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IP as an Asset ClassThe London IP Summit

London Stock Exchange 13th – 14th October 2014

Auckland | San Diego | London

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Valuation, value drivers and impact

Asset class characteristics

Beyond current mainstream investment strategies

Agenda:

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3Definition: what are we talking about? Patents Copyrights Trademarks Brands Trade Secrets Know How

Intellectual Property is the intangible product of R&D spend

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4Audience: who are we talking to? Family Offices and Multi Family

Offices Asset Managers Pension Funds & Consultants Insurance Companies Endowments Hedge Funds Private Equity Funds

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5 IP is Mispriced

IP value may be calculated by various accounting methods.

DCF: NPV of future cash flows Market Comparable: last transaction or industry averageCost basis: what did the IP cost to create?

For all but the simplest DCF the value of qualitative judgement and market knowledge is the most significant factor in value.

The inability to systematically and transparently value IP creates huge bid/offer and significant opportunity to generate excess returns.

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6Traditional IP Investment Strategies

Royalty Investing

Purchase of future cash flows, structured deals now predominate

Falling Yields due to weight of investor money

Litigation Finance

Financing patent disputes

Costs of litigation in USA increasing and strategy lacks scale

Venture Capital

Wide dispersion of returns as significant execution risk

Secondary funds have best performance

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7A Vast, Growing, Uncorrelated Market WIPO valued the US market at $8 trillion generating

$180bn in annual income in 2011. Income is primarily generated by licensing, commercialisation and litigation. This market size makes IP the largest asset class in the US and one of the largest globally.

IP filings in the USA have grown in excess of 15% pa CAGR over the past 7 years. This type of growth is not confined to the USA.

Patents, copyrights and other forms of IP are not subject to the same systemic risks as traditional asset classes and are also uncorrelated with the common forms of alternatives (hedge funds, private equity, real estate).

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8Illustrative Asset Class Comparison

Correlation Volatility Liquidity Transpare

ncyYield/

ReturnIntrinsic

Value

IG Bonds High Low High High Low Moderate

LC Equities

High High High High Moderate Low

Hedge Funds

Moderate High Low Low Moderate Low

Private Equity

Moderate Low Low Low High Moderate

Real Estate

High Moderate Moderate Moderate Moderate High

IP Low Low Low Low High High

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9 Expanding beyond traditional investment strategies

i. IP lending

ii. Special situations

iii. Direct investments in IP rich companies

IP provides a unique perspective on R&D intensive industries, where value drivers are often IP related but not understood or properly covered by traditional analysts.

The key investment skill is valuation in context.

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10 IP lending

Extend credit secured by IP portfolios (and other assets )

Value the IP on a conservative cash flow and loan to value basis

Enhance collateral packages with IP assets valuation

Upon default, IP broker network can be used to exit the collateral

Low teens coupons + warrants: mid teens coupons w/o warrants. >2% origination fees

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11 Special situations

Distressed

IP Activism

Change of Control

Patent Arbitrage

IP Litigation Outcomes

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12 Distressed

Nortel Auction Generates 3x Expected Price, Bonds Get Par + Accrued

Subs Turn Out to be an Even Better Bet

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13 IP Activism

See Appendix 5 for analysis of a specific IP activist opportunity

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14 Change of Control

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15 Patent Arbitrage

$2,222

$1,277 $1,146

$846 $750 $727

$652 $510

$376 $262 $221 $154 $133

$0

$500

$1,000

$1,500

$2,000

$2,500

StrategicNPE

CPTN

Implied Price per Patent (000’s)

Coupling superior IP purchasing analysis with long-termcapital permits the arbitrage of IP portfolio value

Implied Price per Patent (000’s) Implied Price per Patent (000’s)

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16 IP Litigation Outcomes

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17 Direct investing

Liquid long/Short position based on IP analysis

Illiquid PE investment in IP strategic play

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18 Illustration of a typical long/short portfolio

Long/short investing in companies with deep value IP Catalysts

Due to informational asymmetries, IP stocks have greater vol. and dispersion than the broad market

Market Neutral Book • Expected Return 10%+ annual• Implied Vol (~ max) 6 %• Exposure <=10% market• Positions 20-30 paired off• Average Position size 400 bps• Position risk -12.5%, -20% max

