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Monetization of IP - Santa Clara University School of Law

The document discusses various options for monetizing a company's intellectual property portfolio, including: 1) managing patents as an independent business unit to generate licensing revenue and cross-licenses; 2) direct licensing of patents to third parties for monetization; and 3) bundling and selling groups of core and non-core patents to generate short-term revenue. It also covers treating monetization as a sales activity requiring marketing, technical, and legal expertise and provides examples of factors that make some patents more valuable for monetization purposes, such as patent age, market size, and international coverage.

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Business Sense • IP MattersBusiness Sense • IP Matters
Monetization of IP
Santa Clara
Kent Richardson
July 29, 2016
Attorney-Client Privileged & Confidential
Business Sense • IP Matters
Agenda
Monetization options
Monetization as a sales activity
Current market/judicial environment
Financial models drive decisions
Attorney-Client Privileged & Confidential 2
Business Sense • IP Matters
Monetization Strategies
• Goal: enable company to license patents as a source of revenue for the company
and obtain cross licenses to clear future patent risks at a profit
• Characteristics: patents are managed as a independent business unit
• Examples: IBM, Philips, Intel, Microsoft
Direct licensing
• Goal: monetize the portfolio with a lower risk of counter-assertion
• Characteristics: patents are sold/licensed to a third party for monetization
• Examples: MPEG-LA, Wi-LAN, Acacia
3rd party licensing
• Goal: Sell groups of patents from our portfolio to generate $XM in 6-12 months
• Characteristics: bundle and sale of some core and non-core patents
• Examples: IBM, ATT, Panasonic, Sony
Sale
Attorney-Client Privileged & Confidential 3
Business Sense • IP Matters
Core vs. Non-Core Monetization
• Integrated into the corporate/business initiatives
• IP that is bundled with goods and services
• License the process - know-how, provide software and engineering services, license for the patents
• Examples in medical devices, pharma, electronics
• Agilent, Dolby, ARM
Core monetization
• Licensed or sold separately from the core business
• Examples
• Licensing organizations include GE Licensing, Boeing
• Sales organizations include IBM, Intel, Cypress, HPe
Non-core IP monetization
• Monetization activities are handled as a business activity
• Requirements for success
• Capability – internal and external skills needed?
• Commitment – monetization is a long haul
• Resources – do you have the assets, investment to make the monetization successful
Common themes
Attorney-Client Privileged & Confidential 4
Business Sense • IP Matters
Agenda
Monetization options
Monetization as a sales activity
Current market/judicial environment
Financial models drive decisions
Attorney-Client Privileged & Confidential 5
Business Sense • IP Matters
Monetization as a Sales Activity
• Legal - of course
• Marketing – market needs analysis, TAM, SAM, voice of customer, go-to-
market strategy, pricing
• Technical – can your IP solve the customer’s problem, can you identify the
need/infringement?
• Sales – how are you going to approach the potential customers
Multidisciplinary activity - variety of resources
• Sales is a skill: a good ability to read people and situations, listen to needs,
and a general desire to make the customer happy and successful
• Typical monetization looks like an enterprise sale
• Large dollars
• Complex needs analysis
• More than simply walking in with claim charts
• Success stories of monetization
• Numerical Technologies, Rambus, multinational licensing organization
What is sales in monetization?
