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Intellectual Property as the Crown Jewel of a Highly-valued Semiconductor Start-up

Intellectual Property as the Crown Jewel of a Highly-valued Semiconductor Start-up

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Presentation At Ip Conf. 02 12 10 Presentation Transcript

  • 1. For private use only -- CASPA Copyright Protected Intellectual Property as the Crown Jewel of a Highly Valued Semiconductor Start-up – a Real-life Case Study Intellectual Property Symposium 2002 in Guangzhou December 10, 2002 Presented by: Al Kwok President, CASPA Pearl River Delta Chapter Member, VSI Alliance IPP DWG
  • 2. For private use only -- CASPA Copyright Protected Outline  General background  Intellectual Capital, Human Capital, Intellectual Assets & Intellectual Property  IP as the strategic leverage  A case study – for high-tech start-ups to follow  Semiconductor IP business model  Best practices in IP management  China’s situation  Suggestions to investors  Suggestions to entrepreneurs  Acknowledgements and appreciation 2
  • 3. For private use only -- CASPA Copyright Protected Intellectual Capital (IC)  According to Brooking Institute study of thousands of non-financial companies, the percentage of company value attributable to intangible assets (Intellectual Capital) has increased dramatically:  1978: 83% in tangible assets; 17% in Intellectual Capital  1998: 31% in tangible assets; 69% in Intellectual Capital  In Information Age, Intellectual Capital represents the value of a company  IC is defined as KNOWLEDGE that can be converted into VALUE  Knowledge companies make profits by converting knowledge into revenue.  Product/market knowledge for differentiation -- a key competitive advantage  IC consist of 2 elements: Human Capital and Intellectual Assets  Human Capital (tacit knowledge, know-how and relationship)  Person (employee) specific and not interchangeable – e.g., a chef’s know-how  The employer does not own it: It leaves the company at the end of each workday  Intellectual Assets (codified knowledge, know-how and relationship)  Independent of the operator and interchangeable  Belong to the company and not to its creators  Intellectual Property is legally protected Intellectual Assets Source: VSI Alliance (IPPWP2 1.0) 3
  • 4. For private use only -- CASPA Copyright Protected Intellectual Capital Intellectual Capital Human Intellectual Capital Assets (Tacit Knowledge  Codified Knowledge) 2 1 IP How to expand one’s Intellectual Property (IP):  By converting Human Capital into Intellectual Assets through the Employment Agreement and systematic and thorough documentation of the process of engineering and improvement  By converting Intellectual Assets into Intellectual Property through legal claims (by confidential notices) and protection (by NDA and proper access controls – on a “need-to-know” basis) Source: VSI Alliance (IPPWP2 1.0) 4
  • 5. For private use only -- CASPA Copyright Protected What is Intellectual Property?  Innovation => Creation of marketable values  The core competencies & primary differentiators  Intellectual property  Crown jewels of innovation - lasting values!  Sole ownership (without contaminations)!?  Exclusive rights to use for commercial purposes  Patents, trademarks, copyrights, trade secrets, etc.  Mark your market territories by patent, copyright and trademark claims (No Trespassing signs!):  Let people know you are the owner!  Keep some know-how to yourself as trade secret 5
  • 6. For private use only -- CASPA Copyright Protected Competitive Intelligence  An organized process for gathering and analyzing publicly available information about trends and competitor activities to further company objectives  Companies about which information is desired  In the same technology and business space  Competitors, customers and enablers (service providers & partners)  Key competitors’ IP portfolios  # of patents, segments by technology area, pace of patenting (in quantity over time & by technology area)  Strength and weakness of the technology, strength of patent claims (their breadth & depth)  How to navigate through the “patent minefield”  Internal IP audit to understand one’s own SWOT (Strength, Weakness, Opportunities and Threats) Source: VSI Alliance (IPPWP2 1.0) 6
  • 7. For private use only -- CASPA Copyright Protected Intellectual Property (IP) as the Strategic Leverage
