Invest in Growth How LOT Network Addresses the PAE Problem

Ken SeddonCEO, LOT Network

January 23, 20171

▪ Introduction of Ken Seddon▪ 25 Years of Engineering and IP experience

▪ BS. EE Georgia Tech, Master’s Device Physics from ASU, JD from ASU▪Motorola: engineer and patent prosecution▪ Intel: Asst. Director of Patents - patent prosecution and licensing▪ Numonyx: Chief IP Counsel▪Micron: Asst. General Counsel▪ Apple: Strategic patent licensing, patent purchasing, NPE defense▪ ARM: VP of IP

LOT CEO

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What’s new?

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LOT 1.0▪ Very robust agreement

- 27 pages▪ License triggered

upon transfer to non-member

▪ Impacted sales to other companies

LOT Membership unanimously approves new agreementNovember 23, 2015

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LOT 2.0▪ Scope narrowed to address

PAEs - 10 pages▪ License upon transfer to

PAE▪ No impact on traditional

uses of IP▪ Free to assert, sell, or

license to anyone

New LOT Agreement is scaling

5

0"

10"

20"

30"

40"

50"

60"

70"

80"

90"

100"

110"

6/1/14"

10/1/14"

2/1/15"

6/1/15"

10/1/15"

2/1/16"

6/1/16"

10/1/16"

LOT$Membership$over$0me$

LOT 2.0

Why does this matter?

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Why you should join LOT Network

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$29 Billion2

Poll Question 1: Has your company, or your client, ever been approached by a Patent

Assertion Entity (PAE) aka patent troll?

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PAEs - hurting innovation

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Patent lawsuits have jumped 500% between 2005-2014

PAEs drain ~$80B from the US economy per year, or $1.5B a week

Number of PAE initiated lawsuits per year

0

1000

2000

3000

4000

2004 2007 2010 2013 2016

1

7PAEs are responsible for 84% of high-tech

patent litigation in the US!

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PAEsOperating Companies

Where are the PAEs getting their patents?

10Companies provide PAEs with most of the patents

Operating CompanyInventor/University

81% of patents acquired from PAEs come from

companies 7

Source of Patents

Who is joining and why?

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Some of LOT’s 113+ members

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…and

2/3rds of LOT Members are start-ups

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What is LOT Network?

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Community

Non-Profit

ProtectingInnovation

LOT - community providing PAE immunization

A license to the other members of LOT Network that applies ONLY on and after transfer of the particular patent to a patent assertion entity

(License on Transfer - LOT)

How LOT Protects Members

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No effect on traditional uses of patents

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Free toCross License

Free toAssert

Free toDo Nothing

Free toSell

No Burden to being a member

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Don’t have togive notice

Don’t have tolist patents

Don’t have toreport

A patent holder, in combination with its affiliates, that generates more than 50% of its gross

revenue from patent assertion.

What is an assertion entity?

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How LOT works

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Illustration of the LOT Agreement's Operation

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21Today: Companies 1 and 2 join the LOT Network.

21LOT

Future: LOT membership immune from patent, regardless of the owner. 21

LOT

PAE

X

Over 606,000 WW assets

Over 162,000 US assets

Tomorrow: Company 2 sells a patent to a Patent Assertion Entity. 21

LOT

PAE

$License to LOT

membership automatically

becomes effective.

Legend- Transferred patent(s)

X

X

Illustration of the LOT Agreement's Operation

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21Today: Companies 1 and 2 join the LOT Network.

21LOT

Op Co B

License to LOT membership automatically

becomes effective when transferred to

PAE.

PAE

X21

LOT

Tomorrow: Company 1 sells a patent to an Operating Company

Legend- Transferred patent(s)

Op Co A

$

Over 606,000 WW assets

Over 162,000 US assets

LOT Network is non-profit: Annual Fee

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LOT Member’s Annual Revenue Annual Membership FeeLess than $5 million Free (through March 1, 2017)

Between $5 and $10 million $1,500

Between $10 and $25 million $2,500

Between $25 and $50 million $5,000

Between $50 and $100 million $10,000

Between $100 million and $1 billion $15,000

Greater than $1 billion $20,000 (cap)

LOT provides value to its members

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Analysis of assets litigated by PAEs

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What types of patents did trolls use to sue in the US in 2015?(3,608 litigations)

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#  of  paten

t  assets

0

40

80

120

160

G06F H04L H04W G06Q H04M H04N G11C G11B B60R G06K

15161718

4646

72

83

150155

CPC  codes  of  patents  asserted  by  PAEs  in  the  US  in  2015  G06F - Digital Data ProcessingH04L - Transmission of Digital InformationH04W - Wireless Communication NetworksG06Q - Data processingH04M - Telephonic CommunicationH04N - Pictorial CommunicationG11C - Optical elementsH04B - TransmissionG11B - Radio ReceiversB60R - MirrorsG06K - Data Recognition

LOT has thousands of patents in the same areas as those PAEs are asserting in the US

