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Patent Monetization: Buy, Sell, License, Hold?


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Given the myriad of ways companies use to monetize their patents, how do you know which choice to make? ROL Group delves into this question by looking at the different types of monetization strategies available, and balances the options based on their current market and judicial factors.

Published in: Law
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Patent Monetization: Buy, Sell, License, Hold?

  1. 1. Business Sense • IP MattersBusiness Sense • IP Matters Patent Monetization: Buy, Sell, License, Hold? NAPP Annual Conference Kent Richardson July 29, 2017 Attorney-Client Privileged & Confidential
  2. 2. Business Sense • IP Matters How Do You Make Money from Patents? Attorney-Client Privileged & Confidential 2 Phase 1 Collect underpants Phase 2 Phase 3 Profit Phase 1 • Collect patents Phase 2 Phase 3 • Profit ? ? Underpants Gnomes Business Model – South Park Patent Monetization Model
  3. 3. Business Sense • IP Matters Agenda Monetization options Monetization as a sales activity Financials drive decisions Attorney-Client Privileged & Confidential 3
  4. 4. Business Sense • IP Matters Attorney-Client Privileged & Confidential 4 License License License License
  5. 5. Business Sense • IP Matters Monetization Strategies Direct licensing • Licensing is a business activity • Examples: IBM, Philips, Intel, Microsoft 3rd party licensing • 3rd party controls and licenses patents • Examples: MPEG-LA, Wi-LAN, Acacia Sale • Transfer patents for cash • Examples: IBM, ATT, Panasonic, Sony Hold • Hold for your own business purpose • Examples: everyone Attorney-Client Privileged & Confidential 5 Insert Log Mix and ma
  6. 6. Business Sense • IP Matters Monetization Strategies Direct licensing • $$$$ • Least appealing? 3rd party licensing • $$ • Rare Sale • $ • Common Hold • $-$$$$$ • Everyone Attorney-Client Privileged & Confidential 6
  7. 7. 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 8
  8. 8. 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
  9. 9. 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 10
  10. 10. Business Sense • IP Matters Want to Monetize – Understanding What’s Hot Helps 11 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
  11. 11. 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 12 Pioneer Leader Inventor Innovator Time
  12. 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 13
  13. 13. 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 14
  14. 14. 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 15Copyright 2015 ROL
  15. 15. Business Sense • IP Matters Agenda Monetization options Monetization as a sales activity Current market/judicial environment Financial models drive decisions Attorney-Client Privileged & Confidential 16
  16. 16. 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 17
  17. 17. Business Sense • IP Matters Financial Monetization Models – Example Level Attorney-Client Privileged & Confidential 18 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
  18. 18. Business Sense • IP Matters Disproportionate Targeting in Brokers’ Claim Charts Attorney-Client Privileged & Confidential 19 Interim results – not for distribution
  19. 19. Business Sense • IP Matters Attorney-Client Privileged & Confidential 20 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
  20. 20. Business Sense • IP Matters Attorney-Client Privileged & Confidential 21
  21. 21. 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
  22. 22. 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 23
  23. 23. Business Sense • IP Matters Value Distribution of a Typical Patent Portfolio
  24. 24. Business Sense • IP Matters OurCo’s Ecosystem of Patent Risk 25 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
  25. 25. Business Sense • IP Matters OurCo’s Ecosystem of Patent Risk - Filtered 26 OurCo’s potential patent risk ?? ? ?? ? ? OurC o Which risks is OurCo going to address? Copyright 2015 ROL
  26. 26. Business Sense • IP Matters How Big Is the Patent Market? 27 •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 $8,000.00 2011-Q1 2011-Q2 2011-Q3 2011-Q4 2012-Q1 2012-Q2 2012-Q3 2012-Q4 2013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q1 2014-Q2 2014-Q3 2014-Q4 2015-Q1 2015-Q2 2015-Q3 Total Asking Prices ($M) - Brokered and Private Market Total Asking Price Unsold Total Asking Price Sold
  27. 27. Business Sense • IP Matters 2015 Market Pricing 28 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