Key Issues inIP Due Diligence, Auction,

Sale, and Monetization

The Value Perspective

Presented by:

Weston AnsonCONSOR Intellectual Asset Management

800.454.9091 www.consor.com

Key Issues

1. Identification and Context1. Identification and Context

2. Quality and Triage2. Quality and Triage

3. Valuation Process 3. Valuation Process

4. Value Extraction 4. Value Extraction

Key Valuation and Disposition Questions

What IP does the debtor own?

How does IP value change in various contexts? Bankruptcy, Going-concern, M&A

Should the IP be valued?

How do you value IP in a distressed scenario?

How do you market and dispose of these assets most cost-effectively and time-effectively?

Disposition Process: Direct Marketing or Static Auction?

When Is Valuation Necessary?

Strategic assessment of whether the IP assets be sold separate from the business

Negotiation of “stalking horse” bids and initial asset bundle pricing structures

Evaluation of bids for global asset portfolio versus individual asset buyers

IP assets to serve as collateral for various forms of financing

Purchase price allocation analysis of IP-related transactions

IP & Intangible Assets

Intellectual Property

PATENTS

COPYRIGHTS

TRADEMARKS

TRADESECRETS

Intangible Assets

Data &Knowledge

Bases

COPYRIGHTS

Customer& VendorRelations

ProprietarySoftwareProprietary

SoftwareInternetAssets

Marketing Bundle of Intangibles

Corporate name and logoPrimary trademarkMarketing umbrella and

brand nameSub-brand names and

trade dressWorldwide trademark

registrationsSecondary trademarks

Worldwide public relations efforts

Consumer advertisingMarketing strategyPackaging design and

copyrightsProduct warrantiesGraphicsPromotional concepts

Technical Bundle of Intangibles

Key patentsTrade secretsFormulaeProcess technologyDesign technologyPackaging technology

and sourcesNew product

technology

Technical data sheetsEvaluation dataProprietary test

resultsPlant and production

designProduct specifications

IT Bundle of Intangibles

Enterprise solutionsCustom applicationsDatabasesSource codeData warehouses

Domain names / URLs

E-commerce sitesThird party software

toolsCredit / payment

systems

Intangible Asset Bundles

1. Trademarks6. Corporate Identity

Assets11. Real-Estate Related

Assets

2. Other Brand-Related Assets

7. IP Contracts12. Communications-

Related Assets

3. Patent-Related

Bundles of Value8. IT/Software

13. People-Related Assets

4. Internet-Related

Assets9. Data/Information-

Related Assets14. Other Technology

Assets

5. Product-Related Assets

10. Research-Related Assets

15. Miscellaneous Assets

Identify IP / IA Bundles for Value

Stratify IP / IA Core v. Periphery

Peripheral portfolios may be monetized Vertical and horizontal Out-licensing / Spin-off

Analyze quality of IP Relevancy to current / future business Relative strength analysis

Potential infringement assessment

Birth of the IP Auction / Sale Market

History

Genesis – When, Who

Size – Dollars, Frequency, Statistics

Issues

Alternatives

Types of Auctions Used with IP

Public Open Cry

Dutch

Private

Segregated / Isolated

Stalking Horse

Monetizing IP Assets

Monetization Alternatives Sale License Creditor Settlement Sale & Leaseback Securitization Litigation

Securitization Alternatives Line of Credit Take-out or DIP Interim Long term

Disposition Process:Direct Marketing vs. Static Auction

IP assets are unique with few comparables in the marketplace (El Comandante)

IP assets require a strategic plan to identify incremental value opportunities (Polaroid)

Targeted buyers typically need more information than is offered through static auction process (Collins & Aikman USA)

IP assets must be creatively packaged to match specific buyer needs and / or strengths (Tower Records)

Static auctions market the auction, not the specific assets (Ocean Tomo)

Case Study - Collins & Aikman

Key Assets:

Instrument Panel Skin / Materials / Process Safety Systems / Invisible Airbag Door (107 patents) Interior Trim (96 patents) Skin Materials and Processes (67 patents) Console / Door Trim (18 patents) Decorative Finishes / Laminates (14 patents) Kinematics / Air Registers / Cupholders (45 patents) Exterior Trim (40 patents)

Collins & Aikman: Direct Sale

Sale Process:

Direct marketing campaign to Tier 1 and Tier 2 automotive suppliers

Technology due diligence was highly labor intensive

Asset bundles sold individually to multiple buyers for nearly $5 million

Total marketing and sale process executed over 9-month period

Case Study – Amherst Fiber Optics

Company: TVC

Context: Liquidation of subsidiary

Cause: Parent company cash flow

Massive potential tax benefit

Components: 8 related but independent

patent bundles

Fiber Optics after-market, repair

and maintenance

Cause: Liquidation

Valuation Approach: Components of valueReplacement value

Amherst Fiber Optics: Monetization

Identify all IP in each patent / technology bundle Inventory patent applications and registrations Collate related trade secrets,designs, assemblers,

etc. Benchmark valuation

Liquidation context End-use dependent

Market the assets / close transactions Results:

$400,000 – $700,000 cash $10+ million tax refund

Case Study – Middleby Marshall Trademarks and Technology

Company: Middleby Marshall

Context: Acquisition

Components: Core corporate brandTwo sub-brandsPatent and Technology bundle

Cause: Loan securitization

Approach: Imputed royaltiesComparable sales

Concept of Value: Going-concernComponents of value

IP and Intangibles in ForeclosureSummary Case Studies

Relative Value

Ranking1 Company

Types of Intangibles

(A) (B) (C) (D) (E)

TM’s & Brands IT & DatabasesPatents &

TechnologyInternet Other

A plus

B + C

1. WarnacoWarners, Speedo, CK licenses

Complex operating systems

Manufacturing technology

Domain names & Website

N/A

C + E

A, B, D

2. Borden Chemicals

Corporate brand and sub-brands

Manufacturing systems

Multiple and proprietary

LimitedChemical processes

B

A + D

3. Montgomery Ward

Montgomery Ward, Ship N Shore, plus 100+ TM’s & sub-brands

Operating platforms;

Mailing listsNone Online store

Mail order system

B, C, D, E4. Exodus

Corporate identity Massive systems Multiple BMP’s2 Complex assets

Hosting processes

C + D

B

5. beenz.comCorporate TM

International databases

Proprietary technology and BMP

Online sweepstakes service

Other BMP’s

E + C

A, D, B

6. MoslerCorporate name

Security IT & software

Multiple patents ModestUL certifications

1 The rankings for each company reflect relative value within that company in a bankruptcy or liquidation scenario (e.g., Montgomery Ward will realize most value from the “B” assets, IT & Databases).

2 BMP = Business Method Patent. A BMP provides protection for intellectual concepts and systems sufficiently unique to earn patent protection. The on-click ordering system of Amazon.com is a BMP.

Bankruptcy and Reorganization

Amherst Fiber Optics AstroTurf Barneys Boston Market Collins & Aikman Dan River El Comandante Fortunoff Jacobson's Stores Jenny Craig

Kenar LA Gear Marvel Entertainment Montgomery Ward Owens Corning Polaroid Service Merchandise Starad, Christopher

Radko Tower Records

Summary

Identify all IP / IA in the current project Understand the context for historical and potential

use of the assets Triage the assets by quality and priority Bundle the assets for optimal effectiveness Benchmark valuation

Liquidation context End-use dependent

Market the assets / close transactions Licensing Sale or other disposition