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#  of  paten

t  assets

0

12,500

25,000

37,500

50,000

G06F H04L H04W G06Q H04M H04N G11C G11B B60R G06K

60676422

2221397

40751

396252348908

11604

41208

1516171846467283150155

LOT  has  over  486,000  assets  in  the  exact  areas  that  

PAEs  are  asserting  in  the  US.  (606,000+  Overall)

G06F - Digital Data ProcessingH04L - Transmission of Digital InformationH04W - Wireless Communication NetworksG06Q - Data processingH04M - Telephonic CommunicationH04N - Pictorial CommunicationG11C - Optical elementsH04B - TransmissionG11B - Radio ReceiversB60R - MirrorsG06K - Data Recognition

Analysis of assets bought in 2015

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2015 Patent sales: Forecast of future litigation

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# of

ww

pat

ent a

sset

s

0

750

1,500

2,250

3,000

G06F H01L H04L G11C H04W H04N H01M H04M G06Q H04B G11B G03F G06K H03K H04Q

205210219221230264

465466491535708

1657

210122442305

Top 15 patent categories for 16,634 assets sold in 2015 Data from:

2015 Patent sales: Forecast of future litigation

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# of

ww

pat

ent a

sset

s

0

12,500

25,000

37,500

50,000

G06F H01L H04L G11C H04W H04N H01M H04M G06Q H04B G11B G03F G06K H03K H04Q

217378

60674346

2221240552343962

263

40751

8908

397

116048632

41208

2052102192212302644654664915357081657210122442305

Top 15 patent categories for 16,634 assets sold in 2015 Data from:

LOT  has  over  556,000  assets  in  the  exact  areas  as  the  patents  

bought  in  2015  (606,000+  Overall)

Yeah, but does LOT REALLY work?

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▪ 42 different LOT Members have divested over 42,000 assets since LOT was founded

▪ 35 of those assets have landed in the hands of 8 different PAEs▪ One of those PAEs is Intellectual Ventures▪ At least 97% of those assets were divested AFTER the member

joined LOT

NO LOT MEMBER HAS EVER BEEN SUED BY AN ASSET FROM LOT

Since LOT was formed in 2014

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Data from:

Significant value in adding some SuppliersBoth Suppliers and Customers get protection

from patents outside their bilateral ecosystems

Significant Value in adding suppliers to Membership

33LOT NETWORK

Company A Company B Company C

Supplier Supplier Supplier Supplier

Supplier Supplier Supplier Supplier

Supplier Supplier Supplier Supplier

Supplier SupplierSupplier Supplier Supplier

Supplier Supplier Supplier Supplier

Supplier Supplier Supplier Supplier

Supplier Supplier Supplier

Supplier Supplier Supplier Supplier

Supplier Supplier Supplier Supplier

Value

Why LOT is good for BUYERS

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Can trust suppliers

Help Save $29 billion

Stabilize supply chain

Why LOT is good for SUPPLIERS

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Gain access to IP

Reduce indemnification

costs

Become “preferred”

supplier

Program voluntary

1. Your company prioritizes selling patents to PAEs over risk reduction2. Your company does not have exposure to PAEs in US, Germany, or

China3. You can’t afford the fee

Reasons Not to Join LOT

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Poll question 2: What is the likelihood that your company would sell a patent to a

troll?

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a) Over my (or management’s) dead body. b) Maybe if my company had a surplus of patents and I was certain that the patent wouldn’t be used against my customers and would not create retaliation risk. c) Maybe if my company was financially strapped for cash, but admittedly, I’d be working on my resume first. d) I’ve sold patents to a PAE in the past, and I didn’t like it. e) I’ve sold patents to a PAE in the past and I liked it.

▪ Pharma focussed on reversing trends of high-tech community:▪ Repeal/reduce 101▪ Limitations on IPRs

▪ Stronger patent rights: damages, injunctions, etc.

▪ Stronger patents likely to increase PAE activities

Impact of new administration?

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Backup

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1. Patent Freedom▪ https://www.patentfreedom.com/about-npes/litigations/

2. James Bessen & Michael Meurer, The Direct Costs from NPE Disputes, 99 Cornell L. Rev. 387 (2014).3. RPX 2014 Litigation Report.

▪ http://www.rpxcorp.com/wp-content/uploads/sites/2/2015/03/RPX_Litigation-Report-2014_FNL_040615.pdf4. US Patent and Trademark Office

▪ http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm5. ROL Group

▪ http://www.richardsonoliver.com/news/2014/12/1/buyers-and-sellers-in-the-2014-brokered-patent-market6. Linda Biel, AST 7. Dan McCurdy, RPX presentation at 2015 IP Counsel Cafe spring meeting, Palo Alto, CA. 8. Kevin Jakel, Unified Patents presentation at 2015 IP Counsel Cafe spring meeting, Palo Alto, CA.9. Mark Lemely & Douglas Melamed, Missing the forest for the Trolls, Cornell Law Rev. 2013.10. Robert Gebelhoff. (2015, November 23). ‘Patent trolls': Reading the comments. The Washington Post.

Retrieved from https://www.washingtonpost.com/news/in-theory/wp/2015/11/23/patent-trolls-reading-the-comments/ (© 2015)

References

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