiently manage the company’s patent portfolio

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Corporate Patent Portfolio Perspective •  When Nortel went under, the company was sold off in pieces •  Business divisions were sold:

§  Ericsson (CDMA & LTE assets) = $1,130m

§  Avaya (Enterprise Solutions) = $900m

§  Ciena (Metro Ethernet Networks) = $770m

§  Ericsson (GSM Business) = $100m

§  Genband (Carrier VoIP) = $100m

§  Ericsson (Multiservice Switch) = $65m

Total sale price for all 7 = $3.065B

•  Nortel’s residual 6,000 patents sold for $4.5 Billion— 50% more than all of its business divisions put together!

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Strategic Corporate Program Goals

•  Leverage exclusionary rights: u  Protect competitive advantage

u  Maintain freedom to operate

u  Create powerful negotiating chips for competitive IP issues

•  Enhance profitability via monetization: u  Maximize ROI on development $$

u  Minimize maintenance fees

u  Recoup $$ outlays for inbound license fees

u  Maximize company’s valuation

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Monetization Objectives To Support Strategy

•  Analyze, grade, and organize patent families such that: u  Inventive distinctions and critical limitations are identified for each family u  Product lines and IP Dept. can mine the patent database easily u  Identify technology areas with too many or too few good patent families u  Monetize excess good patent families in oversupplied areas u  File or acquire good patents in areas of deficiency u  Find & abandon patents of no value

§  Before the 11.5-yr $7400 maintenance fee for the parent patent + foreign fees… §  Before the 7.5-yr $1600 fee for each child patent + foreign fees

•  Create Innovative deal structures to leverage company’s IP •  Transform IP Dept. to a P&L operation that can afford:

u  Resource levels to consistently weed and feed the the company portfolio u  Outside analysis and reverse engineering expertise to analyze patent families and

determine which company patents are being infringed, and by whom

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Value Drivers

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Patent Family Value Ranges

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Patent Rating Chart Parameters*

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*Techinsights, an Ottawa reverse engineering company, broadly distributes this chart—a good way to rank patents for further diligence


Monetization Deal Architectures to Consider

•  2-stage private auction (6 mo.)

•  Stalking-horse bid invitation preceding private auction (8-9 mo.)

•  Directed 1-on-1 negotiated transaction

•  Recording bid (buyer proposes X families— seller rejects Y, & X-Y families ~ relate to $ bid)

•  Privateer model

•  Syndicated transactions

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Operating Companies Pursuing a Privateer Model

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Operating Company Sponsors

IP Privateers serving Operating Company

Palm (Under HP today) Smartphone Technologies LLC

Hitachi / SANDISK Solid State Storage Solutions LLC

ETRI SPH America LLC

HP/Cisco, others? AMBATURE LLC

Nokia/ Sony MMI LLC

Alcatel Lucent Multimedia Patent Trust LLC

GE CIF Licensing LLC

Hitachi Mednis LLC

Micron Technology Round Rock Research LLC

SHARP SHARP Technology Venture


Multi-Lot Parallel Patent Auction Strategy

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Negotiations carefully timed to avoid negotiation overlap


Monetization Mistakes

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Showstoppers for Patents Chosen for Monetization

•  High encumbrance load on the chosen patent families •  Restrictions mandated by company (e.g. No NPE’s) •  Degraded quality of patent families selected:

u  Less than 15-20% good Evidence of Use charts for number of patent families u  Poor litigation/licensing history u  Reexamination in process u  Terminal disclaimer to patent not in the portfolio u  Examiner limitations that narrow applicability to a small market u  Government investment in IP creation u  Complex technology + horrible claim language (poor English) u  Intervening rights u  Low apportionment factor

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Typical Seller Mistakes

•  Hang on to patents they don’t need until close to expiration

•  Selling leftovers after filtering out the good stuff

•  Hide vulnerabilities hoping none are discovered

•  Unrealistic price expectations

•  Internal changes to patent list late in the process

•  Monetization goals not supported by management

•  Unrealistic PPA terms (buyer drafts PPA, seller warrants facts)

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generic patent monetization basics 2 26-16

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