Monetization Lecture

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    Patent Monetization

    What, Who and How

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    ! Patrick Anderson! Licensed attorney! JD from Michigan State! BS in Mechanical Engineering! Ive worked everywhere:

    !Engineer for major auto supplier! The IRS

    ! Paralegal for non-IP firm! IP boutique! In house for Fortune 100! Large GP firm! Solo practice! Patent consulting firm

    Introduction

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    Contact:

    Web: http://gametimeip.comEmail: [email protected]

    Phone: 810-275-0751Skype: Patrick.R.Anderson

    Twitter: @PandersonPLLC

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    ! Patent Calls is a patent analytics services firmspecializing in:! Patent Analysis

    ! Relevancy analysis! Valuation

    ! Patent Sourcing! Strategic needs analysis! Acquisition opportunity creation

    ! Litigation support! Technology based! Testifying experts available

    About Patent Calls

    3

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    ! What is Patent Monetization?! What is patent monetization and how did we get here?

    ! Who Can Help Me?! The intermediaries that make it happen

    ! How Does It Work?! How patent monetization works! The Future?

    ! A glimpse and what may be coming

    Agenda

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    WHAT IS MONETIZATION?

    - HOW DID WE GET HERE?

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    What Is Patent Monetization

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    Is It New?

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    Shortly after his return from England in 1849, Howe inspected some of the new sewing

    machines that were now on sale and he concluded that they infringed his 1846 patent.

    Regardless of what other features these new sewing machines may have exhibited, they used

    the central elements claimed in Howes patent. Since he was destitute, Howe requiredan investor to finance his patent infringement lawsuits, and he at last convinced George W.

    Bliss to invest in his litigation strategy (as well as purchase a one-half interest in Howes patent

    from a previous financial backer, George Fisher, who had not realized any return on his

    investment).FNAt this point, Howe was ready to undertake his main preoccupationindeed,

    his main occupationfor the next several years: namely, suing the infringers of his patent forroyalties.

    FN: In exchange for a partial ownership interest in his 1846 patent, Fisher provided Howe withapproximately $2000. Fisher thus sold his one-half interest to Bliss for approximately $3500. Id.

    53 Ariz. L. Rev. 165, 183

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    ! Most inventors do notfile applications with the purpose ofconducting ex postlicensing and/or litigating their patents.! Is Wal-Mart in business to acquire real estate and build

    expensive structures? Or is that an expense they justify becauseits the most effective means to sell their goods? Is QVC inbusiness to answer phone calls? Or are operators an expense

    QVC accepts because their sales would suffer under a fullyautomated system?

    From:http://gametimeip.com/2011/05/06/are-patent-assertion-companies-in-business-to-litigate/

    ! Inventors generally want to create patent develop sell.

    ! Unfortunately, it doesnt always happen that way

    Litigation Is Not A Business Model

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    ! For several reasons, this plan frequently fails:! Lack of funding! Market moves to quickly! Patent Office moves to slowly! Invention relates to components not final products

    So Why Dont They?

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    Howe, For Example:

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    53 Ariz. L. Rev 165, 176

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    ! Expected process:! Invention Patent License Production Sales Royalties! Reality:! Invent Patent Production Sales License Royalties

    Does the order matter?

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    Less incentive b/c produceralready has the know-how

    FUNDAMENTAL QUESTION: Should the order affect the factof compensation itself?

    Or just the amount based on the value of the transfer?

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    ! Large companies cant track everyinbound licensing opportunity! One department might reject an opportunity

    while a month later another departmentbuilds its own solution.

    ! Product convergence combines previously unrelatedinventions

    ! Pocket computer combining day planner,camera, web browser, TV, video games, GPS and countless othertools.

    ! Technology allows businesses to expand their market size.! Traditional retail use software-based solutions to reach untappedmarkets.

    ! Some companies are just evil

    Meanwhile, its not 1850 anymore

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    ! Howe quickly contacted Singer, asserting that the SingerSewing Machine infringed Howes 1846 patent [and]demanded a $2000 royalty payment from I.M. Singer & Co. Singers characteristically hotheaded nature asserteditself: he argued with Howe, and then he threatened tokick him down the steps of the machine shop.

    ! Singers attorney wrote in an 1852 letter that Howe is aperfect humbug. He knows quite well he never inventedanything of value. We have sued him for saying that he isentitled exclusively to use of the combination of needle andshuttle . . . .

    53 Ariz. L. Rev. 165, 183-84

    Dont Believe Me?

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    ! But Androids success has yielded something else: ahostile, organized campaign against Android by Microsoft,Oracle, Apple and other companies, waged through boguspatents.

    Taken from When Patents Attack Android,

    http://googleblog.blogspot.com/2011/08/when-patents-attack-android.html

    ! Barnes & Noble tried to convince the ITC it was illegal forMicrosoft to charg[e] a licensing fee that is commensuratewith the cost of licensing Microsofts own mobile operating

    system and to assert patents relate[d] to trivial designchoices and implementation details.

    Taken from the ITCs Initial Determination Granting Microsofts Motion For Summary Determination ofRespondents First Affirmative Defense of Patent Misuse

    Surely, Companies Are More Sophisticated Today?

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    ! The process:!

    Discover infringement! Start a conversation! Hire a lawyer! File a lawsuit / get sued

    ! Problems:! High stakes provokes a legal fight! Volatile outcome (either get $100M or $0)! Posturing:

    ! Patent owner saysit will get an injunction! Company says its worthless

    ! Nevertheless, 80% end in settlement/license! Consequence: Navigators wanted!! We know where its going, lets get there more quickly

    Traditional Licensing

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    Not always in that order!

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    WHO ARE THE PATENT

    MONETIZERS?

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    Have Patent, Will Travel?

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    Advisory Services (Strategic) Who Can Help You License?

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    Advisory Services (Financial) Who Can Lend You Money?

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    Who Might (Directly or Indirectly) Buy Your Patent?

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    Who Can Help Sell Your Patent?

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    HOW IS IT DONE?

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    ! Patent owner gets little to no up front cash! Acquirer receives assignment or exclusive license

    in exchange for promise to pay X% of recoveries(typically a double digit % for $0 cash, or single

    digit % for 5-6 figures cash)! Acquirer takes business risk financing cost ofnegotiation (including litigation).

    ! Summary:! Patent owner places faith in acquirer.! Acquirer takes legal/business risk.

    Offensive Acquisition

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    ! Patent owner receives no up front cash.! Agent receives exclusive right to negotiate and

    make licensing decisions on behalf of patentowner

    ! Agent promises to pay a share (typically 50%) ofproceeds to patent owner! Agent takes business risk financing cost of

    negotiation (including litigation).

    ! Summary:! Patent owner places faith in agent.! Patent owner takes legal risk.! Agent takes business risk.

    Exclusive Agency

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    ! Patent owner receives no up front cash.*! Advisor receives non-exclusive right to negotiate and

    propose licensing terms in exchange for a share (typically25%).

    ! Advisor recommends legal counsel (at preferred rates,typically 15-25%) for any litigation required.! Patent owner retains ownership and decision-makingauthority.

    ! Expenses may be financed by related funding source.*! Summary:! Advisor and patent owner must trust each other.

    ! Patent owner takes legal risk.! Advisor/Patent owner share business risk.

    Advisory Services

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    * Financing agent loans to patent owner in exchange for another 10-25% of future expected returns.

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    ! ICAP / Ocean Tomo:! Conduct patent auctions! Buyers include offensive acquirers as well as clients

    under the advise of the advisory services

    ! High risk due to all cash sale