  • 8. For private use only -- CASPA Copyright Protected IP for Commanding Mkt. Position  IP defines the ownership of any market territory and one’s position along a product/service food chain:  Dell and Compaq/HP dominate PC market  Protected by their IP portfolio (brand, patents, know-how, etc.)  Controlling the Market/Customer Channels  Sitting on the top of the PC food chain  Striding to outsource their manufacturing & design work  Taiwan manufacturers as manufacturing partners  Providing low-cost manufacturing supports (open book for audit!)  Managing the logistics for 48-hour global ship-to-order end- customer delivery  Financing the WIP and buffer inventories at multiple manufacturing sites world-wide  Responsible for all RMAs and replacements to consumers  Funding the BRAND (IP) OWNERS’ businesses, with much lower profit margins (actually <10% gross margin) in return!!  At an inferior position along the PC food chain 8
  • 9. For private use only -- CASPA Copyright Protected The Value Hierarchy Brand Innovation Values/Profit Margins Intellectual Property 50% Applications (Mkt. & Standards) System Integration (Archit., …) Outsourcin 40% Trend Engineering (Design, ODM,..) g 30% Manufacturing (Process, OEM) Consumer recognition Core competency 9
  • 10. For private use only -- CASPA Copyright Protected The Value Hierarchy – cont.  A corporation defines its profit-making potential by the activities upon which it focuses its key resources.  <30% PM (profit margin) for contract manufacturing  <50% PM for ODM with little IP leadership  >50% PM for an IP leader setting a de facto standard  The two curves along Core Competency axis (based on Innovation) and Customer Recognition axis (based on Brand) form the wall of the bowl holding the potential profit  Lowering of either curve will let the potential profit escape  In order to achieve high profit (like “Wintel”), a corporation must focus its resources mainly on strengthening its core competence with differentiating IP generation and promoting customer recognition as the leading brand. 10
  • 11. For private use only -- CASPA Copyright Protected Evaluating of a High-tech Corp.  Value Proposition  Market: What are the product(s) and service(s)?  Applications: De facto standards (e.g., “Wintel”)?!  Competition: Who are in the same market space?  Profitability: Profit margins attainable, ROI  Core Competency  Differentiating values – by how much? Uniqueness?  Barriers to competition – by means of intellectual property  Protecting the lead – outsourcing non-core functions  Brand Recognition (as a de facto standard)  Building reputation and customer base (market share)  Securing long-term customer loyalty 11
  • 12. For private use only -- CASPA Copyright Protected Hierarchy of IP Management Increasing capabilities Long-term Growth to affect the future (Market dominance) Short-term Growth (Market share) Profitability (Within the domain) Cost-effectiveness (Within the domain) Level 1 Each level of IP Management builds on the foundation of the lower levels Source: VSI Alliance (IPPWP2 1.0) 12
  • 13. For private use only -- CASPA Copyright Protected A Case Study – for high-tech start-ups to follow
  • 14. For private use only -- CASPA Copyright Protected IP for High Investor Valuation Case Study #1 (in Silicon Valley):  A 5-year-old hot start-up in Network Search Engine (NSE: a co-processor & a core component for routers)  Building an impressive patent portfolio since 1998  In-house patent attorney to manage IP creation/development  25 patents granted & much more being reviewed @ USPTO  Enabling cutting-edge product developments  Closed 2 recent rounds of financing – investors approached  US$22M+ (“UP”) round in September 2001  US$32M+ (“UP”) round in June 2002  While the NASDAQ index dropped from >4000 to <1600 and many start-ups were abandoned by investors  Seasoned investors value IP for its lasting values!! 14
  • 15. For private use only -- CASPA Copyright Protected Market Demand for NSEs  New paradigm - network (parallel) search engines have become mainstream (in the last 3 years)  Higher data rate (in # packets/sec.)  More packets (data traffic) to process: ~10X  Deeper processing (in # searches per packet)  More searches per packet for QoS & security: ~4X  More items (stored in the table) to check  Table size increase from 12.8K to 2M entries: ~100X  4000X increase in search rate requirement by now  New applications with ~2Mx128 bit table for >150Msps  Traditional software (hash-based) search approach is out of date! 15
  • 16. For private use only -- CASPA Copyright Protected An Application Example 16 15
