Business Sense • IP MattersBusiness Sense • IP Matters Copyright 2015 ROL Group LLP 1

Counter-Assertion Value Model

Kent Richardson & Erik OliverGatheringJune 11, 2015

Contact Information:+1 (650) 967-6555info@richardsonoliver.com

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ROI on Your Patent Spend?

• How much should we invest in patents this year? • Which ones should we get? • What is my return going to be?• Common questions

Your executive team’s questions

• What we did last year• Peer comparisons• Stories and negative outcomes (bad outcomes in assertions)

How do we answer?

• We have the framework in our heads to answer many of the questions. We tie our actions to our business strategy• But how do we articulate this?• What about ROI?

• Questions we ask ourselves when setting a strategy• Who are our threats?• What is the real risk of a patent assertion/conflict?• What is the timing, cost, probability?• How do we optimize our spending?

Modeling the way we think

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Overall Process Flow

Identify ecosystem risks and corporate asserter

risks

Filter to primary risks

Risk assessment

Identify overlaps

Risk mitigation

plan

Make the buy vs. build

decision

Playbook developmen

t

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Your Ecosystem of Potential Patent Risk

Copyright 2015 ROL Group LLP

Patent threats come from your near ecosystem What is your ecosystem?

Competitors

Customers

Suppliers

Partners

You

Corporate Asserters

Your Potential Patent Risk

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Filtering to Identify the Threats

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Your Potential Patent Risk

?? ? ?? ? ?

You

Which Risks are you going to Address?

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Scenario Example - YouCo

• Could not have enough organic patents

High growth

• Quantity of patenting is high across products, example: How many patents in an Android or Apple phone?

High-tech company

• Could not have old enough patents

Relatively new company

• At risk from corporate asserters and competitors

Did not focus on patents

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Risk Assessment and Mitigation

Cost of capital is 10%

Company CustomerA CompetitorB SupplierC AsserterD TotalsRisk Assessment

Scale of dispute - at risk amount ($M) $50.00 $100.00 $150.00 $50.00 $350.00

Counter-assertion timeframe (yrs) 7 7 5 5Chance of assertion (%) 2% 2% 10% 20%Expected value of dispute at time of dispute ($M; Nominal)

$1.00 $2.00 $15.00 $10.00 $28.00

What is the annualized cost of the expected risk? ($M; 10% cost of capital)

$0.11 $0.21 $2.46 $1.64 $4.41/yr

Risk MitigationHow much of the risk can we mitigate through our own patent program? Typical values: 35-100% [66% used here] ($M)

$0.66 $1.32 $9.90 $6.60 $18.48

If we model paying for the risk in annual payments with a 10% cost of capital, how much should you be willing to spend each year on a per company basis? ($M)

$0.07 $0.14 $1.62 $1.08 $2.91/yr

Potential proposed investment assuming sufficient overlapping business units and focused purchases and development ($M)

With overlap: $1.62/yr?

Find the overlap to achieve the last row’s savings $2.91M to $1.62M

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Identify Overlapping Target Revenue

Company Middleware Personal Computers

Cloud Infrastructure (IaaS)

Database Software

Wireless Network Products

Exposed Revenue of Focus Technical Area

CustomerA - - - $1,200 $8,500 $1,200

CompetitorB $700 $22,000 $3,000 - - $3,000

SupplierC $2,000 $500 $2,500 $5,000 - $7,500

AsserterD $15,000 $1,500 - $1,500 - $1,500

Total $17,700 $24,300 $7,800 $14,200 $8,500 $13,200

Picked Focus Technical Area

N N Y Y N

Consider CAGR’s in selection processCAGR 5% -5% 15% 8% 5%

All numbers in $M

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Value of Overlapping Playbooks

Cost of capital is 10%

Company CustomerA CompetitorB SupplierC AsserterD TotalsScale of dispute - at risk amount ($M) $50.00 $100.00 $150.00 $50.00 $350.00

Counter-assertion timeframe (yrs) 7 7 5 5Chance of assertion (%) 2% 2% 10% 20%Size of asserter’s portfolio Small Medium Large Very LargeNumber of counter-assertion patents needed without overlaps

3 7 10 5 25

Number of counter-assertion patents needed with overlaps

10

You should be willing to spend the $1.62M/yr for 5 years to develop or buy assets for your playbooks.

Could you buy these assets? Over five years, assuming today’s market pricing, yes. The purchases would typically include 10 distinct patent families with EOUs from open market purchases. On the order of $500K-$1M per charted family (end up with potentially 30-80 assets) for say $750K*10 = $7.5M [compare vs. 1.62M/year for 5 years]

Commentary: What about developing your own patents (build)? In this example, no. However, with longer term analysis, a better starting position, yes!

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Playbook Qualification Funnel

Technology Area Fit

Subject Matter and Algorithmic Ranking

Preliminary Filtering

EOU Creation

Playbook Testing

Playbook Entry

70% 50% 30% 5-10% 2-6% 1-3%

Typical Output as Percent of Starting Pool

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Conclusions

• We should invest $1.62 million in patents for counter-assertion this year• We should get patents in cloud infrastructure and database software• The patent development program will use a 10% rate of return to address 66% of

a $350 million patent risk

The carry-away

• Provides a framework for discussion allowing you to• 1. Present a financial a model for your patent strategy• 2. Allow you to communicate more clearly about specific parts of your strategy

and develop buy-in from others• 3. Adjust your strategy on a go forward basis• 4. Show the implications of changes to your strategy

This is a model

• This is one source of value from your portfolio

Other sources of value exist