kasznik ucberkeley 20apr2015 final

THE ROLE OF INTELLECTUAL PROPERTY AS A STRATEGIC

BUSINESS ASSET

Efrat Kasznik, Founder & President Foresight Valuation Group, LLC

Presentation at UC Berkeley April 20th, 2015

2 Foresight Valuation Group © 2014

About Me: Efrat Kasznik

¨  Founder and President, Foresight Valuation Group, a Silicon-Valley based intellectual property (IP) valuation, strategy and start-up advisory firm.

¨  IP valuation and strategy expert, with 20 years of experience

¨  Lecturer on IP Strategy, Stanford Graduate School of Business (GSB)

¨  Chair, Internet of Things (IoT) Committee, Licensing Executives Society.

¨  Listed on IAM 300 list of top IP strategists: 2013, 2014, 2015.

¨  Co-founder and adviser to startups, incubators and funds in the US and Europe

¨  Conference speaker and regular contributor to GigaOm, VenureBeat, Biz Journal, IAM Magazine, and other IP/business publications.

¨  MBA,


Foresight Client List: IP Services *

*Cases based on work done by our partners & affiliates over past 20 years


Outline

¨  IP Marketplace Overview

¨  IP Strategy for Growth

¨  IP Case Studies


Intangible Assets = 80% of S&P 500 Market Value


IP in Consumer Products

Copyrights

Trade Secrets

Patents

Trademarks


IP in Digital Products

Patents

Copyrights

Trade Secrets

Trademarks

Angry Birds


Type Definition Criteria Life Example

Copyrights

Original works of authorship: literary, dramatic, musical, artistic, etc

Automatic protection Author’s life + 70 years

Trademarks

Word, name, symbol, device used in trade to distinguish goods

Unregistered (first to use – common law), or registered with USPTO

No expiration as long as used commercially

Trade Secrets

Business items/info: 1.  Economic value 2.  Kept confidential

No need to show novelty, or disclose publicly; need to take measures to keep confidential (stamp, lock up)

Indefinite

Patents

Right to exclude others from making, using or selling products covered by invention in a defined territory (constitutional property right)

Novel, Non-obvious, Reduced to Practice; Granted by the USPTO; Territorial protection (by country of registration)

20 years from filing

Comparison of IP Rights


The Berkeley Patent Study (2010): Competitive Advantage of IP by Industry


Let’s Talk About Patents …


Source: The Guardian and New York Times

The Mobile Patent Wars


250k Patents Going into Smartphones

Design Patents Ex. ‘slide to unlock’ feature Rounded square icons

Utility Patents Ex. Enlarging documents by tapping screen Single touch and multi touch gestures ‘pinch to zoom’


Apple, Microsoft, Research in Motion, EMC, Ericsson, and Sony joined together in a consortium to win an auction for the 6,000 patents of the bankrupt Nortel at a price of $4.5 billion.

Google, the losing bidder in the Nortel auction, announced the $12.5 billion acquisition of Motorola Mobility, whose IP portfolio includes 17,000 issued patents and 7,500 patent applications.

June 2011 Aug 2011

Multi-Billion Dollar Deals Involving IP


Forces Impacting the Patent Marketplace

IP Marketplace


The US Patent Prosecution Process First to File (AIA)

R&D

Invention Disclosure

(First to File)*

Provisional Application

Non-Provisional Application

Patent issued

(valid 20 years from filing + 12 months of

provisional)

3+ years

Renewal & Maintenance fees

12 months


USPTO Pendency and Backlog Increase

Pendency time is close to three years… … while application backlog is around 700,000

Source: USPTO.gov


USPTO Performance Statistics As of November, 2014

Source: http://www.uspto.gov/dashboards/patents/main.dashxml


The Majority of Top US Patent Recipients In 2012 are Foreign Companies

Source: The Intellectual Property Owners Association (IPO)


America Invents Act (AIA) Highlights

Represents the most significant overhaul to the US patent system since 1952 >> putting small businesses at a disadvantage:

¨  Main Changes include: ¤  US moves from First to Invent to a First (Inventor) to File system

(Section 102) – aligns the US with the rest of the world – Effective March 16, 2013

¤  Post-Grant Review process for Business Method/other Patents at the USPTO: Establishment of the Patent Trial and Appeal Board (PTAB)

¤  Joinder of parties >> Bars plaintiffs from suing multiple defendants (Section 299)


Post-Grant Review Process

21 Foresight Valuation Group © 2014 Source: Lex Machina

Over 6,000 Patent Lawsuits Filed in 2013


Patent Litigation Declining in 2014


NPEs (“Troll”) Litigation: Sharp Rise Since 2010


Startups Most Litigated by Patent Trolls

Companies with less than $100MM annual revenue represent at least 66% of Patent Trolls defendants

At least 55% of unique defendants in Patent Troll

lawsuits make under $10MM per year

Source: Startups and Patent Trolls, Colleen Chien, Santa Clara University School of Law, Legal Studies Research Paper Series, September 2012


