Global Platform
 Largest law firm in the world
with 4,200 lawyers in 30
countries and 76 offices
throughout Asia, Europe,
the Middle East and the US
 1st in M&A deal volume
globally
 Ranked #1 among the
world’s leading global law
firms
 1st in Venture Capital and
Private Equity deal volume
 Ranked in the top 5 for US
IPOs by US Issuer Adviser
 More than 550 DLA Piper
lawyers ranked as leaders
in their fields
2
Global IP and Technology Practice
 More than 400 IP and Technology lawyers – 56 offices in 24 countries
 Highly-ranked, full service, global IP practice
 Litigation, prosecution and transactions
 Patent, trademark, copyright, trade secrets, domain name, Internet, anticounterfeiting, anti-piracy, privacy
 Acquisition, development, licensing, enforcement, technology transfer
 Global patent litigation and patent enforcement
 United States
 Netherlands
 Germany
 Italy
 UK
 Asia
 Australia
 Full service law firm advantage – benefit from cross-practice
knowledge base
 Regulatory and government affairs, litigation, antitrust, etc.
3
Navigating the New IP World: The
Future is Foggy
4
IP Monetization: Shareholder Pressure
 Carl Icahn to Motorola Mobility (July 21, 2011)
 “patent portfolio, which is substantially larger than Nortel Networks’
and includes numerous patents concerning 4G technologies, has
significant value … There may be multiple ways to realize such
value given the current heightened market demand for intellectual
property in the mobile telecommunications industry”
 Starboard Value LP to AOL (Feb 24, 2012):
 “(i) a significant number of large internet-related technology
companies may be infringing on these patents, and (ii) AOL's
patent portfolio could produce in excess of $1 billion of licensing
income if appropriately harvested and monetized. Unfortunately,
several of these parties have expressed severe frustration that
AOL has been entirely unresponsive to their proposals regarding
ways to take advantage of this underutilized asset”
5
IP Monetization
 AOL Patent Sale: Value Difficult to Predict
 $1.1 billion from Microsoft
 Microsoft resells 650 patents (approx) to Facebook for $550M
 M-Cam Estimate (March 29): $290M
 Copyright
 US Copyright Group
 Righthaven LLC
 Trademark
 Liz Claiborne: $200M secured financing
 Tupperware: $400M secured financing
6
Patent Sales
7
It Could Be Worse
 Average US Patent is worth $50k to $75k
 And that’s the average
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No, It’s Not Number of Patents
Patent Sales: 2010 to 2012
$2,500,000
$39,5M
$2,000,000
$1,500,000
$1,05BN
$1,000,000
$550M
$75M
$12,5 BN
$4,5 BN
$500,000
$120M
$60M
$11M
$3 BN
$-
Craig Opperm an, DLA Piper
5,000
10,000
15,000
20,000
# of Patent Properties on X-axis/ Bubble Size = Transaction Size
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Price Per Property
$2,38BN
Buyers Drive Price …
strategi
c
strategi
c
strategi
c
strategi
c
financial
strategi
c
strategi
c
financial
financial
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Forms of Monetization
 Monetization of IP Royalty/Revenue Streams
 IP Rights Monetization
 Monetization and Financing of Content and
Technology
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Why Companies Care: Top Ten
Damage Awards (1995-2010)
(PWC Patent Litigation Report)
12
Rapid Growth in Patent Applications and
IP Lawsuits (Lazard)
PATENT APPLICATIONS
PATENT LAWSUITS & INVESTIGATIONS
ANNUAL US PATENT APPLICATIONS AND PATENTS ISSUED
US PATENT LAWSUITS FILED ANNUALLY
18% increase in 2010
~2.5x increase in U.S. patent
applications since 1996 at an
annual compounded growth rate
of 6.7%
U.S.
Patent related lawsuits have
nearly doubled in the past 15
years, at an annual compounded
growth rate of 4.3%
Source: U.S. Courts; Director’s Annual Reports.
Source: U.S. Patent and Trademark Office.
ANNUAL GLOBAL PATENT APPLICATIONS AND PATENTS ISSUED
INTERNATIONAL
Patent applications have increased 3% annually since
1996, led by the U.S., Japan and Germany
ITC SECTION 337 INVESTIGATIONS FILED ANNUALLY
81% increase in 2010
ITC investigations have increased
11% annually since 1996, and 18%
since 2003
N.A.
Currently 62 ITC investigations pending
Source: U.S. International Trade Commission.
Source: World Intellectual Property Organization.
Note: 2009 & 2010 patents issued not available.
