Download - Monetization Lecture

8/2/2019 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

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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! Private brokers

! Too many to list them all! Buyers include many of the same parties! Unlike auctions, shared risk is possible

Brokers

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! Invention Capital Investment! Example: Intellectual Ventures! Purpose: profit from long-term strategic investment! Philosophy: invention as a functional discipline / infinite redneck theorem! Result: too early to tell, but so far investors do not appear to have turned a profit

! IP Risk Management! Example: RPX Corp.! Purpose: profit from mitigated legal risk! Philosophy: too many middlemen / retail is for suckers! Result: accounting suggests positive cash flows, but doubts remain; RPX exploring

more traditional business models

! Market-based Licensing! Example: ICAP Patent Brokerage! Purpose: profit from setting the retail market! Philosophy: sell discounted licenses at a premium / lawyers make too much money! Result: Large collection of CNSs auctioned in September; no results released

Non-Traditional Licensing Business Models

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INTELLECTUAL VENTURES

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! Investment capital acquired from:! Incumbent technology companies:

! Adobe, Apple, Cisco, Google, Microsoft! Universities:

! Minnesota, Penn, Stanford, Texas! Venture funds:

! Charles River, Legacy Ventures, TIFF Private Equity! Representative list full list available on:

!PatentlyO! IAM Magazine

! Gametime IP

Business Model

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! Pre-Litigation Patent Spend & Licensing Success:!

Spent: $1.2 B to acquire its first 30,000 patents! $40,000 per patent! Earned: $2B in licensing revenue for what is now a chest of 35,000 patents

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! Litigation by investor Xilinx revealed:! IV used Xilinxs money to acquire a set of patents that

Xilinx now needs to license.

! Read:Xilinx Lawsuit Reveals More Of Intellectual

Ventures Strategy

Too Aggressive?

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RPX

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! Utilize investment capital to acquire patents andpatent rights (more on that later).! Sell memberships to operating companies basedon revenue.

!Members receive licenses to all RPX patents.! Licenses vest after 2-3 years.! In other words, membership renewal driven by new

patent acquisitions.

More detail here: http://gametimeip.com/2011/01/31/why-is-rpx-going-public-ask-willie-sutton/

Business Model

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! Initial Public Offering valued the business over $1B! Claims 100% membership renewal so far

! Showing positive cash-flows! Business model reduces costs associated with

litigation and negotiation

RPX Success

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! RPX acquires sub-license rights from patentowners.! In other words, they pay for the right to grant X number

of non-exclusive licenses.

! Existing RPX members immediately licensed.! Additional license rights used to sell memberships

to new customers.

Read more here: http://gametimeip.com/2011/02/04/free-rides-acquisitions-and-sustainability-after-the-rpx-ipo/

Current Niche Buy The Milk, Not the Cow

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! Enforcer E causing trouble for victim V.! Protector X sells victim V his security services.

! Enforcer E consistently leaves Xs customersalone.

Just asconspiracy theories suggested CIA involvementin domestic terror attacks as a pretense to securing post ColdWar funding for the US intelligence community, RPX may also be motivated to periodically remind clients of the value

of defensive aggregation by allowing its high profile clients to languish in litigation.

http://gametimeip.com/2011/03/09/rpx-ipo-patent-aggregation-terrorists-and-goldilocks/

Does this sound familiar?

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One Company Thought So

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Read more here: http://gametimeip.com/2011/05/31/patent-aggregator-rpx-accused-of-extortion-racketeering-wire-fraud/


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! For Patent Owners:! Single point of negotiation! Quick sale of multiple licenses! Let RPX do the legwork, you cash the checks

! For licensees:! Bulk discount! No per patenttransaction fees! Hopefully get lucky during membership period

RPX Appeal

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! Despite making their name in defensive aggregation,RPXs recent deal with Alcatel-Lucent sounds more liketraditional licensing:

! During a quarterly earnings call, Alcatel CEO said:! So when we are working together with RPX, we discovered

that the ability they have to do syndicate licensing, where

basically, youre part of a club, you pay for the usage of it, butyou dont own it because we own it, but you have the sameprotection as if you would buy it, is a very innovative new wayof looking to a patent.

! An independent analyst suggested:! This activity should be a strong pull for the 200+ prospective

members that are currently in [RPXs] pipeline and that they aretrying to sign up.

! In other words, this may succeed where their currentproduct offering fails in providing a value proposition

Value Proposition?

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ICAP PATENT BROKERAGE

CNS AUCTION

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B i M d l


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Business Model

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ICAP Li A i S


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! Patent Owner: Round Rock Research, LLC! Purchase price: $35M! Buyer: Unknown, believed to be a PC or

smartphone manufacturer

! Patent rights acquired: non-exclusive right tocontinue practicing 4000+ patents once owned byMicron

Read more here: http://gametimeip.com/2011/03/31/patent-litigation-experiences-k-t-event/

ICAP Live Auction Success

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ICAP B fit P t t O


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ICAP Benefits Patent Owner

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ICAP B fit Li


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ICAP Benefits Licensee

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R t il Wh l l C i


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Retail (ICAP):

! For Sellers! Discover the going rate! Obtain single sale plus

market data to supportfurther negotiation

! Control over futuremarketability

! For Buyers! Pay no more than the next

most willing buyer! (Hopefully) get a better

deal than competition

! Buy only what you need

Wholesale (RPX):

! For Sellers! Set a bulk rate! Obtain multiple sales for

single negotiation

!No control over subsequentbuyers

! For Buyers! Pay a predictable rate for

many licenses! Get a comparable deal

based on market share

! Buy more than necessary

Retail vs Wholesale Comparison

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Th F t ?


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! How will ICAPs model scale?! After several months, ICAP has yet to release any official results! How will patent reform affect industry-wide licensing

efforts?! Litigation trends appear to be returning to normal pre-AIA levels

! Will either bundled (wholesale) or unbundled (retail) winout?! Of course, there could be a long market for both

! Will unbundled licensing be further abstracted?!

Will patent owners sell at market rates for fixed product quantity?! Will patent ownership be openly traded like stocks today?! Attempts have been made, but nothing successful yet.

The Future?