Key Issues in IP Due Diligence, Auction, Sale, and Monetization

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  • 1. Key Issues in IP Due Diligence, Auction, Sale, and Monetization The Value Perspective Presented by: Weston Anson CONSOR Intellectual Asset Management 800.454.9091 www.consor.com
  • 2. Key Issues 1. Identification and Context 2. Quality and Triage 3. Valuation Process 4. Value Extraction
  • 3. Key Valuation and Disposition Questions What IP does the debtor own? How does IP value change in various contexts? Bankruptcy, Going-concern, M&A Should the IP be valued? How do you value IP in a distressed scenario? How do you market and dispose of these assets most cost-effectively and time-effectively? Disposition Process: Direct Marketing or Static Auction?
  • 4. When Is Valuation Necessary? Strategic assessment of whether the IP assets be sold separate from the business Negotiation of “stalking horse” bids and initial asset bundle pricing structures Evaluation of bids for global asset portfolio versus individual asset buyers IP assets to serve as collateral for various forms of financing Purchase price allocation analysis of IP-related transactions
  • 5. IP & Intangible Assets Intellectual Property PATENTS COPY RIGHTS TRADE MARKS TRADE SECRETS Intangible Assets Data & Knowledge Bases COPY RIGHTS Customer & Vendor Relations Proprietary Software Proprietary Software Internet Assets
  • 6. Marketing Bundle of Intangibles Corporate name and logo Primary trademark Marketing umbrella and brand name Sub-brand names and trade dress Worldwide trademark registrations Secondary trademarks Worldwide public relations efforts Consumer advertising Marketing strategy Packaging design and copyrights Product warranties Graphics Promotional concepts
  • 7. Technical Bundle of Intangibles Key patents Trade secrets Formulae Process technology Design technology Packaging technology and sources New product technology Technical data sheets Evaluation data Proprietary test results Plant and production design Product specifications
  • 8. IT Bundle of Intangibles Enterprise solutions Custom applications Databases Source code Data warehouses Domain names / URLs E-commerce sites Third party software tools Credit / payment systems
  • 9. Intangible Asset Bundles Miscellaneous Assets Research-Related Assets Product-Related Assets Other Technology Assets Data/Information-Related Assets Internet-Related Assets People-Related Assets IT/Software Patent-Related Bundles of Value Communications-Related Assets IP Contracts Other Brand-Related Assets Real-Estate Related Assets Corporate Identity Assets Trademarks
  • 10. Identify IP / IA Bundles for Value Stratify IP / IA Core v. Periphery Peripheral portfolios may be monetized Vertical and horizontal Out-licensing / Spin-off Analyze quality of IP Relevancy to current / future business Relative strength analysis Potential infringement assessment
  • 11. Birth of the IP Auction / Sale Market History Genesis – When, Who Size – Dollars, Frequency, Statistics Issues Alternatives
  • 12. Types of Auctions Used with IP Public Open Cry Dutch Private Segregated / Isolated Stalking Horse
  • 13. Monetizing IP Assets Monetization Alternatives Sale License Creditor Settlement Sale & Leaseback Securitization Litigation Securitization Alternatives Line of Credit Take-out or DIP Interim Long term
  • 14. Disposition Process: Direct Marketing vs. Static Auction IP assets are unique with few comparables in the marketplace (El Comandante) IP assets require a strategic plan to identify incremental value opportunities (Polaroid) Targeted buyers typically need more information than is offered through static auction process (Collins & Aikman USA) IP assets must be creatively packaged to match specific buyer needs and / or strengths (Tower Records) Static auctions market the auction, not the specific assets (Ocean Tomo)
  • 15. Case Study - Collins & Aikman Key Assets: Instrument Panel Skin / Materials / Process Safety Systems / Invisible Airbag Door (107 patents) Interior Trim (96 patents) Skin Materials and Processes (67 patents) Console / Door Trim (18 patents) Decorative Finishes / Laminates (14 patents) Kinematics / Air Registers / Cupholders (45 patents) Exterior Trim (40 patents)
  • 16. Collins & Aikman: Direct Sale Sale Process: Direct marketing campaign to Tier 1 and Tier 2 automotive suppliers Technology due diligence was highly labor intensive Asset bundles sold individually to multiple buyers for nearly $5 million Total marketing and sale process executed over 9-month period
  • 17. Case Study – Amherst Fiber Optics Company: TVC Context: Liquidation of subsidiary Cause: Parent company cash flow Massive potential tax benefit Components: 8 related but independent patent bundles Fiber Optics after-market, repair and maintenance Cause: Liquidation Valuation Approach: Components of value Replacement value
  • 18. Amherst Fiber Optics: Monetization Identify all IP in each patent / technology bundle Inventory patent applications and registrations Collate related trade secrets,designs, assemblers, etc. Benchmark valuation Liquidation context End-use dependent Market the assets / close transactions Results: $400,000 – $700,000 cash $10+ million tax refund
  • 19. Case Study – Middleby Marshall Trademarks and Technology Company: Middleby Marshall Context: Acquisition Components: Core corporate brand Two sub-brands Patent and Technology bundle Cause: Loan securitization Approach: Imputed royalties Comparable sales Concept of Value: Going-concern Components of value
  • 20. IP and Intangibles in Foreclosure Summary Case Studies 2 BMP = Business Method Patent. A BMP provides protection for intellectual concepts and systems sufficiently unique to earn patent protection. The on-click ordering system of Amazon.com is a BMP. 1 The rankings for each company reflect relative value within that company in a bankruptcy or liquidation scenario (e.g., Montgomery Ward will realize most value from the “B” assets, IT & Databases). UL certifications Modest Multiple patents Security IT & software Corporate name Mosler E + C A, D, B Other BMP’s Online sweepstakes service Proprietary technology and BMP International databases Corporate TM beenz.com C + D B Hosting processes Complex assets Multiple BMP’s 2 Massive systems Corporate identity Exodus B, C, D, E Mail order system Online store None Operating platforms; Mailing lists Montgomery Ward, Ship N Shore, plus 100+ TM’s & sub-brands Montgomery Ward B A + D Chemical processes Limited Multiple and proprietary Manufacturing systems Corporate brand and sub-brands Borden Chemicals C + E A, B, D N/A Domain names & Website Manufacturing technology Complex operating systems Warners, Speedo, CK licenses Warnaco A plus B + C Other Internet Patents & Technology IT & Databases TM’s & Brands (E) (D) (C) (B) (A) Types of Intangibles Company Relative Value Ranking 1
  • 21. Bankruptcy and Reorganization Amherst Fiber Optics AstroTurf Barneys Boston Market Collins & Aikman Dan River El Comandante Fortunoff Jacobson's Stores Jenny Craig Kenar LA Gear Marvel Entertainment Montgomery Ward Owens Corning Polaroid Service Merchandise Starad, Christopher Radko Tower Records
  • 22. Summary Identify all IP / IA in the current project Understand the context for historical and potential use of the assets Triage the assets by quality and priority Bundle the assets for optimal effectiveness Benchmark valuation Liquidation context End-use dependent Market the assets / close transactions Licensing Sale or other disposition