Attorney-Client Privileged & Confidential 6

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Monetization of IP - Santa Clara University School of Law

  • 1. Business Sense • IP MattersBusiness Sense • IP Matters Monetization of IP Santa Clara Kent Richardson July 29, 2016 Attorney-Client Privileged & Confidential
  • 2. Business Sense • IP Matters Agenda Monetization options Monetization as a sales activity Current market/judicial environment Financial models drive decisions Attorney-Client Privileged & Confidential 2
  • 3. Business Sense • IP Matters Monetization Strategies • Goal: enable company to license patents as a source of revenue for the company and obtain cross licenses to clear future patent risks at a profit • Characteristics: patents are managed as a independent business unit • Examples: IBM, Philips, Intel, Microsoft Direct licensing • Goal: monetize the portfolio with a lower risk of counter-assertion • Characteristics: patents are sold/licensed to a third party for monetization • Examples: MPEG-LA, Wi-LAN, Acacia 3rd party licensing • Goal: Sell groups of patents from our portfolio to generate $XM in 6-12 months • Characteristics: bundle and sale of some core and non-core patents • Examples: IBM, ATT, Panasonic, Sony Sale Attorney-Client Privileged & Confidential 3
  • 4. Business Sense • IP Matters Core vs. Non-Core Monetization • Integrated into the corporate/business initiatives • IP that is bundled with goods and services • License the process - know-how, provide software and engineering services, license for the patents • Examples in medical devices, pharma, electronics • Agilent, Dolby, ARM Core monetization • Licensed or sold separately from the core business • Examples • Licensing organizations include GE Licensing, Boeing • Sales organizations include IBM, Intel, Cypress, HPe Non-core IP monetization • Monetization activities are handled as a business activity • Requirements for success • Capability – internal and external skills needed? • Commitment – monetization is a long haul • Resources – do you have the assets, investment to make the monetization successful Common themes Attorney-Client Privileged & Confidential 4
  • 5. Business Sense • IP Matters Agenda Monetization options Monetization as a sales activity Current market/judicial environment Financial models drive decisions Attorney-Client Privileged & Confidential 5
  • 6. Business Sense • IP Matters Monetization as a Sales Activity • Legal - of course • Marketing – market needs analysis, TAM, SAM, voice of customer, go-to- market strategy, pricing • Technical – can your IP solve the customer’s problem, can you identify the need/infringement? • Sales – how are you going to approach the potential customers Multidisciplinary activity - variety of resources • Sales is a skill: a good ability to read people and situations, listen to needs, and a general desire to make the customer happy and successful • Typical monetization looks like an enterprise sale • Large dollars • Complex needs analysis • More than simply walking in with claim charts • Success stories of monetization • Numerical Technologies, Rambus, multinational licensing organization What is sales in monetization? Attorney-Client Privileged & Confidential 6
  • 7. Business Sense • IP Matters Want to Monetize – Understanding What’s Hot Helps 7 Who and what gets targeted? Over 1,000 EOUs reviewed 5 years Over 2,800 patent sales packages Over 80,000 patent assets Hot companies Apple Google Microsoft Samsung Hot technologies Communications and smartphones Social Wearable, storage, RFID, mail Hot products iPhone, Galaxy Bing YouTube Xbox, TiVo
  • 8. Business Sense • IP Matters Example Messaging Overview: Be the Pioneer and Leader •Positioning CompanyX as a pioneer and a leader, reinforces that CompanyX has inventors and innovators Goal •Pioneering inventors have important patents •Important patents must be more enforceable •No one will be surprised that a pioneer has key patents •Innovation includes inventions but includes additional improvements •Leaders are expected to be innovators and will generate important inventions and patents •Goal: Competition CEO, “Yeah, CompanyX has been out talking about their patents for years. We’ve had to explain why we don’t infringe more than once.” Key assumptions Attorney-Client Privileged & Confidential 8 Pioneer Leader Inventor Innovator Time
  • 9. Business Sense • IP Matters Agenda Monetization options Monetization as a sales activity Current market/judicial environment Financial models drive decisions Attorney-Client Privileged & Confidential 9
  • 10. Business Sense • IP Matters Current Environment for Monetization: Bad News/Good News • Judicial decisions and legislative activity have reduced patent values • Post Alice sales rates for business method patents dropped more than 60% • “Yahoo’s patent portfolio is junk” - Fortune • FRAND damages have been reduced to a small fraction • General market for patents is down > 50% since 2012 • Devaluing of NPE stocks - people are getting out of the business • … and it goes on … Bad news • Fewer NPEs, fewer monetization campaigns, more of the share of the product margin for those remaining • Pendulum is likely starting to swing back • Erich Spangenberg is getting back into the buying and assertion business • Monetization with business and services is still strong and viable Good news Attorney-Client Privileged & Confidential 10
  • 11. Business Sense • IP Matters Patent Transaction Ecosystem Patent Market Buyers • Apple, Amazon, Facebook, Google, Intel, Microsoft, Qualcomm • Intellectual Ventures, Acacia • RPX, OIN, AST, Unified Patents Sellers • SMEs, Cisco, Yahoo!, ATT, Verizon • Intellectual Ventures, AST, RPX Deal Makers & Brokers • Richardson Oliver Law Group • Patent Profit, Epicenter, ICAP • Bankers, law firms, IAM managers 11Copyright 2015 ROL
