National Knowledge & Intellectual Property Management Taskforce

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Taskforce Summiton

IP Value Extraction & Corporate Valuation

 (Part 2)

Highlights from the

Taskforce Work Session to Develop the Standards & Protocols

for the IP Secondary Market

Ford Global Technologies, Inc.

May 22-23,2003

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CONTENTS

This is a four part tutorial. The executive summary is repeated on the first 3 slides in each presentation. You may want to skip to page 6 to begin the new part.

PART 1: IP & Corporate Valuation – Defines how IP and other intangibles affect corporate value.

PART 2: The IP Secondary Market Initiative – Defines how the Taskforce is developing the means to bring IP into America’s Capital Markets

PART 3: Taskforce Accelerated Licensing Program – Describes How to get Cash for IP with two corporate analyses

PART 4: Overcoming the Obstacles – Defines Ways to Overcome Objections by Your Corporate Colleagues

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Executive Summary

The Taskforce Accelerated Licensing Transactions provide a reliable vehicle to generate IP based revenues, profits and cash.

The IP Secondary Market will create ready demand for IP and stimulate improvements in the innovation process.

The IP Secondary Market will establish & stabilize the valuation process for IP.

The obstacles to corporate use of IP backed transactions is the internal capabilities and functioning among the various disciplines within the enterprise…. And the apprehensions regarding the post Sarbanes – Oxley environment ….. Something this Summit expressly addressed and converted to meet IRS concerns.

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Executive Summary p2

The ability to develop a set of commonly acceptable standards for the valuation of IP and other intangible assets becomes the foundation for defining corporate and shareholder value.

The SEC and FASB are looking to the Taskforce for help with identifying key measures and metrics that link intangible assets with performance.

America and its companies must address the reporting implications of the transition to a knowledge economy.

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The Linkages Among IP Backed Transactions, Demand for IP and a

Secondary Market

1) The sale of selected portions of the IP Portfolio creates a supply of new product for Wall Street investors who recognize the growing importance of value extraction in the knowledge economy

2) The ability to repackage and resell these packets of IP based on risk and reward creates a more specialized capability to manage and extract value from the IP.

3) The reliability of value standards and ratings of IP quality and credit worthiness provide a framework for continuing demand for IP that can be openly traded in America’s Capital Markets

Hence the need to begin trading IP in a safe arena-the Taskforce arena.

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PART 2 - Taskforce IP Secondary Market Initiative

Putting IP into America’s Capital

Markets

Discussion & Agenda

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The IP2 Market Agenda

1) Define needs and interests of the Taskforce Member (IP Owners)

2) Provide guidance & protocols for IP based transactions

3) Develop qualification criteria and valuation standards

4) Support member IP backed transactions and secondary transactions

5) Establish an open market for IP backed securities and trading

6) Put IP & intangible assets into the mainstream economy

7) Provide valuation methodologies to transactions, trading & capital market growth

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Goal & Strategy Tactics

Goal: Create a secondary market for IP backed assets

Strategy:

Bring Corporate interest to using IP to create cash

Bring Wall Street interest into understanding that IP (with appropriate valuation standards) is as solid as real property backed assets

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Tactics

1) Focus on cash deals 2) Develop internal enterprise capabilities 3) Develop external relationships to support deals4) Develop valuation standards 5) Educate the regulatory community6) Educate the market7) Support governmental efforts to improve

measures and metrics in oversight policies8) Help internal managers be more effective in using

IP & IA management practices

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Taskforce IP Secondary Market Initiative

Taskforce Work Session on the

IP Secondary Market Program

Moderated by William J. Coughlin

President, Ford Global Technologies&

Taskforce Honorary Chair

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The Work Session

Problem: We have many sellers and few buyers. We have no viable market place and little incentive to buy.

Solution? Is a secondary market a viable solution for this situation?

Definition: We are defining the secondary market as converting cash flows from IP to a marketable security.

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Key QuestionsFramework for Discussion

1) What ways can the IP Secondary Market add value?

2) Who are the players and what are their roles?

3) What is the framework/structure?

4) What steps are needed to establish the market?

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Addressing the Questions1) Ways the IP2 Market Adds value

1) Distributes & transfers technologies

2) Bundles technologies for synergistic value

3) Manages litigation risk

4) Improves corporate liquidity

5) Improves internal management of IP & innovation practices

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Addressing the Questions2) Who are the Players?

1) Patent miners/Licensing execs

2) Standard Setters

3) Venture capital companies

4) Investment bankers

5) IP Owners/originators

6) Government regulators

7) Insurance companies

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Addressing the Questions3) What is the Structure?

1) Market Need: Readiness and capability of the financial community to engage in these transactions

2) Acceptable Standards for the Valuation Process: Does this require GAAP Principles to be adopted by FASB?

3) Definition of Underwriting Requirementsa) Claims management

b) File History Data Base

c) Quality Assurance/Regulatory Function

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Addressing the Questions4) What are the Next Steps?

1) Define the Products 2) Educate the Market 3) Do Deals4) Help Government Develop Pro Business

Policy4) Recruit Influence Leaders to Help Implement5) Strengthen the Value Proposition to the

Buyer6) Build Support in the R & D Community

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Dr. Henning’s 4 Keys : The IP Secondary Market Summary

1) The IP Secondary Market is viable and the Taskforce support of IP backed transactions will help accelerate the development of the market.

2) The Tax Issue has been defined so the Taskforce defined transactions can be acceptable to IRS by emphasizing the validity of the business purpose. Emphasize:

a) Real sale transactions (transfer of title & rights)b) Patent validityc) Contractual protections d) Keep subsequent obligations clean & discrete

3) Keep IP commercial objectives at the center of the transaction (This will create and sustain the secondary market.)

4) Work to develop Wall Street leaders to step up as market makers.

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Contact Information

For more information, Please contact the Center for Advanced Technologies 214/800-8810 or e-mail bshearer@km-iptask.og

The Center for Advanced Technologies is a non-profit corporation committed to economic growth and

innovation through improved management processes, technological innovation, executive education and

organization development.

The Center established the Taskforce in 1998 and serves as its managing partner.