  • 17. For private use only -- CASPA Copyright Protected Valuable Patent Portfolio Patent # Title matter Type Date Elapsed # Claims Yearly Filing Issued Days Total 1 6,199,140 Multiport CAM and timing signal S, A 30-Oct-97 16-Mar-01 1,233 21 2 6,148,364 Method for cascading CAMs S, A 30-De c-97 14-Nov-00 1,050 31 2 3 6,240,485 Learn operation in depth-cascaded CAMs F, BA 11-Ma y-98 29-May-01 1,114 30 4 6,219,748 Implementing Learn instruction BA, C 11-Ma y-98 17-Apr-01 1,072 39 5 6,381,673 Next HPM in CAM F, BA 6-Jul-98 30-Apr-02 1,394 37 6 6,418,042 Tenary (3-state with "don't care") CAM A 9-Se p-98 9-Jul-02 1,399 75 4 7 6,237,061 Method for LPM F, BA 5-Ja n-99 22-May-01 868 7 8 6,125,049 ML control circuit for CAM BA, C 5-Ja n-99 26-Sep-00 630 8 9 6,137,707 Compare operation for CAM F, BA 26-Ma r-99 24-Oct-00 578 40 10 6,460,112 Determining LPM F, BA 22-Jun-99 1-Oct-02 1,197 51 11 6,393,514 Full flag and almost full flag F, BA 12-Jul-99 21-May-02 1,044 38 12 6,175,513 Detecting multiple matches in a CAM F, BA 12-Jul-99 16-Jan-01 554 35 13 6,243,280 Selective match-line pre-charge in IRC BA, C 9-Se p-99 5-Jun-01 635 40 14 6,275,426 Row redundancy BA, C 18-Oct-99 14-Aug-01 666 53 15 6,154,384 TCAM cell A 12-Nov-99 28-Nov-00 382 19 16 6,147,891 ML control circuit for CAM BA, C 21-De c-99 14-Nov-00 329 15 10 17 6,191,970 Select ML discharge in a part. CAM array BA, C 13-Ma y-00 20-Feb-01 283 11 18 6,324,087 Partitioning a CAM A 8-Jun-00 27-Nov-01 537 33 19 6,249,467 Row redundancy BA, C 8-Jun-00 19-Jun-01 376 20 20 6,229,742 Spare address decoder BA, C 8-Jun-00 8-May-01 334 5 21 6,252,789 Inter-row configurability (IRC) A 14-Jun-00 26-Jun-01 377 49 22 6,246,601 Inter-row configurability A 14-Jun-00 12-Jun-01 363 10 23 6,243,281 Segment access in IRC BA, C 14-Jun-00 5-Jun-01 356 29 24 6,317,350 Hierarchical depth cascading S, A 16-Jun-00 13-Nov-01 515 53 8+ 25 6,445,628 Row redundancy BA, C 18-Jun-01 3-Sep-02 442 20 Ave. / S.D. 709 / 367 Total 769 17
  • 18. For private use only -- CASPA Copyright Protected Build a Valuable Patent Portfolio  Application & market potential  Assess commercial values – in term of cost/performance improvements  Differentiation – for competitive advantages  Types of innovation in order of value hierarchy  System application level (S): e.g., the Sandisk “338” patent for flash-memory card  Including new functionality (F) & system architecture  Chip architecture level (A) – building blocks  Chip array architecture level (A) – for memory array  Block architecture level (BA) – enhanced functionality/performance  Circuit level (C) – circuitry (more difficult to monitor) 18
  • 19. For private use only -- CASPA Copyright Protected Values to Investors  Fast-growing market demand – tied to IT traffic growth  Compelling solutions  Solving the IT bottleneck (>1000X improvement)  Great revenue potential  High revenue per board (>50% of the total cost of BOM)  Attractive gross margin (>55%)  Well-positioned in the market  Cutting-edge system solution products (S/W+H/W)  Key customer design-wins (at the top 20 customers!)  Well-protected lead  Comprehensive and key (system & architecture) patent portfolio  Patent portfolio at ~2% of total investors’ money (~US$50M)  ~US$12K/patent => 75 patents for ~US$1M 19
  • 20. For private use only -- CASPA Copyright Protected Semiconductor IP Business Model
  • 21. For private use only -- CASPA Copyright Protected Future Trend for SOC  The success of SOC depends on IP Reuse  SIP trading will be a fact of life for 90nm node and beyond  IP Reuse means standardization of IP library  Organizations driving SOC IP reuse:  VSI Alliance (US), VCX (EU), SOC Consortium (Taiwan)  Key factors about IP Reuse/SOC effort  Technical aspect:  Design for re-usability  IP interface specification  IP verification, characterization & promotion  Legal aspect:  IP novelty – ownership & non-infringement  IP authentication – certification of originality  IP protection – by law  Business aspect:  IP licensing (from owners to users)  IP library consolidation (by foundries)  IP trading (3rd parties as escrow agents) 21
  • 22. For private use only -- CASPA Copyright Protected Semiconductor IP Business Model Key success factors based on H&Q’s SIP Flywheel Model:  Differentiated SIP -- performance  IP portfolio – clean (uncontaminated) & comprehensive  User-valued features – mission-critical, >10X improvement?  Silicon verification – full validation of the innovation  Market “Pull” -- market acceptance  End users pull -- lead user (market leader) endorsements  Market presence, applications, references & recommendations  Industry (standard) “Push” -- becoming the de facto standard  Partners and supporters push  JEDEC promotions, strategic alliance (e.g., Intel ecosystem), …  Foundry & EDA supports, service partners, etc. 22
