Drivers of Patent LicensingIPR university center 6.5.2010

Antti Kosunen

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Agenda

What Drives Patent Licensing

Market Players

Patent Valuations

1

2

3

4

Drivers of Patent Licensing

Licensing Models

Intellectual Property – Growth and importance

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Worldwide (cross-border) royalty and license receipts

(Billion USD; source: World Bank)

0

20

40

60

80

100

120

1970 1975 1980 1985 1990 1995 2000 2005

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Success is Based on Several Factors and Single Corporations Will Not Own All of Them

IPR as

Currency

Innovation becomes more

distributed and patents become

currency/negotiations power

between the partners in innovation

value chains and business

operations

Innovation + Effectively managed IPR = Shareholder value

Customer

Need Innovation

Legally protectable

limited monopoly

+ =

Intellectual

Property

Rights

+ =

Business

Opportunity

Securing IPR = owning the business position

Stephen Potter

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Patents Are a Currency of Negotiations

Standards bodies

Stakeholders

Customer’s

customers

Supplier’s

suppliers

New entrants

CustomersSuppliers

Competitors

Substitutes

Organisation

Technology Patents = IT

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Competitive edge can seldom be achieved with Patents…often a

must have, when certain size has been achieved

Better use of patents, may give temporary competitive edge

Better patents may give temporary competitive edge

===========================================

Business with bio/drug patents are totally different games with different

rules

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Power is Achieved with Patents

Small companies will succed only

when being agile and owning their

IP

IP may help them through mid size

disaster. Major problem with large

customers; ”unlimited liabilities”

Large corporations will direct

ecosystems having strongest IP

controlling and enabling companies

to ”serve” their needs

Agility

IP till you die

Economies of scale

Control / liabilites

Master of the ecosystem

This will lead a growing number of companies to focus on and excelling

only in the core activities and to outsource the rest – often management of

IPR and also parts of R&D.

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Increase shareholder value

Buy the business before

you buy the company

Acquisitions

Sell the company with the

business you own

Exit

Licensing profit P/E 4-5 *

(Nasdaq)

Company /Stock price

Change the reality and communicate it effectively

Increasing long term profitability and lowering risks

= increasing shareholder value

FINANCIAL USES OF PATENTS

European companies

Venture

capital

Private

investors

Stock

market

Securitisation Negotiating loans Obtaining

public

subsidies

All 18 21 11 6 9 8

<=250 employees 22 27 11 6 10 10

>250 employees 11 10 9 6 7 4

Foundation year

<=1960

(174 companies) 7 5 8 8 7 7

>1960 and <=2000

(174 companies) 17 21 11 4 6 5

>2000

(128 companies) 31 38 13 6 14 13

No of companies responding

285 290 281 281 284 285

% of companies declaring “very important” factor for raising capital in total responding companies

Convincing venture capitalists and private investors are the two most important; these are more important for smaller companies than for larger ones; The size factor seems to be less relevant than the age factor: younger companies, founded after 2000, give far higher importance to patents for raising funds than older ones

OECD-EPO-TOKYO SURVEY 2009

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Decisive role of IPR became acknowledged but a significant portion of its value still remains unextracted

Intellectual

Ventures was the

first real one

Window of

opportunity

Intangible assets’

values increase

Former CTO of Microsoft founded Intellectual Venture and raised $300 million to start the business. Now they have 12,000 patents and $5 billionequity. And they are now returning profits to investors

Imperfect markets and information asymmetries keep patent valuationslow.

Better understanding of patents will create more liquid markets and increase prices. Increasing demand has also increased patent prices.

Accounting standards; Profit impact increasing; major share in profits;

global, investors value patents more.

European Patent Licensing – new players

Financial Services companies treating IP as an alternative asset:

- IP Bewertungs AG / Deutsche Bank >euro 100m: acquire inventions, create

proofs of principle, marketing back-up – and then sell them on…..

-The IP Group: UK public company. Buys an option on university IP – Oxford,

chemistry lab; York, Southampton etc., builds spin-offs, creates IPO’s

- BUT: BTG - now concentrating on life sciences, merged with Protherics

A University Technology Transfer Office has carried out an IPO – Imperial

Innovations

- brave and unique: 89 equity investments, IPO of Ceres Power

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Licensing companiesHelping patent holders to monetize their assets, fighting large

corporations, increasing liquidity of patents

0

200

400

600

800

1000

Litigations Patents

Source: PatentFreedom © 2009 Data Captured as of January 1, 2009

Licensing = Currency, Essense of Patents = Power

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NegotiationsCurrency

Freedom to operate

Suppliers

R&D

Customerssecurity

Exlcludecompetitors

Licensingrevenue

•Stick Licensing

•CarrotLicensing

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Stick licensing Friendly licensing Tech tranfer

It is nice to chat and plan,

but big bucks not easily

achievable

“NIH – Not Invented Here”

still very strong

Cf. Procter and Gamble

“PFE - Proudly Found

Elsewhere”

Time consuming and

frustrating process, but

money can be made here,

with solid IP

You can get a lot farther

with a kind word and a

gun than a kind word

alone. Al Capone

Very expensive+risky,

litigation in the US 2.5 m.

Best results achieved with

strategic objectives with

stronger patent portfolio

compared to target

company.

Target/customer/supplier

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Licensing models

Stick Licensing / Enforcement Carrot licensing

– Step change?

– Validated?

– Infringement?

– Detectable?

– Legal clarity?

– Funds?

– Tech support

PATENT BUSINESS

-- Step change?

– Validated?

– Market need?

– Cost and performance?

– Tech transfer support?

– Market ready, value chain complete?

– Know-how, proof of principle

available?

TECH TRANSFER WITH PATENTS

Totally different games

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Licensing models

Standards licensing

Professional organisations IEEE etc- political and time consuming - “essential patents”

Private industry – MPEG-2, MPEG-4, GPS, CDMA, 3-G

Licensing and R&D partnerships / Innovation Capitalist

Joint development – universities, companies, Innovation capitalists having co-ownership /

co-inventorship of (parts of) IP, which may be give problems

Licensing for minimal money but medium term R&D support for university

Companies creating portfolios for adding business value for the purpose of using patents as

currency in M&A deals.

Invention Capitalists

0% 5% 50%

Va

lue

Portfolio

High Value Patents

Defensive PatentsOverhead Patents

Why not monetize these?

They are costing you $$$

IP / Business Strategy – what to do with it?

Large portfolios

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Patent Valuation Parameters

• Market driven - Reads on an interesting technology area

– Huge • e.g. 802.11x

– Interesting• e.g. FPGAs

– Speculative• e.g. 4 G

• Is likely to be used

– Blocking • e.g. MPEG-2

– Key feature • e.g. EPGs for digital cable

– Design Choice • e.g. Moto’s clamshell phone Use

Design

Choice

Feature Blocking

Spec

Inte

rH

uge

Mark

et

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Patent sales – patent quality effects

• Well written spec and claim moves value up

• Poorly written spec and claim moves value down

Excellent

Fair

Poor

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Questions, please ask!

Feedback and questions always welcome!! Page 21 Antti Kosunen antti@lexfordenterprises.com +358 400 850 200

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Antti Kosunen

IPR Business Advisor

+20 M&A / fund raising projects

+40 Licensing projects

Deals done in +40 countries

+10 patent litigations in the US, Finland

and Germany

CEO of a stock market company

Technology entpreneurial mindset,

Started / sold / listed companies

MSc. econ

Adding Shareholder Value

antti@lexfordenterprises.com +358 400 850 200