Mass Aggregators, NPEs and Patent Trolls: Threat, Opportunity or Both for University TTOs…

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Mass Aggregators, NPEs Mass Aggregators, NPEs and Patent Trolls:and Patent Trolls:

Threat, Opportunity or Both for University TTOs…

Live webinar – July 27, 2012

Jiaqing (Jack) Lu, PhD, CFASenior Economist and the Director of Economic Analysis Applied Economics Consulting Group, Inc.

Mr. Lu’s expertise includes business valuation, intellectualproperty valuation, competition assessment, and market analysis.Jack has substantial experience in economic research andfinancial modeling for IP management and monetization, and hashelped clients in developing and implementing IP investment anddivestiture strategies across major technology-intensive industries.

A well known IP economist and financial analyst, Jack’s research inIntellectual property, patent market, financial markets and other economic issues have been widely published. His most recent research can be foundat his SSRN author page at http://ssrn.com/author=230071. He is a Chartered Financial Analyst (CFA) charter holder, and is a member of CFAInstitute, National Association for Business Economics, and LicensingExecutives Society. He has been actively involved in these organizations,Including serving on the Executive Committee of 2011 LES High Tech Royalty Survey.


http://ssrn.com/author=230071

Marc S. KaufmanPartnerReed Smith

Mr. Kaufman specializes in assisting his clients in managing andmonetizing their intellectual property assets. He has developed

structured procedures for defining and executing intellectual property strategies that are aligned with overall business objectives, for a wide variety of business entities. He has deep experience in procuring and enforcing IP rights both in the United States and abroad, as well as structuring and negotiating intellectual property transactions. Specifically in the area of patents, Marc has developed and managed patent portfolios that have been widely licensed by major corporations. Often times, he guides his clients in the sale of patents that are no longer relevant to core objectives.

Marc has spoken across the country, authored several articles, and hasbeen quoted in notable publications such as the New York Times withrespect to a variety of intellectual property issues. Presently, he is servingas a chair of the Law Seminars International Conferences on patent monetization, which are held across the U.S. to provide updated

educationand industry insights to business consultants and in-house counsel.


Economic Decision-makings for University TTOs

Jack Lu, PhD, CFA

Chief Economist and Senior Director

IP Market Advisory Practice (IPMAP)

Applied Economics Consulting Group, Inc.

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1. NPE Business Model: Economics and Controversies

2. Technology Transfer in NPE-Driven Patent Market: Major Economic & Financial Decision-makings

3. Interpret and Use Market Price Information for Patent Monetization


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-NPE is a legitimate business model; Troll is a market inefficiency.

- NPE vs. Troll

When a NPE trolls, it’s a troll; When it doesn’t, it’s a licensor.

- Troll Identity vs. Troll Conduct

Focus on conduct and solution, instead of labeling


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An Economic Perspective: Supply/Demand and Specialization

Explosive growth of patents Patent thickets New reality in the new economy: Innovating and In-licensing (I & I)

Demand for identifying & acquiring complementary patents

NPE specializing in patent portfolio building and licensing DPA specializing in risk management


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A Financial Perspective: Capital Moves Upstream in Innovation Chain and Chases Higher Return

Invest in securities

Invest in start-ups

Invest in patents & tech developments


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$$

Freedom to operate

Licenses

$$

$$Licenses

$$Patents

Patents $$

(1)

(3)

(2)

Patents$$ TTO

NPE

DPA

Practicing Com

MarketProducts

Services

(1)Acquiring production/marketing capacity;(2)Acquiring portfolio building/licensing capacity;(3)Acquiring risk management capacity.

2. NPE, DPA, and Technology Transfer


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Sell or license Licensing assessment:In-house or outsourcing

Negotiation failed or succeed Litigation or

withdrawal

LicenseNet NPV

Net NPV

Net NPV

Net NPV

Sell

PricingDeal structuring

Payment Scheduling

NPE/DPA PE

In-house


Payment Scheduling

NPE

Succeed

Outsourcing

Net NPV

Litigation assessment:In-house or outsourcing

In-house


Payment Scheduling

NPE

Outsourcing

Withdrawal

File lawsuits

Failed

2. NPE, DPA, and Technology Transfer

Major Economic and Financial Decision-makings


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Decision-making Challenges Major Issues to Be Addressed Selling or licensing Market study and revenue/profit forecast;

Pre-sales assessment Economic analysis and financial modeling to choose the optimal strategy

Sales structuring/financing that a) minimizes cost and risk; b) maximizes profit and cash flow.

