IP Monetization 2016 - Practising Law...

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IP Monetization 2016:Maximize the Value of

Your IP Assets

INTELLECTUAL PROPERTYCourse Handbook Series

Number G-1272

ChairJose A. Esteves


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New IP Business Models Beyond Patents—Investing in Innovation

Jose A. Esteves

Skadden, Arps, Slate, Meagher & Flom LLP

The views expressed herein are those of the author and do not necessarily express the views of Skadden, Arps or its clients.

If you find this article helpful, you can learn more about the subject by going to www.pli.edu to view the on demand program or segment for which it was written.

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BIOGRAPHY

Jose A. Esteves

Partner Skadden, Arps, Slate, Meagher & Flom LLP Intellectual Property and Technology

Jose A. Esteves is a partner in the Intellectual Property and Technology Group. Mr. Esteves focuses on assisting clients in maximizing the value of their intellectual property and technology assets, including through strategic stand-alone transactions such as collaborations, joint ventures, outsourcing arrangements and other complex technology transactions; stand-alone and mergers-and-acquisitions-related development, licensing, supply, marketing and support arrangements; and through IP monetization and financing transactions. Mr. Esteves advises a diverse group of clients from the U.S. and abroad, including Europe, Asia and South America. Mr. Esteves also handles intellectual property and technology aspects of traditional mergers and acquisitions, financings, public offerings and commercial transactions. Intellectual Asset Management magazine, the leading trade publication focused on IP monetization, includes Mr. Esteves on its list of the “IAM Strategy 300 — The World’s Leading IP Strategists.”

Representative transactions and clients during the past few years have included:

IP Monetization and Finance:

• MIPS Technologies, Inc. in its simultaneous patent sale to AST and sale of its operating business to Imagination Technologies Group — ranked among the top matters in the “Lawyers to the Innova-tors” category in the Financial Times’ 2013 “US Innovative Lawyers” report;

New York T: 212.735.2948 F: 917.777.2948 E: [email protected]

Education

J. D., Yale Law School, 1995 M.S., Columbia University, 1992 B.S., New Jersey Institute of Technology, 1989 (magna cum laude)

Bar Admissions

California New York United States Patent and Trademark Office

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• Goldman Sachs and Bank of America Merrill in securitizations of bundled pharmaceutical patent royalty streams;

• Theravance, Inc. in a $450 million royalty securitization;

• IPXI in connection with certain structuring matters and in connection with a ULR patent license exchange offering;

• Amylin Pharmaceuticals, Inc. in structuring an innovative synthetic $1.2 billion revenue interest with Eli Lilly relating to the take-back of two drugs;

• ABB Ltd. in a strategic patent transaction.

• various clients in unannounced patent monetization transactions, royalty interest purchases and IP-collateralized loans; and

• a biotech company in structuring an innovative, tax-efficient monetization strategy for its drug discovery technology.

Complex Technology Transactions:

High-Tech:

• Nokia Corporation in its merger with Alcatel Lucent, renegotiation of strategic JV and a strategic product-line acquisition;

• BlackBerry Limited in its 2013 strategic review and in certain strategic IP transactions;

• PMC-Sierra in connection with its sale process, and a strategic product-line acquisition and associated development and supply agreements;

• IMAX Corporation in licensing in technology and negotiating collaborative development and supply arrangements for next-generation movie projectors, and in its global reorganization.

• a buyer in the acquisition of an automobile manufacturer, with a simultaneous automotive joint venture with a third party, and supply, technology licensing, IT services, product distribution and transitional services arrangements; and

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Pharma/Biotechnology :

• Pfizer, Inc. in its proposed merger with Allergan, Inc., the sale of its consumer products business to Nestle and in certain strategic and certain drug development collaboration/co-promotion transactions;

• Regeneron Pharmaceuticals, Inc. in several drug collaborations with large pharma companies; and

• Shionogi & Co., Ltd. in a part-entity, part-contractual global joint venture with SmithKline Beecham Corporation to develop, manufacture and commercialize HIV drugs.

Outsourcing:

• Kingfisher Airways in a master licensing and hosting contract with Sabre Airline Solutions for a suite of core airline software;

• PHH Corporation in various mortgage origination and servicing outsourcing agreements; and

• Getronics NV in its business/platform reorganization and divestiture of its U.S. outsourcing business, and related subcontracting.

Energy:

• ExxonMobil in the structuring of a technology R&D and licensing joint venture with Rosneft;

• Vitol in the acquisition of Royalty Dutch Shell’s downstream oil business in Australia, including trademark, supply and product marketing and distribution agreements;

• Westport Innovations in the renegotiation of its natural gas engines JV and supply agreements with Cummins; and

• Organic Fuels in a JV with the University of Texas and the licensing of technology related to renewable fuel from algae;

• Entergy Corporation in several strategic transactions.

