Antti Kosunen / Lexford Enterprises presentation at IPR university center

1. Drivers of Patent Licensing
IPR university center 6.5.2010
Antti Kosunen

2. Agenda
Drivers of Patent Licensing
1 What Drives Patent Licensing
2 Market Players
3 Licensing Models
4 Patent Valuations
Page  2

3. Intellectual Property – Growth and importance
Worldwide (cross-border) royalty and license
receipts
120
100
80
60
40
20
0
1970 1975 1980 1985 1990 1995 2000 2005
(Billion USD; source: World Bank)
Page  3

4. Success is Based on Several Factors and Single
Corporations Will Not Own All of Them
IPR as Innovation becomes more
Currency distributed and patents become
currency/negotiations power
between the partners in innovation
value chains and business
operations
Page  4

5. Innovation + Effectively managed IPR = Shareholder value
Intellectual Legally protectable
+ Property = limited monopoly
Rights
Customer Business
Need + Innovation =
Opportunity
Securing IPR = owning the business position
Stephen Potter

6. Patents Are a Currency of Negotiations
Standards bodies
New entrants
Competitors
Supplier’s Customer’s
Suppliers Organisation Customers
suppliers customers
Substitutes
Stakeholders
Page  6

7. Technology Patents = IT
 Competitive edge can seldom be achieved with Patents…often a
must have, when certain size has been achieved
 Better use of patents, may give temporary competitive edge
 Better patents may give temporary competitive edge
===========================================
Business with bio/drug patents are totally different games with different
rules
Page  7

8. Power is Achieved with Patents
This will lead a growing number of companies to focus on and excelling
only in the core activities and to outsource the rest – often management of
IPR and also parts of R&D.
 Small companies will succed only
when being agile and owning their
IP
Agility
 IP may help them through mid size
disaster. Major problem with large
customers; ”unlimited liabilities”
IP till you die
Economies of scale  Large corporations will direct
Control / liabilites ecosystems having strongest IP
Master of the ecosystem controlling and enabling companies
to ”serve” their needs
Page  8

9. Increase shareholder value
Change the reality and communicate it effectively
Acquisitions Exit Company /Stock price
 Buy the business before  Sell the company with the  Licensing profit P/E 4-5 *
you buy the company business you own (Nasdaq)
Increasing long term profitability and lowering risks
= increasing shareholder value
Page  9

10. FINANCIAL USES OF PATENTS
% of companies declaring “very important” factor for raising capital in total responding companies
Venture Private Stock Securitisation Negotiating loans Obtaining
capital investors market public
European companies subsidies
All 18 21 11 6 9 8
<=250 employees 22 27 11 6 10 10
>250 employees 11 10 9 6 7 4
Foundation year
<=1960
(174 companies) 7 5 8 8 7 7
>1960 and <=2000
(174 companies) 17 21 11 4 6 5
>2000
(128 companies) 31 38 13 6 14 13
No of companies responding
285 290 281 281 284 285
Convincing venture capitalists and private investors are the two most
important; these are more important for smaller companies than for larger ones;
The size factor seems to be less relevant than the age factor: younger
companies, founded after 2000, give far higher importance to patents for raising
funds than older ones
OECD-EPO-TOKYO SURVEY 2009

11. Decisive role of IPR became acknowledged but a
significant portion of its value still remains unextracted
Intellectual Former CTO of Microsoft founded Intellectual Venture and raised $300
Ventures was the million to start the business. Now they have 12,000 patents and $5 billion
first real one equity. And they are now returning profits to investors
Imperfect markets and information asymmetries keep patent valuations
Window of low.
opportunity Better understanding of patents will create more liquid markets and
increase prices. Increasing demand has also increased patent prices.
Intangible assets’ Accounting standards; Profit impact increasing; major share in profits;
values increase global, investors value patents more.
Page  11