The Old Patent Marketplace

IP Creators/Holders - Operating Companies - Independent Inventors - Universities -  Research Institutions -  Gov’t labs

Direct Licensing

Enforcement (Legal)

Cross Licensing

IP Users -  Operating Companies -  Others


The New Patent Marketplace in 21st Century – Rise of the Intermediaries

Intermediaries: • Non-practicing entities (NPEs) • Patent Funds/Aggregators (Intellectual Ventures) • Market Makers (Auctions, patent exchange) • Financial services (securitization, litigation finance)

IP Creators - Operating Companies - Independent Inventors - Universities -  Research Institutions -  Gov’t labs

IP Users - Operating Companies -  Others

Patent Sales/licensing

Enforcement (Litigation)

Cross Licensing


Patent Monetization: Industry Trends to Watch

¨  Enforcement Business Model is Under Attack v  Patent litigation declines for first time in 5 years v  IV and other enforcement entities scaling down

¨  Patent Transactions Slowing Down v  Patent transactions slow-down (especially software patents) v  Buying moved to China (mobile, IoT are hot right now)

¨  Focus Shifting to Validity v  Post-AIA PTAB proceedings: “Patent Death Squads” v  Supreme Court patent decisions: Alice (SW), Myriad (genes)


Outline

¨  IP Marketplace Dynamics


¨  IP Case Studies


Sources of IP

Internal R&D Manufacturing Marketing

Tech Transfer

Sources of outside innovation: • In-licensing (companies, universities) • Buying start-ups, competitors • Universities, research institutions • Collaborative R&D outfits (Xerox PARC)


Types of Intellectual Property Transactions

•  Patents, technology •  Software (copyright licensing) •  Trademarks

Use Internally

License

•  Active market for patents in the US •  Companies selling to gain liquidity, alternative to

funding Sale

•  Contribute patents/technology into JV (collaborate with strategic partner)

•  Spin off a new company (common to universities)

Joint Venture/

Spin Off

•  Licensing Campaign •  Litigation Campaign Enforcement


The Berkeley Patent Survey (2010): Top Reasons Why Startups Don’t File for Patents

"For your last innovation you did not patent, which if any of the following influenced your company's decision?"


Developing IP position

Portfolio commercialization & monetization

Portfolio liquidation

IP Strategy Throughout the Lifecycle: Growing IP as a Strategic Business Asset


Developing IP position

IP Strategy – New Venture: Building an IP Portfolio to Increase Valuation

Goals: •  Freedom to operate •  Block competitors •  Support future products •  Hedge against litigation •  Attract buyers & investors •  Monetization •  Liquidation Value

Sources of IP: •  Internal R&D à filing patents •  Buying patents •  In-licensing (university, government

labs, etc.)


Portfolio commercialization & monetization

Portfolio liquidation

Strong IP Portfolio Supports Later Phases

Use Internally

License

Sale

Joint Venture/Spin Off

Enforcement

35 Foresight Valuation Group © 2014 2

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Patents

Year

Patents per Source per Filing Year

US Applica4ons

US Grants

Cyclical Market Filing Trends


Emerging Market Filing Trends

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10

20

30

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60

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Patents

Year


US Applica4ons

US Grants


Mature Market Filing Trends

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100

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500

600

700

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Patents

Year


US Applica4ons

US Grants


“Bubble” Market Filing Trends

0

500

1000

1500

2000

2500

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Patents

Year


US Applica4ons

US Grants


Emerging Market Market Map

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0 20 40 60 80 100 120

Resources (% Reven

ue + % Loca9

ons +

% Li9ga9o

n)

Vision (% Patents + % Classifica9ons + % Cita9ons)

Top 50 3D Systems Corpora4on

Stratasys Ltd.

Huntsman Corpora4on

DWS Srl

Global Filtra4on Systems

Koninklijke DSM NV

EOS GmbH Electro Op4cal Systems

Micron Technology, Inc.

Envisiontec GmbH

Nabtesco Corpora4on

Jeffery, Timothy M

HewleY-‐Packard Company

Zydex Pty Ltd

Eta SpA

Delphi Automo4ve PLC

Seagate Technology PLC

Bombardier, Inc.

JSR Corpora4on

United Technologies Corpora4on

Rutgers, The State University of New Jersey

Imagecube LLC Pennsylvania

Notar, Walter, 89264 Weisenhorn, De

Creo Srl

Imagecube, LLC, Pennsylvania

Milwaukee School of Engineering

Jones, Ronald D

Na4onal University of Singapore

Potential Buyers

Incumbents

Followers & Entrants

Potential Sellers


Mature Market Market Map

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20

40

60

80

100

120

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Resources (% Reven

ue + % Loca9

ons +

% Li9ga9o

n)


Patents, Revenue, and Li9ga9on per Company

Microsoa Corpora4on

Interna4onal Business Machines Corp.

Apple Inc.

Google Inc.