13
Why Companies Care: SmartPhone
Litigation
14
Avistar
 Public company in Unified Communications
 50 patents
 VOIP, IM, Video conferencing
 Pre dated ICQ (original instant messaging company)
 Valuation vs. reality
 Ocean Tomo: Estimated net present value $300-500M (March 26,
2008)
 Sold to IV for $11M (and $3M license to eBay/Skype)
 Spun out to Pragmatus and suing Facebook/LinkedIn/Google
 Problems
 Patents put into re examination by Microsoft
 Company lacked cash
 Failure to exploit aggressively
15
IP M&A: The History of Asset Sales
Nortel:
$4.5 Billion (Apple, Ericsson, EMC, Microsoft, RIM & Sony)
6,000 patents
AOL:
$1.1 Billion (Microsoft) (resale of 650 patents to Facebook for $550M)
Astella Posidion:
$609 Million (Royal Pharma)
DPP IV patents
Novell:
$450 Million (Microsoft, Apple, EMC & Oracle)
882 patents
RealNetworks:
$120 Million (Intel)
190 patents/170 patent applications (codec
development team)
Friendster
$40 Million (Facebook)
18 patents
Unova:
$24 Million (Broadcom)
150 patents/patent applications
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Company Based M&A IP Transactions
Target
Acquiror
Price
Motorola
Google
$12.5 Billion
Sirna Therapeutics
Merck
$466.2 Million
($1.035 B total)
Mosaid
Sterling Partners
$590 Million
Intertrust
Sony/Philips
$453 Million
Cryptography Research
Rambus
$343 Million
S3 Graphics
HTC
$300 Million
17
Patent Sale Myths
 Less (information) is more
 Lack of necessary information will get your transaction tossed to
the end of the line so provide all of the information requested
 Force a tight decision timeline to create multiple offers
 A short decision timeframe means more corporate buyers are likely
to exit the process. Understand your buyers process and decision
timeline
 There are no comparables so pick a high price
 Information transparency has arrived. Comparables exist and
Buyers are using them
18
Patent Sale Myths
 Never reveal encumbrances
 See point #1. Would you buy a house without an inspection?
Enough said
 Take lots of liberties with the truth
 Deals get done based upon relationships and credibility. Questions
about either will slow or crater a deal
 500+ patents in a transaction will net a higher price
 Maybe … but more likely the Buyer will pick the top ten and discount
the rest (and the price)
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Due Diligence
 Critical Issues
 Chain of title
 Licenses
 Covenants not to sue/immunity
 Liens (may be covered by bank or other security interests)
 Foreign issues
 Potential fraud on patent office
 Past behavior
 Future assistance
20
Due Diligence
 Goal: Disclosure of all prior relevant documents
 Assignments in the chain of title
 Licenses
 Covenants not to sue
 Liens or other encumbrances
 Prosecution files
 In some cases, full disclosure by seller is impractical or
impossible so representations and contract remedies will be
critical become important
21
Representations
 Representations widely vary and price will be a factor
 Seller prefers “AS IS”
 Critical buyer issues:
 Ownership
 Licenses, covenants not to compete, liens and encumbrances
 Prosecution history (e.g., no fraud committed on any patent office),
no terminal disclaimers
 No pending or threatened lawsuits, interference proceedings, etc.
 No government funds used
 Validity/enforceability
 RAND obligations to standard bodies
 No patents or applications that are ‘related’ to the transferred
patents exist
22
Less Critical Buyer Issues
 Other Buyer issues
 Return of ownership rights in the future
 Future assistance in lawsuits
 Terminal disclaimer
 Inventor payments
 Future assistance in prosecution
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Assignment
 Assignment language needs to include all patents/patent
applications and other matters that should be assigned
 Are there pending applications?
 Counterparts filed in other countries?
 A right to file applications in other countries?
 Include right to bring suit and recover for past infringement as
well as future infringement
 Consider including future rights that the seller may acquire with
the patents and applications
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Continuing Obligations
 Buyer
 Potential license back to seller
 Limit on enforcement
 Indemnification
 Seller
 Assistance in perfecting rights
 Assistance on prosecution during transition period
 Payment of maintenance and prosecution fees coming due for
transition period
25
Licensing Program
 IBM Program
 Started in early 1990s
 Revenues of over $1 Billion per year
 Budgets for each division
 Licenses of software, trade secrets as well as patents
 Rambus
 Public company
 Licenses semiconductor patents
 MPEG LA
 Licenses patents from multiple companies for certain digital music
standards
 Move to third party organizations
26
IPXI: New Options for Monetization
A more efficient and transparent IP marketplace
IP Market Problem
IP Exchange
Result
Incomplete or insufficient
market information
Detailed prospectus,
published pricing,
consumption data reporting,
bid/ask
TRANSPARENCY - enabling
more efficient IP asset
management and R&D
decisions
Arbitrary or unilaterally
determined IP value
Market-based pricing
reflecting the value of a
technology and increasing
buy-side confidence
PRICE DISCOVERY –