Assertion targeting; Product analysis, past revenue/profit estimate, and future revenue/profit License negotiation forecast; Deal structuring/financing A portfolio of negotiation strategies based on market dynamics and the targets' competitiveness;

Royalty determination, cost and fee estimation, risk and undertainty profiling; A mix of alternative deal structures and instruments based on financial modeling, with the amounts and timing of cost, profit, and cash flow clearly illustrated.

Cost and risk analysis Relevant market analysis, industry dynamics assessment, and Outcome forecast technology competitiveness study;

Infringing product analysis, past and future damage estimate; Net cash flow analysis

Patent renewal assessment Technology portfolio analysis; Patent divestiture analysis Economic analysis and financial modeling for optimal exit strategies.

Ownership

Assertion strategy

Pre-litigation assessment

Renewal or Exit Strategy


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Samples of Questions

1. Company X sold #Y patents for $MMM; how could we have never got that kind of high price?

2. #T patents were acquired by Company Z for $NNN last month, with an average price of $P per patent. Can we use this average price per patent as the benchmark for our patent sales negotiation?


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- 22 transactions of patent portfolios, mostly in recent years- Number of patents in each portfolio and the payment- Other data: seller/buyer type, industry, strategic goal, and

time

USD in thousand Actual PaymentMean of Average Price Per Patent $963Median of Average Price Per Patent $716

Weighted Average Price Per Patent $412


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A dummy variable regression model is developed to adjust the effects of industry, strategic value, time, and seller/buyer type.

All FactorsIndustry,

Strategic Value & Time

Industry & Strategic Value

IndustryNo Premium or

Discount

Mean of Average Price Per Patent $963 $821 $1,173 $898 $675 $358

Median of Average Price Per Patent $716 $602 $658 $529 $387 $207

Weighted Average Price Per Patent $412 $443 $482 $207 $123 $50

Adjusted by Premium/Discount of

USD in thousand Actual


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How much are Kodak’s 1,100 digital imaging patents worth?

Analysts’ views: $1 billion to $3 billion


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Utilize the chat box to the bottom left of your screen to submit a question to the panel. Please address your question to a specific presenter, if possible.

Or

Press * 1 on your touchtone phone and this will place you into the phone queue.


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Brokers◦ facilitate transactions in exchange for fee

Defensive Aggregators◦ purchase patents on behalf of member pool

“Deployers”◦ generate ROI◦ various revenue models◦ various opportunities to participate in profits


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1. Asset Audit and Analysis“What assets should we

monetize?”

2. Market Analysis“Who would pay for it and

how much?”

3. Business Decisions“What is the best model?”

4. Transaction


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What are our objectives? Is there commitment by management? Whose “buy in” do I need? What risks are we willing to take? What resources can we dedicate? What is our time frame? Are any assets “off the table”? Can we tolerate the patents being

enforced by the buyer?


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Identify all available patent assets Group assets into families Summarize claim coverage for each family Determine any encumbrances Determine selected assets for

monetization◦ non-core assets◦ assets applicable to non-competitive markets

Detailed coverage analysis for selected assets


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Identify markets for selected assets Identify players in each market

◦ operating companies◦ intermediaries

Determine pricing of selected assets◦ infringing products◦ estimated revenues◦ apportionment◦ known pricing models


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Outright sale or ongoing partnership Acceptable intermediary models Check strategy/feedback to Phase 1 and

Phase 2


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Partnership◦ high revenue◦ high resources◦ long time frame◦ ongoing

relationship◦ ongoing

management

• Sell– low revenue– low resources– short time frame– one transaction?


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Present valuation evidence Negotiation Participation options?


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Intermediary Practicing Entity

Sophistication High Varies

Established Valuation Model Yes Probably Not

Approval to Purchase Yes Varies

Established Purchase Process Yes Probably Not

Ability to Close Quickly Yes Probably Not

Potential Political Fallout Yes Probably Not


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Utilize the chat box to the bottom left of your screen to submit a question to the panel. Please address your question to a specific presenter, if possible.

Or

Press * 1 on your touchtone phone and this will place you into the phone queue.

Documents

Mass Aggregators, NPEs and Patent Trolls: Threat, Opportunity or Both for University TTOs…