  • 23. For private use only -- CASPA Copyright Protected SIP Flywheel Model Differentiating SIP Industry “Push” Creating an ecosystem (a self- Market sustaining and enriching “Pull” Creating a huge demand system): to be the de facto standard Strategic partners and enablers Standardization based on volume & cost advantages 23
  • 24. For private use only -- CASPA Copyright Protected Areas for Innovation Key Design Considerations Performance Fab Technology Factors (Low) System Interface Factors (High Speed Power & Features) Reducing (High) Noise (Low) Overall Density (/area) Cost Form factor Reliability (Small & Robust) (High) Package Technology 24
  • 25. For private use only -- CASPA Copyright Protected Focus for Innovation  Proper SIP focus for design-house start-ups:  System architecture and interface  New system architecture/function(s)  New interface scheme for higher I/O data rates  Performance (chip level): =/>100X improvement  New functions  New architecture: chip and block level  Power/Voltage reduction  New power management scheme  New architecture: chip or block level  Density (feature size reduction)  New array architecture  New storage element 25
  • 26. For private use only -- CASPA Copyright Protected Best Practices in IP Management
  • 27. For private use only -- CASPA Copyright Protected Best Practices To convert Intellectual Capital to Intellectual Property:  Patent Program  To define the general practices to protect inventions  To educate employees issues about patents and patent law, especially those related to the preparation of patent applns.  To encourage the proper documentation of inventions  Patent Award Program  To encourage inventors to develop patent-able ideas  To recognize and reward inventors’ creative efforts and extra time and energy required to successfully pursue a patent application to conclusion  Documentation  Laboratory Notebooks (bound & serialized) – legal document providing corroborative evidence (sequentially dated and signed) 27
  • 28. For private use only -- CASPA Copyright Protected Best Practices – cont.  Patent Committee (top management focus)  Maximize ROI of IP dollars by identifying  Which inventions should be protected by patents,  Which should be kept as trade secrets and  Which should be published (put into the public domain)  Provide a well-organized and consistent evaluation of inventions and their disposition  Set patent budget (as a % of investors’ investment dollars!!)  Consist of 3 to 5 key persons: In-house patent attorney, CTO, VP of Business Development, VP of Product Definition, …  Meet on regularly basis (weekly or bi-weekly) for inventor presentations and invention review  Review all patent proposals for filing decision and strategy  Make suggestions to inventors for improvements and refinements  Make foreign filing decisions 28
  • 29. For private use only -- CASPA Copyright Protected Best Practices – cont.  The patent process  Inventor/Idea  Reduction to practice (a key step!)  Corroboration of the engineering notebook (legal document)  Invention Disclosure Form (legal document)  Patent Committee review  Preparation of patent application  Should be drafted by the patent attorney  Foreign filing of application  Thorough evaluation of the costs vs. benefits  Procedure in the USPTO (office actions, etc.)  Monitor the status at USPTO closely  Issuance of a patent  Assignment to the Assignee (Company)  Product/Literature marking 29
  • 30. For private use only -- CASPA Copyright Protected Best Practices – cont.  Invention Disclosure Form (legal document)  Inventor(s): name, employee ID #, address, contact #s, citizenship, etc.  Conception of invention (dates, where, to whom, etc.):  1st drawing, 1st written description, 1st oval disclosure  Construction of device (when, by whom, witness, data):  Design, construct and test  Sale (record)  Use and publication  Industry standards  Related printed publications, patents and/or patent applications  Government contract  Detailed description  Any disclosure to a third party on the matter: NDA? Record  To ensure “clean room” uncontaminated creation process 30