ensuring fair and reasonable
pricing
Lack of standards,
including course of
dealing, contract terms,
and pricing
Standardized tradable
license rights accessible to
all market participants
LEVEL PLAYING FIELD –
accelerating technology
transfer and innovation
Time and transaction cost
inefficiencies associated
with bilateral licensing
Central marketplace with
market enhancing solutions,
such as standard contracts,
outsourced auditing, and
alternative dispute resolution
processes
EFFICIENCY - providing
easy access, liquidity, and
increasing transaction
volume
27
IPXI Status Update
 In December of 2011, IPXI completed a $10 million funding round by
a group of U.S. and European investors including CBOE Holdings,
Inc. (Nasdaq: CBOE), the world’s largest options exchange, and
Royal Philips Electronics (Philips)
 IPXI has received commitments to sponsor ULR Contracts with an
aggregate target market value of $300+ million, and is reviewing
many other submissions
 IPXI will begin trading of ULR Contracts in 2012
 IPXI is partnering with regional government and strategic partners to
establish support in building IPXI model in multiple jurisdictions
around the world
28
IP Strategy Economics:
IPXI vs. Other Monetization Methods
Monetization
Method
Assumptions
Estimated
Outcome
Sale through
Broker or IP
Auction
Third-Party
Enforcement
Self-managed
Enforcement
Program
IPXI ULR™
Contracts
75% Potential
Market Penetration
75% Potential
Market Penetration
50% Potential
Market Penetration
100% Potential
Market Penetration
75% Price Discount
57% of Licensing
Revenues Paid as
Fees
$1 Million to $5
Million in Legal
Expenses Incurred
20% of Licensing
Revenues Paid as
Success Fee
15% Commission
$1 Million to $5
Million in Legal
Expenses Incurred
Approximately
$500,000 in Internal
Costs Allocated to
Licensing Program
$100,000 Listing
Fee and $5,000
Annual Membership
Fee
IP Owner Collects
15-20% of Total
Value
IP Owner Collects
20-30% of Total
Value
IP Owner Collects
40-50% of Total
Value
IP Owner Collects
79% of Total Value
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Failed IP Asset Strategy: SCO & Linux
 Copyright claim based on use UNIX code in Linux
 Lawsuits
 SCO v. IBM
 SCO v. Autozone
 SCO v. DaimlerChrysler
 SCO v. Novell
 SCO is bankrupt after spending over $80M
 Fundamental mistake
 Failure to confirm title
 Selecting IBM as defendant
30
Monetizing IP Royalties: History
 Music and Film Royalties
 Bowie Bonds – backed by revenues from David Bowie music
catalogue – rate A3 by Moody’s – closed in 1997
 Four additional music copyright deals closed in 1998 with same
rating
 DreamWorks -- $1 Billion revolving credit facility backed by 36 film
properties – closed in 2003
 Village Roadshow Films -- $900 million facility backed by 27 films
– wrapped by MBIA – closed in 2004
 Universal Film Funding -- $950 million facility backed by 125 films
of Vivendi Universal – wrapped by Ambac – closed in 2004
31
Royalty Streams Monetization
Drug Royalty LP 1--Series 2012-1-•
•
•
•
•
•
Total securities issued--$195 million
BBB rated
Term bonds maturing in 2024
Sponsor is Drug Royalty Corp. Inc (DRI), a Canadian privately held investment management company focused on the
health care industry
DRI business model is to purchase royalty assets (either in whole or an undivided interest) in commercialized
pharmaceutical products from inventors, universities, hospitals, biotech firms, pharmaceutical companies and other
parties who own royalty interests in pharma products
Collateral for this transaction consisted of 18 royalty streams on 14 patent-protected drugs and technologies
Domino's Pizza Master Issuer LLC--Series 2012-1-•
•
•
•
•
•
Total securities issued--$1.675 billion
Expected final maturity--2019
Legal final maturity--2042
Rated BBB+
Collateral securing bonds consists of franchise royalty and license payments, Domino's intellectual property and profit
from distribution arrangements
The IP collateral is held by Domino's IP Holder LLC, a bankruptcy-remote special purpose entity which is wholly owned
by the issuer of the bonds. The IP Holder holds all the Domino's IP and licenses it to the issuer and various other
domestic and international affiliates
Miramax LLC--Series 2011-1
•
•
•
•
•
Total securities issued--$550 million
Senior securities ($400M) rated BBB and subordinated securities ($150M) rated BB
Collateral consists of rights to IP (including distribution rights) and film materials relating to a portfolio of 700 films and
14 TV series, mini-series and specials, and shorts, plus rights in over 240 books and 300 development projects
Most films are older, seasoned films
Legal final maturity--2021
32
Royalty Streams Monetization
 Major pause in the market
 Few recent deals
 Recent Patent Financing Deals
 Astella Poseidon: $609M
 Stereotaxis: $40M
 Recent Trademark Financing Deals
 Liz Claiborne: $200M
 Tupperware: $400M
33
Summary
 IP Strategy and Assets: New Focus of C Suite
 Dynamic market, but still early
 Kodak Bankruptcy
 Trident Bankruptcy
 Moving to private companies
 Friendster
 WOWD
 Increase in options for exploitation
 RPX
 Open Source Model: Hortonworks spinout from Yahoo
 IPXI
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Questions?
Thank You
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