Fundamental Long/Short

YTD – 7/14/14

Ticker YTD % V180LTBR 99.99 89.14 MYGN 89.42 52.20 MARA 83.33 52.38 CODE 59.68 28.07 IDCC 58.02 43.54 DMRC 55.61 54.85 UPIP 55.07 72.23 MU 54.78 37.06 IDTI 54.13 39.09 BBRY 53.49 55.37 SNDK 50.18 25.56 RMBS 48.15 37.03 IMMR 38.14 44.71 TEVA 36.93 26.91 COPY 36.84 95.28 ROVI 20.72 37.17 NVDA 20.19 24.30 VRNG 19.26 54.97 BRKR 18.39 25.97 IPO 15.21 40.54 TSRA 14.53 28.59 DISH 13.76 26.93 BSX 9.48 26.52 QCOM 7.31 15.89 SPX 7.05 10.29 CCMP 6.40 13.63 JIL 6.13 18.97 ACTG 4.33 39.87 BRCD 2.54 26.95 TIVO 2.44 26.64 AMSC 1.83 65.84 RPXC 0.71 25.05 MITL 0.00 45.35 CEVA (0.03) 31.38 HTC (1.42) 37.65 BUR (1.64) 15.78 MSI (1.70) 14.54 MRVL (2.78) 28.05 NOK (3.10) 35.02 PTNT (3.85) 39.81 ERIC (4.13) 20.77 WIN (4.79) 27.91 TICC (5.27) 15.21 OLED (8.61) 54.39 MENT (10.34) 23.97 YHOO (11.64) 32.35 AOL (12.76) 46.14 CIEN (13.74) 42.36 PCO (15.67) 56.18 VIA TECH (18.21) 35.57 ALU (19.43) 43.51 ARMH (20.56) 31.78 CREE (20.87) 36.70 VHC (20.92) 52.85 PPRO (22.97) N/AELNK (25.72) 38.51 IMN (27.14) 43.31 DSS (31.40) 80.91 ONE (33.33) 131.44 FNJN (36.50) 179.39 INVT (43.94) 145.15 PRKR (68.02) 136.85 SPEX (80.27) 143.91

Ticker YTD % V180PPRO (22.97) N/AFNJN (36.50) 179.39 INVT (43.94) 145.15 PRKR (68.02) 136.85 ONE (33.33) 131.44 COPY 36.84 95.28 LTBR 99.99 89.14 DSS (31.40) 80.91 UPIP 55.07 72.23 AMSC 1.83 65.84 PCO (15.67) 56.18 BBRY 53.49 55.37 VRNG 19.26 54.97 DMRC 55.61 54.85 OLED (8.61) 54.39 VHC (20.92) 52.85 MARA 83.33 52.38 MYGN 89.42 52.20 AOL (12.76) 46.14 MITL 0.00 45.35 IMMR 38.14 44.71 IDCC 58.02 43.54 ALU (19.43) 43.51 IMN (27.14) 43.31 CIEN (13.74) 42.36 IPO 15.21 40.54 ACTG 4.33 39.87 PTNT (3.85) 39.81 IDTI 54.13 39.09 ELNK (25.72) 38.51 HTC (1.42) 37.65 ROVI 20.72 37.17 MU 54.78 37.06 RMBS 48.15 37.03 CREE (20.87) 36.70 VIA TECH (18.21) 35.57 NOK (3.10) 35.02 YHOO (11.64) 32.35 ARMH (20.56) 31.78 CEVA (0.03) 31.38 TSRA 14.53 28.59 CODE 59.68 28.07 MRVL (2.78) 28.05 WIN (4.79) 27.91 BRCD 2.54 26.95 DISH 13.76 26.93 TEVA 36.93 26.91 TIVO 2.44 26.64 BSX 9.48 26.52 BRKR 18.39 25.97 SNDK 50.18 25.56 RPXC 0.71 25.05 NVDA 20.19 24.30 MENT (10.34) 23.97 ERIC (4.13) 20.77 JIL 6.13 18.97 QCOM 7.31 15.89 BUR (1.64) 15.78 TICC (5.27) 15.21 MSI (1.70) 14.54 CCMP 6.40 13.63 SPX 7.05 10.29

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19 Private EquityMany public companies have either failed to monetize their IP or have important IP whose value is not reflected in their stock

price

Low dose, fast acting pain medicine using old patent that is re-protected (patent)

Unique assured cloud solution for high security data storage (trade secret/know how)

80% cost reduction and enhanced thermal stability in LEDs (patent/trade secret/know how)

Textile that recycles body heat and emits at IR radiation (patent, trade secret)

Thermoplastic polymer road furniture with high tensile strength (patent, trade secret/know how)

can be exploited by and inure to the benefit of private equity holders

This IP can be used to finance LBO debt and, through collateral package enhancement, either reduce the coupon on or increase

the principal amount of the LBO debt available

In Life Sciences patent repositioning strategies can acquire dead or dying drugs and increase value through identifying new

patent opportunities

Licensing IP-for-equity with VC backed firms provides an alternative strategy for IP owners who traditionally seek royalties

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Dr. Chris DoneganCEO Europe, EverEdgeIP

11-14 Grafton Street, London W1S 4EW+44 7825 082 112

www.EverEdgeIP.com