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IP Driven M&A - Diligence

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How can you be sure you are conducting proper diligence on IP assets when evaluating large patent portfolios during a potential merger & acquisition? Kent Richardson presents with several other IP experts as to how to conduct and budget diligence regardless of asset number, patent families or tech landscapes.

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IP Driven M&A - Diligence

  1. 1. Richardson Oliver Law Group IP Driven M&A - Diligence March 6, 2012 Jeremiah Chan – JDSU Kent Richardson – ROL Group Hoo-Min Toong – IP Vision Duane Valz – Google
  2. 2. 2 Agenda • Diligencing big portfolios – Hoo-min Tong • How to integrate diligence resources – Duane Valz • Learnings and gotchas in IP M&A – Jeremiah Chan • Back to the basics – how to stop wasting time early on in diligence – Kent Richardson
  3. 3. In The Wireless Space Most of the Players Have Large Patent Portfolios Let’s take the Motorla Mobility portfolio
  4. 4. 7300+ Motorola Mobility US Patent Matters High-Level: Gain an Understanding for the “Value” of the Portfolio Deeper-Level: Find the 100-200 “Best” Motorola Mobility Patents for Expert Review (Will vary by Objective) ? ? ? How do we go from here….. …… to here
  5. 5. 7300+ Motorola Mobility US Patent Matters ? ? ? ANALYTICS TOOLBOX Metrics: Claims Analysis Seminal Patents Patent Family Size Number of Foreign Filings Portfolio Strength Competitor Analysis Due Diligence: List of Patent Families List of Foreign Equivalents Assignment Analysis What IF?: Key Inventors Technology Landscape Citation Relationships Cluster Analysis General Analytics How do we go from here….. ….. to here High-Level: Gain an Understanding for the “Value” of the Portfolio Deeper-Level: Find the 100-200 “Best” Motorola Mobility Patents for Expert Review (Will vary by Objective)
  6. 6. High-Level: Gain an Understanding for the “Value” of the Portfolio FILING HISTORY GRANT HISTORY KEY INVENTORS CITATION ANALYSIS CLAIMS ANALYIS (expert system) FOREIGN FILINGS ANALYSIS These analytics are supporting Inputs to the “Valuation Process” Deeper-Level: Find the 100-200 “Best” Motorola Mobility Patents for Expert Review By Technology or Objective (eg. Speech Processing) BEST CLAIMS SEMINAL PATENT ANALYSIS PATENT FAMILY ANALYSIS LICENSING OPPORTUNITIES ASSIGNMENT ANALYSIS (expert system) These analytics support the Attorney and Expert review
  7. 7. Moto Mobility Claims Analysis Broad vs Narrow Claim Case Law Impact (16,347 Claims) (A, B, C) (1 to 5) Expert System 13% VS: Nokia RIM Apple MS
  8. 8. 93 Apple Patents Citing to 25 Motorola Mobility Patents In Batteries and TouchScreen
  9. 9. Patent Family Map Of 6,009,130 - Rader et al. “Multiple access digital transmitter and receiver”
  10. 10. 11 Agenda • Diligencing big portfolios – Hoo-min Tong • How to integrate diligence resources – Duane Valz • Learnings and gotchas in IP M&A – Jeremiah Chan • Back to the basics – how to stop wasting time early on in diligence – Kent Richardson
  11. 11. Integrating Diligence Resources • Determine what array of skill set expertise will be need to properly evaluate the patents relative to a clearly understood desired outcome or level of insight – Attorneys only? – Employees? – Outside technical/financial/regulatory experts? • Impact may be influenced by factors not evident from the portfolio itself • Conduct industry and marketplace research alongside portfolio- specific analysis – e.g., try to understand likely encumbrances; if that information is not available to you, from news and Web searching
  12. 12. Integrating Diligence Resources (cont’d) • Valuation is tricky and more of an art than a science • Driven by sound analysis, but significantly impacted by whether interest in the portfolio is: – competitive vs. unilateral – driven by monetization vs. strategic objectives – complimentary to existing holding vs. filling portfolio white spaces – etc. • VALUATION OBJECTIVES SHOULD FRAME THE DILGENCE METHODOLOGY! – To the extent there is no such thing as a fully objective and standard valuation model, understanding a deal’s key goals and value drivers should inform how diligence is organized and undertaken
  13. 13. How does a prospective patent buyer efficiently diligence a very large portfolio (i.e., thousand of patents)? • Tradeoffs = quality/comprehensive analysis vs. cost/time constraints • Software tools are good aids for comparative portfolio heat mapping, product technology clustering, rough cutting and other high level analytics • Software tools, however, must be used wisely alongside human/professional judgment and analysis – true claims quality, marketplace relevance, standards relevance, etc. are hard for software to determine
  14. 14. How to diligence a very large portfolio (cont’d)? • Particularly when time is a factor, it is good to define a methodology that will include both software tools as well as evaluation by legal and technical experts, and also identify weaknesses/limitations/caveats for that methodology • Results must be accompanied by an understanding of the degree of bluntness or refinement that they embody – Sometimes it is enough to understand a rough value of a large corpus of patents as a whole, and sometimes, e.g., one needs to understand a precise valuation of the best patents in the portfolio relative to specific use cases – At times, only one or two segments of several in a portfolio may be of interest to a buyer and that helps to focus the analysis and make the best use of time available