  • 31. For private use only -- CASPA Copyright Protected Detailed Description of Invention  General purpose or goals of your invention.  Describe the general area of technology to which your invention applies and prior ways, if any, of performing similar function or goals.  Indicate the disadvantage(s) of prior technologies.  Describe generally your invention.  Describe in detail your invention referring to block diagrams, schematics, flow charts, graphs, or other illustrations.  Identify how your invention overcomes the disadvantages of the prior technologies.  Summarize the advantages of yours over the prior technology.  Indicate the features which are believed to be new.  Indicate alternative embodiments or methods of your invention.  Suggested claim ideas.  If this is a joint invention, indicate the contributions of each inventor. 31
  • 32. For private use only -- CASPA Copyright Protected China Situation and Suggestions
  • 33. For private use only -- CASPA Copyright Protected China’s Situation  Domestic market with huge potential  Envy of the world – the ONLY leverage for China’s High-Tech Economic Development  Open to global competitions – by the rules of WTO  State of the high-tech industries  Still in early stage of development  Few domestic corporations have achieved world- class stature (like TSMC)  IP infringements and violations are commonplace  Short changing the future (will remain at the bottom of the food chain in economic development)  Lack of IP protection infrastructure to earn customers’ trust for high-tech service industry (like software subcontracting)  Too many resources wasted on low-value IPs! 33
  • 34. For private use only -- CASPA Copyright Protected Missing Links!  IP Protection is the base for Software Industry  Software industry in developing countries (like India and Ireland) builds on subcontracting (services).  Overseas customers have to be made comfortable to disclose their proprietary information for the outsourced software work.  Lack of an adequate IP protection infrastructure & culture means NO CUSTOMERS’ TRUST and NO BUSINESS!  IP Reuse & Licensing is the future for IC Industry  System-on-chip (SOC) is the product trend for semiconductor.  No company has the resources to develop all the IPs for SOC.  IP trading and cross-licensing will be the way of life for product development at 0.13um node and beyond.  Lack of an adequate IP protection infrastructure & culture hinders the advancement of semiconductor industry.  Trading contaminated IPs can poison the whole IP blood supply – “AIDS VIRUS” to the whole industry! 34
  • 35. For private use only -- CASPA Copyright Protected Cost of IP Infringement  A highly probable scenario:  Dr. X joins a hot Chinese start-up (Company C) as its CTO developing a flag-ship IC chip (Product A) competing with his former US employer (Company I).  Dr. X uses some key circuits that he developed at Co. I.  Product A is a big hit; Co. C goes IPO with a big bang!  Co. I files a lawsuit against Co. C in US/Europe claiming IP infringement and requests for injunction.  All US and Europe bound shipments of Co. C’s customers are stopped, causing enormous financial losses (>1 million folds!).  The US jury finds the key circuit is essentially the same and Co. C infringes Co. I’s IP.  Headline news in US: “Chinese company steals US technology”. Talk shows exacerbates the bad press, hurting the image of China and its entrepreneurs as well as Chinese American entrepreneurs!  The foundry cuts off its support. The stock crashes; investors flee.  Co. C goes bankrupt and shuts down. 35
  • 36. For private use only -- CASPA Copyright Protected Suggestions  To China investors (incl. Gov’t science parks)  Protect your long-term interests by funding only projects with legally licensed IPs or GENUINE IP development (REAL value creation)  Take a proactive role to discourage IP infringement and encourage IP licensing  To China entrepreneurs  Define your market position with competitive intelligence  Join the international standardization body to get first-hand information  Do your homework first and map out the “patent minefield”  Ignorance is not an excuse! Be responsible to your investors  Focus on genuine value creation and build a lasting foundation to compete globally  Money is not everything!! Don’t short change the future!  Play by the international business rules of the game (set by WTO)  You have the pride and capability to flourish without IP infringements  Be the PRIDE of China and a WORLD-CLASS GLOBAL corporate citizen!! 36
  • 37. For private use only -- CASPA Copyright Protected Acknowledgements Many thanks to Hong Kong IP Department for inviting me Thanks to VSIA IPP DWG for its fellowship & inspiration 37
  • 38. For private use only -- CASPA Copyright Protected Thank You Very Much for Your Attention! I am looking forward to future cooperation with you! 38