PATENT BUSINESS LANDSCAPE: CREATIVE STRATEGIES FOR MONETIZING A CLIENT S PATENT PORTFOLIO

Transcription

1 PATENT BUSINESS LANDSCAPE: CREATIVE STRATEGIES FOR MONETIZING A CLIENT S PATENT PORTFOLIO PENNSYLVANIA BAR INSTITUTE 7TH ANNUAL INTELLECTUAL PROPERTY LAW INSTITUTE PHILADELPHIA, PENNSYLVANIA APRIL 25, 2013 ROBERT A. MCKINLEY, ESQ. INTELLECTUAL PROPERTY COUNSEL RATNERPRESTIA GREGORY J. URBANCHUK, MSC., AVA, CFE PRINCIPAL ASTERION, INC.

2 OUTLINE OF TOPICS COVERED Building A Patent Portfolio with an Eye Toward Monetization Assessing and Categorizing Patent Assets to Plan for Monetization An Overview of Classic and Emerging Monetization Methods Creative Strategies to Lay the Groundwork for Executing a Monetization Strategy Recommendations for Directors and Officers to Minimize Liability for Failure to Properly Manage IP Assets

3 WHY IS MONETIZATION SUCH A BIG DEAL NOW? CHANGES IN THE IP MARKETPLACE Over the last 35 years, there s been a major shift in industry from a labor-driven economy to a knowledgebased economy 35 years ago, only 20% of the value of a US publiclytraded company derived from intangible assets (i.e. patents). Now, intangibles represent 80% of the value of publicly traded companies. (Source Ocean Tomo Intellectual Capital Equity - Oceantomo.com) Directors and Officers can t sit back and keep the status quo.

4 What Are Your Goals? Building A Patent Portfolio Create a barrier to entry to competition? Grow market share by protecting your product? Attract investment? Generate revenue? What Do You Want to Protect? Core technology Key Products But what is here today may be gone tomorrow. Non-core technologies Develop a Tier system with an Eye Toward Monetization.

5 Building A Patent Portfolio Where Do You Need Protection? Look at where your market is Where are your competitors? Can you envision how the marketplace may change? Do you need foreign protection? Budget Considerations Patent $20-30K on average to prepare and prosecute through issuance Over a 3-5 year time frame

6 Building A Patent Portfolio Setting Up Tiers GOLD TIER Patented product will be developed Projected revenue from the product is high Patent would serve to materially block a competitor from entering the market Patent covers a vital component part of a larger product with high projected sales revenues SILVER TIER Patented product may be developed Some projected revenue if it is developed Competitors business may be affected in some way BRONZ TIER No plan for product No expected revenues, or expected revenues highly speculative No perceived competitor blocking value

7 Assessing and Categorizing Assets HOW? Compile a list of patents Work with in-house patent attorneys, sales units, and engineers to divide the patents up into categories Two Category Method: Core v. Non-Core Patents that cover products v. those that do not Broken Down Further Core Products in the pipeline Products currently being sold Products on their way out, but of substantial value now Blocking patents Non-Core Not used, non-blocking, may be of value to others Not used, appear to have little value Other patents

8 Primary Methods for Monetizing Patents Licensing Exclusive Types: All rights under the patent (Complete Exclusive) Limited to one or more Fields of Use Limited to a particular Geographic Region Limited to a Particular Market Non-exclusive Indirect (through law firm or licensing agent ) Sale Patent holding companies Through a broker At auction (newer phenomenon) market-maker IP Intermediaries Litigation What is your strategy? Low hanging fruit first? Large player first? File early to prevent the infringing product from hitting the market? File later -- wait until the product is rolled out = actual revenue and may not be easy to retool for a design around.

9 Primary Methods for Monetizing Patents Pre-Litigation Factors to Consider Is the target in a position to bring a countersuit? How strong is your case? Strength of infringement theory under a reasonable claim construction Are there any validity concerns? Where will you institute the action? Jurisdiction over the target Patent-plaintiff friendly? Speed to trial Experience of the Court Home court advantage? The method you choose may depend on what your goals are and who you decide to target. If your goal is to extract the most out of a sale or license, you need to be prepared to litigate, and make sure the other side understands that.

10 Laying the Foundation for Monetization Creative Strategies Based on Emerging Trends Impact of Accounting Guidance on IP Litigation Accounting Standards Codification ( ASC ) 805 Purchase Price Allocation Squeezing the Return from IP Assets Targeted & Strategic Use of 3 rd Party Compliance Audits

11 Impact of Accounting Guidance on IP Litigation ASC 805 Purchase Price Allocation Purchase Price $1,186,500 Assets Opening Balance Cash $ 5,000 Accounts Receivable $ 25,000 Inventory $ 50,000 Property Plant & Equipment $ 75,000 Trademarks $ 250,000 Patent $ 772,500 Goodwill $ 9,000 Total $ 1,186,500

12 Impact of Accounting Guidance on IP Litigation ASC 805 Purchase Price Allocation For the Twelve Months Ended 3 Year 3/30/2008 3/30/2009 3/30/2010 Average Net Sales $ 9,366,571 $ 9,174,770 $ 8,000,000 $ 10,000,000 Percentage of Sales Attributable to Patent 100.0% Net Sales $ 10,000,000 Appropriate Royalty Rate 2.0% Royalty Savings $ 200,000 Less: Income Taxes 40.0% $ 80,000 Net Royalty Savings $ 120,000 Net Royalty Savings Adjusted for Growth 3.0% $ 123,600 Capitalization Rate 16.0% Capitalized Value of Patent at March 30, 2010 $ 772,500

13 Laying the Foundation for Monetization ASC 805 Purchase Price Allocation How does ASC 805 impact monetization of IP Rights Enforcement of IP Rights Economic Damages Royalty Rates Entire Market Value Theory/Apportionment How do we address ASC 805 in the Context of IP Monetization?

14 Squeezing the Return from IP Assets Targeted & Strategic Use of 3 rd Party Compliance Audits Turnaround & Distressed Situations Mergers & Acquisitions Pre-Sale Post-Sale Renegotiation

15 Recommendations for Directors and Officers to Minimize Liability for Failure to Properly Manage IP Assets

16 ANY QUESTIONS NOW OR LATER GREGORY J. URBANCHUK, MSC., AVA, CFE PRINCIPAL ASTERION, INC. 215 S. BROAD STREET, 3 RD FLOOR PHILADELPHIA, PA P F GURBANCHUK@ASTERION-CONSULTING.COM ROBERT A. MCKINLEY, ESQ. INTELLECTUAL PROPERTY COUNSEL RATNERPRESTIA 1235 WESTLAKES DRIVE, SUITE 301 VALLEY FORGE, PA P F RMCKINLEY@RATNERPRESTIA.COM