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.
Make Money from Patents? Financial Models Drive Decisions
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. 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. Business Sense • IP Matters
Agenda
Monetization options
Monetization as a sales activity
Financials drive decisions
Attorney-Client Privileged & Confidential 3
4. Business Sense • IP Matters Attorney-Client Privileged & Confidential 4
License
License
License
License
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. Business Sense • IP Matters
Monetization Strategies
Direct licensing
• $$$$
• Least
appealing?
3rd party
licensing
• $$
• Rare
Sale
• $
• Common
Hold
• $-$$$$$
• Everyone
Attorney-Client Privileged & Confidential 6
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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Business Sense • IP Matters
Disproportionate Targeting in Brokers’ Claim
Charts
Attorney-Client Privileged & Confidential 19
Interim results – not for
distribution
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
info@richardsonoliver.com
20. Business Sense • IP Matters Attorney-Client Privileged & Confidential 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. 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. Business Sense • IP Matters
Value Distribution of a Typical Patent Portfolio
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. 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. 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. 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