  15. 15. 16 Agenda • Diligencing big portfolios – Hoo-min Tong • How to integrate diligence resources – Duane Valz • Learnings and gotchas in IP M&A – Jeremiah Chan • Back to the basics – how to stop wasting time early on in diligence – Kent Richardson
  16. 16. © 2012 JDS Uniphase Corporation | JDSU CONFIDENTIAL AND PROPRIETARY INFORMATION 17 More Than Meets the Eye
  17. 17. © 2012 JDS Uniphase Corporation | JDSU CONFIDENTIAL AND PROPRIETARY INFORMATION 18 Inventor Interconnections Cross-Dependencies Claims Analysis Explore the Unknown
  18. 18. © 2012 JDS Uniphase Corporation | JDSU CONFIDENTIAL AND PROPRIETARY INFORMATION 19 Who has the leverage? How hard can you push? Deal Terms Target Profile How does this company make money? I need to know the big ticket items a.s.a.p. Time Who is on the Team? What do they bring to the table? Resources START HERE Remember the Forest
  19. 19. © 2012 JDS Uniphase Corporation | JDSU CONFIDENTIAL AND PROPRIETARY INFORMATION 20 Grab Your Tools Covenants & Further Assurances
  20. 20. © 2012 JDS Uniphase Corporation | JDSU CONFIDENTIAL AND PROPRIETARY INFORMATION 21 REMEMBER TO ACCOUNT FOR: q IP Legacy Payout - cost to integrate the old portfolio (maintenance of issued + prosecution of pending files) q Target’s IP growth projections - bake expected portfolio growth into AOP q M&A pace - recurring costs associated with M&A run-rate $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 FY07 FY09 FY11 FY13 FY15 FY17 Approximate Total IP Legacy Cost for 7 Deals Short Term Maintenance Future Projection: 2 deals/yr (no pruning) Total IP Legacy Cost for 7 Deals $0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 FY07 FY09 FY11 FY13 FY15 FY17 FY19 Short Term Maintenance Expect the Extras
  21. 21. © 2012 JDS Uniphase Corporation | JDSU CONFIDENTIAL AND PROPRIETARY INFORMATION 22 Take aways M ore Than Meets the Eye E xplore the Unknown R emember the Forest G rab Your Tools E xpect the Extras
  22. 22. 23Privileged and Confidential Agenda • Diligencing big portfolios – Hoo-min Tong • How to integrate diligence resources – Duane Valz • Learnings and gotchas in IP M&A – Jeremiah Chan • Back to the basics – how to stop wasting time early on in diligence – Kent Richardson
  23. 23. Accelerating Patent Diligence What is the Pain? 24 Few interesting acquisition opportunities in a sea of offerings • 100’s of incoming naked patent transactions • Many are not interesting to your business Time-consuming review • Buyers want to keep costs down • This requires early access to information and a “fail fast” philosophy Inconsistent and incomplete deal information • Deal format, deadlines, contact information • Asset list, family information • Encumbrances, impact (claim charts), market sizing, etc. Expensive and wasteful process • In aggregate, gathering basic information is expensive and wasteful
  24. 24. Accelerating Patent Diligence Why Focus on Basic Deal Information? • Gather information for deals • 500 deals/year Initial Intake • Basic business analysis (cost, market, time) • 50 deals/year Business Case • Deep dives in each area • 10 deals/year Legal, Market, Technology • Bidding and buying • 5 deals/yearBuy 25
  25. 25. Accelerating Patent Diligence Version 1 Offering • Common, electronic patent diligence interchange format (Excel) • Diligence tiers defined • Each subsequent tier takes more time for seller to prepare, but provides more information to buyer • Goal: 500+ deals distributed using new format in 2012-2013 • Benefits to: • Buyers: minimum 5-15% decrease in diligence and intake costs to buyers in 1st year • Sellers: more eyes on their packages and higher likelihood of buyers reviewing packages • Future work: • Further automation of format, certification of the diligence packet 26
  26. 26. Accelerating Patent Diligence Deal Consensus™ Package Checklist Item Silver Gold Platinum Included (Y/N) Cover sheet completed ü ü ü Excel list of assets provided in Deal Consensus™ format ü ü ü History of assets ü ü ü History of inventors Opt Opt History of owners ü ü History of offering ü ü Reason for sale ü ü Discuss technical problem addressed by patents ü ü How do the patents solve the technical problem ü ü Future users and markets ü Total impacted market (TIM) ü ü Serviceable impacted market (SIM) Opt Other market information Opt Opt Opt Encumbrances - list licenses ü Encumbrances - list liens ü ü Expected price range Opt ü ü Comparable pricing information provided Opt Are pricing models (e.g. DCF, monetization roadmap) available Opt Timeline and bidding process described ü ü ü 27
  27. 27. Accelerating Patent Diligence Deal Consensus™ EOU Checklist Item Silver Gold Platinum Included (Y/N) Featured patents and claims identified ü ü ü Working technical definition provided ü ü EOU has a word-for-word match ü ü Any assumptions are clearly articulated as assumptions ü ü EOU read is consistent with prosecution history ü ü Claim terms are all supported by the specification ü ü Use of terminology is consist across all EOUs in package ü ü Background literature search conducted (this is not a prior art search) ü Re-examination and opposition identified ü ü ü EOU demonstrates that a single party is the infringer ü Are inventor notebooks or similar materials available ü ü 28 http://dealconsensus.com
  28. 28. 29 Commentary & Q&A • Large portfolios require automation • Prioritize your diligence • Components of deal diligence • Buyers price • Sellers price • Impacted market • Technology adoption • Prosecution review • Size of deals • What happens when the deal size changes • Does diligence stop deals at $5M, $50M, $250M?

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