Global IP & Innovation Summit Shanghai China September 4-5, Patent Monetization

Transcription

1 Global IP & Innovation Summit Shanghai China September 4-5, 2013 Patent Monetization Jim Brelsford Intellectual Property Group Skadden Arps (Hong Kong/Silicon Valley)

2 About the Speaker Jim Brelsford is a member of the IP group at the global law firm Skadden Arps (Hong Kong/Silicon Valley), where he advises clients on complex intellectual property transactions, monetization strategies and IP litigation, particularly on cross-border matters involving Asia. 1,800 attorneys in 23 offices globally, including Shanghai, Beijing, Hong Kong, Tokyo, Singapore. Prior to joining Skadden, he was the senior vice president of IP licensing at Fortune 500 company SanDisk Corp. (as well as serving as its Chief Legal Officer). From SanDisk reported $1B USD in license and royalty revenue from its IP licensing program. In 2010, Jim was named Best General Counsel in Silicon Valley (large public company category) by the San Jose Business Journal/San Francisco Business Times. 2

3 New Complexity of Patent Ecosystem Privateers NPEs IP aggregators & Patent Funds Defensive Services Operating Companies Intermediaries 3

4 Increased Pressure to Leverage IP Value Shareholder activism (e.g., Starboard) and other investors seeking out IP-adjusted Enterprise Value Boards of Directors and C-Suite heightened interest Patent sale/acquisition news stories and valuations Smartphone wars Rise of NPEs Historical only for defensive purpose patent-usage model no longer as dominant Building/maintaining global patent portfolios is expensive and a negative drag on profitability where is ROI? Monetization by operating companies increasingly an accepted practice Investment dollars chasing new IP business models 4

5 Increased Activity in Asia Growing interest and activity Asian Patent Funds (China, Japan, Taiwan, S. Korea) China: National patent strategy IP Exchanges: E.g., CTEX (government-backed IP exchange) Chinese companies prosecuting, and buying, more patents IP aggregator partnerships with Asian companies and universities Little domestic NPE activity so far However, Acacia expands Japan operations Asian electronics companies are often targets of U.S. NPE lawsuits 5

6 Leveraging IP -- Factors Driving Monetization Perceived under-exploited value of IP in today s market Large payments for patent portfolios and large patent litigation settlement and damages awards Significant IP royalty streams amenable to financial engineering Demand for alternative investment vehicles Increasing demand for financing of R&D/IP development Increasing expertise in IP monetization 6

7 Monetization Continuum None Defensive Monetization Drag on stockholder value Sales Direct Indirect Privateering Option value for maybe some day will monetize May need it defensively some day But, portfolio maintenance costs in G&A every quarter Cross license to offset the cost of using competitors IP Sell patents for cash Build an inhouse team and assert against infringers Have a third party assert your IP against infringers Core IP or Non-core IP What IP to retain? Establish a friendly NPE o o o o o Using your own patents Using third party patents that you infringe Using newly acquired patents Sales + back end (with internal or external funding) Strategic versus financial 7

8 Pros/Cons of Different Monetization Approaches Pure Sale of Patents Direct Licensing Indirect Licensing Pros Fastest time to money Low burden on management Highest ROI Potential high impact on share valuation Maximum control of strategy Maximum control of targets Maximum control of price, other terms Ability to obtain cross-license back Potential to leverage into other business Relatively fast time to money Eliminates OPEX burdens and litigation expense Lower burden on management De-risks and unlikely infringement counterclaims Create deniability vis a vis targets Privateering possible NPE often puts seller on no sue list Gross v. net model NPE pricing negotiable within ranges Cons No continued revenue stream Not recognizable revenue Permanent loss of asset Highest expense Likely infringement counterclaims Longer time to money Potential conflict with product business May have to establish the market via initial litigation Higher fixed costs and management time Significantly lower ROI than Direct model Lose of asset unless clawed back No control over deal execution Lower ability to impact targets and pricing NPE provider s business model or requirements could change Uneven/short history re most NPE s performance No cross-license back to company from target Potential standing issues if attempt control 8

9 Examples of Patent Sales Parties Patents Price AST MIPS (2013) 498 $350M $703K Facebook Microsoft (2012) 650 $550M $846K Per Patent Average Microsoft AOL (2012) 800 $1.056B $1.32M Intel Real Networks (2012) 360 $120M $333K Acacia Adaptix (2011) 230 $160M $696K Tessera MoSys (2011) 73 $35M $479K Google MOSAID (2011) 18 $11M $611K Rockstar Nortel (2011) 6,150 $4.5B $732K HTC S3 Graphics (2011) 235 $300M $1.28M Consortium Novell (2011) 882 $450M $510K HTC ADC Telecom (2010) 96 $75M $781K Facebook Friendster (2010) 18 $40M $2.22M 9

10 Examples of FY 2012 Licensing Revenues M USD Note: These data from a sampling of companies with patent licensing programs are derived from publicly available information, and may not accurately reflect the companies revenues derived solely from patent licenses. Furthermore, some companies may derive a substantial portion of their licensing revenue from one or a few licensees. 10

11 Examples of Indirect Licensing Parties Patents Consideration Micron Round Rock (2009) 20% of portfolio ~4000? Nokia MOSAID (2011) 2000 Revenue share License to Micron from IV; other (nonpublic) consideration; speculation is 20% of gross and/or $400M promissory note Ericsson Unwired Planet % revenue share of $ M 20% revenue share of first $100M 70% revenue share of >$500M British Telecom Various Various Revenue share (as to 835, 50% of adjusted gross proceeds from licensing, or 90% from sale if within one year) 11

12 Examples of Settlements or Initial Judgments Dispute TiVo v. Google, Cisco (2013) TiVo v. AT&T (2012) TiVo v. Echostar (2011) EMC v. HP (2005) Broadcom v. Qualcomm (2009) Johnson & Johnson v. Boston Scientific (2010) Dolby Labs v. Research In Motion (2011) Nokia v. Apple (2011) Apple v. Samsung (2012) Carnegie Mellon University v. Marvell Semiconductor (2012) Value $490 Million $215 Million $500 Million $325 Million $891 Million $1.7 Billion $28.7 Million $608 Million $1.05 Billion $1.17 Billion 12