Patent portfolios are increasing in size…Taming Complex Intellectual

Property Compensation Problems

Roy Weinstein

• New approach to valuing intellectual property

• Substitution of reason for fantasy

• Occam’s Razor

Requirements for patentability

NoveltyNonobvious

Utility

$8.99 onAmazon

…for storing and transporting a banana carefully.

$6.99 on

Amazon

…eating receptacle for supporting, rotating, and sculpting a portion of ice cream…

Patent portfolios

9

Number of Worldwide Patents

Entity Worldwide U.S.

1. Alcatel-Lucent 74,669 15,732

2. Boeing 13,689 5,428

3. CSIRO 6,346 495

4. Disney 1,180 325

5. Fujitsu 199,232 23,693

6. Harris Corporation 5,938 1,732

7. Hewlett Packard 57,916 21,204

8. Johns Hopkins 6,652 1,221

9. Merck & Co. 52,296 5,409

10. Nokia 67,869 8,981

11. Northrop Grumman 5,250 2,096

12. Proctor & Gamble 81,584 7,642

13. Qualcomm 54,378 4,227

14. SAP 5,708 1,491

Number of Patents

Need many patents working together

Apple: 200 patents for the iPhone…

…not including patents licensed from others

Toyota: 2,000 patents for the Prius…

…not including:• patents licensed from others• patents covering components ..purchased wholesale

When it seems all patent bases have been covered…

Patent

Thicket

Very complex…

…very expensive

1991 2003 2004 2005 2006 2007 2008 2009 2010 2011

Year Payer Payee Technology Amount($ Millions)

Description

1991 Eastman Kodak Polaroid Photography $925 Settlement

2003 Microsoft Eolas Internet $521 Verdict

2004 Intel Intergraph Computer Chip $675 Settlement

2006 RIM NTP Wireless Email $613 Settlement

2010 Boston Scientific Johnson & Johnson Medical Device $1,730 Settlement

2011 Apple, EMC, Ericsson, Microsoft, RIM, Sony

Nortel Wireless and Networking

$4,500 Purchase

2011 Johnson & Johnson Bruce Saffran Medical Device $593 Judgment

2011 Apple Nokia Smartphone $608 Settlement

2011 DISH Network, EchoStar

TiVo DVR $500 Settlement

2011 Google Motorola Wireless Handsets $12,500 Sale

46 years to issue the first 10,000 U.S. Patents

2010: 10,000 patents every 15 days

Number of Patents by Year

India Taiwan Europe Korea China Japan U.S.

Number of Patent Grants: 2010

6K16K

60K70K

135K

225K

250K

Complex compensation problem…

…necessary patents owned by more than one entity

Patented Technology

Royalty Payment

PatentOwner

Licensee

Hypothetical Negotiation

New approach…

…the Nash Bargaining Solution.

Occam’s Razor

For “pioneering analysis of equilibria in the theory of non-cooperative games”

The NBS can seem complicated:

Two simple conditions:

1) No other feasible outcome is better for one side and not worse for the other

2) Neither side is worse off reaching an agreement than if no agreement is reached

NBS requires knowledge of:

1) Patent owner disagreement profit

2) Licensee disagreement profit

3) Total incremental profits from use of the patent

Profit split from use of the patent

50/50 split is a reasonable and likely starting point

Why 50/50?

If no agreement is reached:

Licensee Patent Owner

Why 50/50?

If an agreement is reached:

Licensee Patent Owner

How will the patent compensation world look in 5 years?

• 50/50 split of the incremental benefits from patent use

• Wider applications of NBS• Greater reliance on reason and good science