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Media/Content/Consumer Products:

• Yankees Entertainment Sports Network (YES Network) in its licensing of media rights to New York Yankees baseball games;

• an online social networking site and technology start-up in a development, licensing and hosting relationship with a major media and entertainment company;

• cross-marketing, distribution and services agreements among Avis/Budget, Wyndham International, Century21 and Travelport in connection with the separation of Cendant Corporation;

• Acorn Holdings in a coffee products JV between its D.E. Master Blenders business and Mondelez International, including ancillary technology and brand licensing and transitional services and supply arrangements; and

• Gama Healthcare Ltd. in a trademark license and marketing and distribution agreement with a major consumer products company.

Mr. Esteves is the founder and chairperson of PLI’s annual IP Monetization conference (now in its 8th year). He routinely presents at seminars and conferences, including on the acquisition and transfer of IP, IP monetization and finance, and complex transactions.

Prior to law school, Mr. Esteves worked as a computer design engineer for three years at IBM.

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1. INTRODUCTION

(a) Background. Investors and entrepreneurs increasingly are looking to intellectual property (“IP”) monetization business models beyond buying, selling and licensing patents. One way this is increasingly being done is by migrating up the technology development chain toward, or adding business models focused on, innovation and effectively harnessing that innovation.1

(b) Factors Driving Innovation Entrepreneurship Include, Among Others: (i) The increasing challenges and pressures facing corporate internal

innovation functions, which is one of the key factors driving the expansion of open innovation more generally;

(ii) The significant increase in complexity and risk associated with patent-focused monetization and investment models, at least in the U.S.;

(iii) The continuing evolution and increasing sophistication of the IP monetization ecosystem; and

(iv) The downtrend in federal funding of university and insti-tutional research.

2. COMPENSATION MODELS FOR INNOVATION-BASED BUSINESSES/MONETIZATION

The harnessing of innovation by innovation entrepreneurs can be by various means, including: (a) Directly, such as through productizing the innovation or licensing

or otherwise monetizing the innovation and/or the patents and other IP rights developed; or

(b) As a service to a clients, with compensation for such service being (1) a fee-only arrangement, (2) financial participation in the inno-vation itself or associated IP rights, (3) equity in a spin-out, start-up company or joint venture or (4) hybrids or other combinations of the foregoing.

1. See, e.g., David Kline, Extinction-Level Event: Out of Adversity, Opportunity,

INTELL. ASSET MGMT. MAG., Nov./Dec. 2015, at 53.

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3. EXAMPLES OF MODELS THAT HAVE BEEN DEPLOYED

(a) Innovation-on-Demand Services: (i) ipCreate: ipCreate’s model is to partner with technology com-

panies (usually multinationals) to create outsourced, off-budget inventions that complement the companies’ own internal R&D efforts. ipCreate focuses on working with companies in indus-tries undergoing rapid technological disruption, identifying promising innovation areas and then rapidly creating strategic foundational patents in those changing markets. Their services primarily comprise developing innovations for clients on demand, as well as developing patent/IP strategies, and building portfolios for such innovation.2

(ii) Technology Reserve: Technology Reserve provides a plat-form intended to connect small and medium-sized businesses with the IP and know-how of multi-national companies, and with subject matter experts, to create new products or solu-tions that clients specifically require, and thereby improve productivity and return on research and development investment.3

(b) Investment Funding. (i) IP Venture Fund Investment Approach. One proposed approach

seeks to address limitations of both venture capital and inter-nally funded technology development. It seeks to bring a more quantitative approach to technology development, by “quantifying the market landscape to lower the risk of invest-ing in creating new product or service offerings that fail to generate a positive ROI.”4

2. See generally IPCREATE, Who We Are, http://ipcreateinc.com/about-ipcreate/who-

we-are.html (last visited Mar. 4, 2016). 3. See generally Glob. Tech. Reserve Can. Inc., Revolutionizing Innovation & Product

Development for Small and Medium Sized Businesses, http://www.techreserve.com/ (last visited Mar. 4, 2106).

4. N. Darius Sankey, Ocean Tomo, LLC, The Evolution of IP Innovation: What is Next?, in IP MONETIZATION 2015: MAXIMIZE THE VALUE OF YOUR IP ASSETS at 291, 295-99 (PLI Intell. Prop., Course Handbook Ser. No. G-1227, 2015).