12. European Patent Licensing – new players
Financial Services companies treating IP as an alternative asset:
- IP Bewertungs AG / Deutsche Bank >euro 100m: acquire inventions, create
proofs of principle, marketing back-up – and then sell them on…..
-The IP Group: UK public company. Buys an option on university IP – Oxford,
chemistry lab; York, Southampton etc., builds spin-offs, creates IPO’s
- BUT: BTG - now concentrating on life sciences, merged with Protherics
Stephen Potter
A University Technology Transfer Office has carried out an IPO – Imperial
Innovations
- brave and unique: 89 equity investments, IPO of Ceres Power

13. Licensing companies
Helping patent holders to monetize their assets, fighting large
corporations, increasing liquidity of patents
Litigations Patents
1000
Source: PatentFreedom © 2009 Data Captured as of January 1, 2009
800
600
400
200
0
Page  13

14. Licensing = Currency, Essense of Patents = Power
Freedom to
operate
Licensing
revenue
• Stick Licensing Suppliers
• Carrot
Licensing
Negotiations
Currency
Exlclude
R&D
competitors
Customers
security
Page  14

15. Stick licensing Friendly licensing Tech tranfer
 You can get a lot farther  It is nice to chat and plan, “NIH – Not Invented Here”
with a kind word and a but big bucks not easily still very strong
gun than a kind word achievable
alone. Al Capone Cf. Procter and Gamble
 Very expensive+risky, “PFE - Proudly Found
litigation in the US 2.5 m. Elsewhere”
Best results achieved with
strategic objectives with Time consuming and
stronger patent portfolio frustrating process, but
compared to target money can be made here,
company. with solid IP
Target/customer/supplier
Page  15

16. Licensing models
Totally different games
Stick Licensing / Enforcement Carrot licensing
– Step change? -- Step change?
– Validated? – Validated?
– Market need?
– Infringement?
– Cost and performance?
– Detectable?
– Tech transfer support?
– Legal clarity?
– Market ready, value chain complete?
– Funds?
– Know-how, proof of principle
– Tech support available?
PATENT BUSINESS TECH TRANSFER WITH PATENTS
Page  16

17. Licensing models
Licensing and R&D partnerships / Innovation Capitalist
Joint development – universities, companies, Innovation capitalists having co-ownership /
co-inventorship of (parts of) IP, which may be give problems
Licensing for minimal money but medium term R&D support for university
Invention Capitalists
Companies creating portfolios for adding business value for the purpose of using patents as
currency in M&A deals.
Standards licensing
Professional organisations IEEE etc- political and time consuming - “essential patents”
Private industry – MPEG-2, MPEG-4, GPS, CDMA, 3-G
Page  17

18. IP / Business Strategy – what to do with it?
Large portfolios
Why not monetize these?
High Value Patents They are costing you $$$
Defensive Patents
Overhead Patents
Value
Stephen Potter
0% 5% 50%
Portfolio

19. Patent Valuation Parameters
• Market driven - Reads on an interesting technology area
– Huge
• e.g. 802.11x
– Interesting
Huge
• e.g. FPGAs
– Speculative
• e.g. 4 G
Market
Inter
• Is likely to be used
– Blocking
• e.g. MPEG-2
Spec
Stephen Potter
– Key feature
• e.g. EPGs for digital cable
Design Feature Blocking
– Design Choice Choice
• e.g. Moto’s clamshell phone Use

20. Patent sales – patent quality effects
• Well written spec and • Poorly written spec and claim
claim moves value up moves value down
Stephen Potter
Excellent
Fair
Poor

21. Questions, please ask!
Feedback and questions always welcome!!
Page  21 Antti Kosunen antti@lexfordenterprises.com +358 400 850 200

22. Antti Kosunen
Adding Shareholder Value
IPR Business Advisor
+20 M&A / fund raising projects
+40 Licensing projects
Deals done in +40 countries
+10 patent litigations in the US, Finland
and Germany
CEO of a stock market company
Technology entpreneurial mindset,
Started / sold / listed companies
MSc. econ
Page  22 antti@lexfordenterprises.com +358 400 850 200