SAP SE

Samsung Group

Oracle Corpora4on


Potential Buyers

Incumbents


Potential Sellers


Mature Market Market Map

0

20

40

60

80

100

120

0 20 40 60 80 100 120

Resources (% Reven

ue + % Loca9

ons +

% Li9ga9o

n)


Patents, Revenue, and Li9ga9on per Company Interna4onal Business Machines Corp.

Microsoa Corpora4on

AT&T Inc.


Intellectual Ventures Management, LLC

General Electric Company

Google Inc.

Siemens AG

Oracle Corpora4on

Intel Corpora4on

Potential Buyers

Incumbents


Potential Sellers


Emerging Market: “White Space” Analysis


Mature Market: “White Space” Analysis


Outline

¨  IP Marketplace Dynamics


¨  IP Case Studies ¤  Famous IP Mistakes!! ¤  Crowdfunding ¤  VC Funding ¤  Startup Litigation (Nest Labs) ¤  Complex Transaction (Facebook)


Product IP Strategy Scenarios

¨  IP strategy can determine a product’s success, market share, and profitability ¤  Freedom to operate ¤  Block competitors ¤  Support future products ¤ Hedge against litigation ¤ Attract buyers, investors

¨  Case studies demonstrate that a failure to properly address IP issues can result in loss of market share, margin erosion, and reduced market competitiveness


Support Future Products: Xerox PARC

Product: Graphical User Interface (GUI)

Overview: In 1979, Xerox’s PARC (Palo Alto Research Center) decided not to patent its invention of the GUI because Xerox management didn’t see value or business in then small PC market. Outcome: A loss in potential royalty revenues from ‘84-’98 from Mac and windows sales estimated at half a billion dollars. Insight: Failure to patent results of innovative research can lead to huge financial and strategic losses.


Freedom to Operate: Polaroid and Kodak

Product: Instant Camera

Overview: Kodak launched “Project 130” to develop instant cameras and films – going after Polaroid’s patented innovation. Kodak was aware of potential infringement dangers, but went ahead with its R&D strategy.

Outcome: Kodak found to have infringed on seven of twelve Polaroid instant photography patents and ordered to pay $925M in damages to Polaroid. Total cost - $3B (700 employees layoff, $1.5B manufacturing plant, $500M buyback cost of 16M instant cameras, and$100M legal fees).

Insight: Kodak’s should have designing around the patents and developed more advanced inventions of their own.


Crowdfunding: IP Scam


Campaign Copied to Competing Platform


Dealing with Investors: Sage Advice or Recipe for Disaster?

Why You Should Risk Sharing Your Idea BY SCOTT WEISS One of the rookie mistakes first-time entrepreneurs often make is to be too guarded about their idea – in fact, many will actually spend their first $25,000 on patent lawyers without ever fully vetting their product. In order to gain credibility and attract investor attention, it’s critical to aggressively seek out the most relevant people in the world and get their feedback. I believe most young entrepreneurs massively overestimate the chances of someone stealing their idea versus the benefits associated with sharing it.

Andreesen-Horowitz blog, Oct. 2014


Questions for Discussion

¨  Can you be too guarded about your idea? ¨  Does patent protection really cost $25k? ¨  When is a “product first” strategy appropriate? ¨  Are product development and IP protection mutually

exclusive? ¨  Do the benefits of freely sharing your idea

outweigh the risk of your idea being stolen?


Honeywell Int. vs. Nest Labs, Inc. Startup Sued by Incumbent

Product: Smart Thermostat Overview: Honeywell filed a multi-patent infringement lawsuit against Nest Labs for allegedly infringing on seven Honeywell patents – sought cease and desist order and collection of damages – not licensing fees.

NEST Actions: 1.  Nest filed for reexamination of Honeywell’s patents. 2.  Next created a large patent portfolio (hired Apple’s GC) 3.  Nest buying patents from Intellectual Ventures to further defend itself.


Facebook-Yahoo-AOL Case: Complex Deal Situation

End of 2011

•  Facebook owns 56 patents

2/27/2012

• Yahoo accuses Facebook of infringing on 10-20 patents

3/22/2012

•  Facebook buys 750 IBM patents to defend against Yahoo for undisclosed price

4/3/2012

•  Facebook countersues Yahoo for patent infringement

4/9/2012

• Microsoft pays $1.06B for 800 AOL patents and 125 apps.

4/23/2012

•  Facebook acquires 650 AOL patents and license the leftover AOL patents from Microsoft for $550M

vs. vs. $$ $$ $$


Patent Resources for Startups

www.patentbuddy.com

patft.uspto.gov

priorsmart.com

wipo.gov

patents.google.com

uspto.gov

THANK YOU!

Efrat Kasznik President, Foresight Valuation Group

[email protected] www.linkedin.com/in/ekasznik

650-561-3374

www.foresightvaluation.com

Presentation available upon request

kasznik ucberkeley 20apr2015 final

Documents

ip services

ip portfolio

ip strategists

foresight client list

competitive advantage

issued patents

indefinite patents

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