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(ii) Intellectual Ventures.5 Intellectual Ventures (“IV”) describes its business model as investing in invention, while being flexible with both the means by which it makes such investment also the means by which it monetizes created or developed inven-tions. IV describes its business model in part by contrasting it with other business models. It claims to have similarities to venture capital firms, such as focusing on funding the creation of new ideas, but that it is not a venture capital firm. It also claims that it has similarities with private equity in that it also focuses on investing in existing ideas that may be trapped in distressed companies or are no longer valuable to their current company. In all cases, a common theme of its focus is on invest-ing in invention as a stand-alone asset, which it refers to as invention capital. IV uses several different ways of generating revenue, including licensing its invention IP portfolio, launching spin-out companies, divesting assets, and doing joint ventures.6

(c) Accelerated/Enhanced Commercialization of University Innovations. (i) Allied Minds. Allied Minds is an early-stage technology devel-

opment company that focuses on bridging the commercial development gap for early-stage research generated at U.S. universities and research programs. The key support it pro-vides to bridge this gap includes funding the start-up (from seed to self-sufficiency), providing business management and a network of resources achieve proof of concept and proof of relevance in order to turn the academic research into viable products and businesses. 7 Typically, a start-up company is formed and the inventors and their institutions receive an equity stake.” 8 Unlike typical venture-backed startups, the

5. See generally Intellectual Ventures Mgmt., LLC (IV®), This Is What Creating an

Invention Marketplace Looks Like, http://www.intellectualventures.com/ about/invention-marketplace (last visited Mar. 4, 2106).

6. See Intellectual Ventures Mgmt., LLC (IV®), FAQ, Is IV a Venture Capital Company?, http://www.intellectualventures.com/about/faq (last visited Mar. 4, 2106); id., What Is Invention Capital?; id., How Does IV Make Money?.

7. See ALLIED MINDS, About, Our Goals: (1) Commercialize Early-Stage Tech-nology, http://www.alliedminds.com/about (last visited Mar. 4, 2106); id., Our Goals: (2) Fund From Seed to Self-Sufficiency; id., Our Goals: (3) Partner with Universities & Federal Research Institutions.

8. ALLIED MINDS, Process, Our New Model: Form, http://www.alliedminds.com/ process (last visited Mar. 4, 2106).

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start-up companies are, in most cases, wholly funded by Allied Minds, and become part of Allied Minds’ network for sharing expertise and resources. 9 Once a venture is self-sustaining and profitable, Allied Minds typically seeks a liquidity event such as an IPO or acquisition.10

(ii) Imperial Innovations. Imperial Innovations focuses on com-mercializing university research, through an exclusive relationship with Imperial College London and network of rela-tionships around London, Cambridge and Oxford, including the technology transfer offices for the University of Cambridge, the University of Oxford and University College London, to source early stage innovations. Imperial Innovations screens the early stage technologies, develops an IP estates and related strategy, carries out market research and de-risks the tech-nology through proof-of-concept studies. For innovations that advance beyond this stage, the innovation is brought to market, depending on the circumstances, through licensing to a commercial partner, or forming a start-up company.11

(iii) IP Group. IP Group PLC defines its mission as being to evolve great ideas into world-changing businesses. It’s strategy is to systematically create, develop and deliver intellectual property-based businesses based on significant university and third-party-sourced early stage innovations. Innovations are developed in start-up companies, with IP Group playing a significant role in a broad range of corporate functions so as to free up the start-up companies’ employees can focus almost exclu-sively on developing and commercializing the innovation. To source innovations, IP Group relies in part on long-term part-nership arrangements with fourteen of the UK’s leading uni-versities and also access to opportunities from Oxford and

9. Id., Our New Model: Fund. 10. Id., Our New Model: Build. 11. See generally IMPERIAL INNOVATIONS, What We Do, Imperial Innovations Com-

mercialises Leading UK Research and Seeks to Build Substantial, High Quality, Well-Funded and Well-Managed Businesses, http://www.imperialinnovations.co.uk/ about/activities/ (last visited Mar. 4, 2016).

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Cambridge through its stakes in Oxford Sciences Innovation plc and Cambridge Innovation Capital plc, respectively.12

(d) Other Models. (i) American Express IP Zone. IP Zone is an online IP marketplace

platform, described by American Express as an end-to-end web-based platform for IP development, monetization and commercialization. It is intended to accomplish certain high-level goals: (i) provide a viable efficiency-enhancing market mechanism for the highly fragmented and inefficient IP mar-ketplace, (ii) expand IP monetization and commercialization opportunities for small and midsized entities (“SMEs”) and (iii) provide to American Express a mechanism for it to expand “deal flow” of potential disruptive capabilities, technologies and IP that may be useful in American Express’ business – i.e., an additional channel for American Express to source innovation.13

4. INTERNATIONAL CONSIDERATIONS

(a) Certain foreign governments, particularly in Asia, including China, Japan and Korea (to encourage higher quality disruptive innovation), have enacted programs aimed at fostering innovation and the acquisition and monetization of associated IP rights. One example is the use of SME invention loan programs, whereby the SME receives almost-free loans to develop next generation innovations.

(b) France Brevets is another example of a government-backed effort to accelerate monetization of innovation at universities and SMEs.

12. See generally IP GROUP, About Us, At a Glance, http://www.ipgroupplc.com/

about-us/at-a-glance (last visited Mar. 4, 2016). 13. See Tracey R. Thomas, American Express, IP Zone, PowerPoint slides presented

at IP Monetization 2015: Maximize the Value of Your IP Assets, Practicing Law Institute (Apr. 29, 2015) (available at www.pli.edu (subscription required); on file with author).

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