  • 12. Business Sense • IP Matters Agenda Monetization options Monetization as a sales activity Current market/judicial environment Financial models drive decisions Attorney-Client Privileged & Confidential 12
  • 13. Business Sense • IP Matters The Why and What of a Financial Model •You have a theory of how you will make money (why will others pay you?), now you need to know whether that theory will actually translate into a positive return •Defines the key variables that will dictate whether your plan will be financially successful •Shows how much you expect others to pay you •How much you will have to commit in resources (capital and people) •When costs and revenues occur •What’s your expected return on investment and rate of return What is a financial model •The financial model structures your conversations about the viability of a monetization plan •Helps prove out your monetization choice and compare choices •Allows you to get buy in from other members of the team and influencers •Allows team members to ask specific questions about assumptions and the plan •Do you run out of cash before you make money? •How much capital do you need? •What is your margin of safety? •How will you be measuring your success? •Even a basic model can be used to start the conversation Why a financial model Attorney-Client Privileged & Confidential 13
  • 14. Business Sense • IP Matters Financial Monetization Models – Example Level Attorney-Client Privileged & Confidential 14 Model (NPV Estimated) Mid ($M) High ($M) Low ($M) Sales (Baseline) $ 13 $ 20 $ 5 3rd Party License $ 27 $ 54 $ - Direct License $ 67 $ 134 $ -* •Calculated from the market price of comparable patents available on the open market, adjusted for the number of value driving patents in the portfolio, and adjusted for selling 300 (retaining 200 assets) •Upside from selling the entire portfolio +$7M, proportionate upsides are expected if the entire portfolio is available for licensing either directly or through 3rd parties Sales •Calculated as a multiple of the sales price and tested against past monetization campaigns of similar sized portfolios 3rd Party License/Partner •Calculated as a multiple of the sales price, and tested against TIM (total impacted market) analysis for target market MarketX •MarketX market used as a proxy for direct monetization market opportunity, likely underestimates the TIM as other monetization points in the supply chain may be more compelling. Serviceable impacted market will be smaller because of existing licenses, but it is reasonable to expect a large enough SIM to support the monetization plan •*Direct License Low could be a negative number Direct License
  • 15. Business Sense • IP Matters Attorney-Client Privileged & Confidential 15 BUSINESS SENSE • IP MATTERS ROL Group has over 70 years of IP strategy and execution experience. We ask the business questions first. We blend in-house and large law firm experience to create clear steps for success. We guide companies through unique IP challenges—like buying and selling patents, developing licensing programs, defending against patent assertions, and creating a value-driven IP portfolio. We give direction to businesses that share our passion for new ideas, creative problem solving and forward motion. Contact Information: +1 (650) 967-6555 info@richardsonoliver.com
  • 16. Business Sense • IP Matters Value Life of a Patent •Mark Lemley litigation research •Jonathan Retsky, Motorola internal study •Kent Richardson, Rambus portfolio analysis Most valuable patents are ~12 years old •4-5 years Patents take a long time to obtain •8 years before volume production of products using the inventions •$XB markets take time to develop But volume production takes longer
  • 17. Business Sense • IP Matters Characteristics of More Valuable Patents • > 8 years old Age • >$1B • Many companies • Few patents • Demonstrated use in the market Market • Open continuations • Many cited patents • Clear demonstration of further patent development in the family • International coverage • Clear claims • Varying scope of claims Prosecution • Ability to quickly see if someone is using the patented technology Visibility Attorney-Client Privileged & Confidential 17
  • 18. Business Sense • IP Matters Value Distribution of a Typical Patent Portfolio
  • 19. Business Sense • IP Matters OurCo’s Ecosystem of Patent Risk 19 Patent threats come from OurCo’s near ecosystem What is OurCo’s business ecosystem? Comp etitors Custo mers Suppli ers Partne rs OurCo Corporate asserters OurCo’s potential patent risk Copyright 2015 ROL
  • 20. Business Sense • IP Matters OurCo’s Ecosystem of Patent Risk - Filtered 20 OurCo’s potential patent risk ?? ? ?? ? ? OurC o Which risks is OurCo going to address? Copyright 2015 ROL
  • 21. Business Sense • IP Matters How Big Is the Patent Market? 21 •Since 2011, we have tracked $4.5B of brokered patent packages + $2.4B of non-brokered •Over 2,000 packages with over 63,000 patent assets •118 technology categories represented from LEDs, Displays, Social Networks, Automotive Robust market – Nearly $7B of patent deals tracked •566 brokered packages received containing nearly 9,000 patent assets 2015 market remains robust • Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report Copyright 2015 ROL $- $1,000.00 $2,000.00 $3,000.00 $4,000.00 $5,000.00 $6,000.00 $7,000.00 $8,000.00 Total Asking Prices ($M) - Brokered and Private Market Total Asking Price Unsold Total Asking Price Sold
  • 22. Business Sense • IP Matters 2015 Market Pricing 22 Asking Price $K Top and bottom 5 data points from each set removed Per Asset Per US Patent Average $189.88 $276.68 Min $16.95 $30.00 Max $925.00 $1,000.00 StdDev $183.18 $249.29 NumData 430 423 • Prices are down about ~$50K • But, sales rate is 23% ahead of comparable period last year • Prices vary substantially by package size Market pricing Copyright 2015 ROL