Jim Brelsford

Intellectual Property Group

Skadden Arps (Hong Kong/Silicon Valley)

Global IP & Innovation Summit

Shanghai China

September 4-5, 2013

“Patent Monetization”

Skadden, Arps, Slate, Meagher & Flom LLP | 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 2010 – 2012

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.

Skadden, Arps, Slate, Meagher & Flom LLP | 3

Intermediaries Operating

Companies

IP aggregators

& Patent

Funds

NPEs

Defensive

Services

Privateers

New Complexity of Patent “Ecosystem”

Skadden, Arps, Slate, Meagher & Flom LLP | 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

Skadden, Arps, Slate, Meagher & Flom LLP | 5

• 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

Increased Activity in Asia

Skadden, Arps, Slate, Meagher & Flom LLP | 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

Skadden, Arps, Slate, Meagher & Flom LLP | 7

Monetization Continuum

None Defensive Monetization

Drag on

stockholder

value

Sales Direct Indirect Privateering

Option value for

“maybe some

day” will

monetize

Sell

patents for

cash

Build an in-

house team and

assert against

infringers

Have a third

party assert

your IP against

infringers

Establish a friendly NPE

o Using your own

patents

o Using third party

patents that you

infringe

o Using newly

acquired patents

o Sales + back end

(with internal or

external funding)

o Strategic versus

financial

May need it

defensively

some day

Core IP or

Non-core IP

But, portfolio

maintenance

costs in G&A

every quarter

Cross license

to

offset the cost

of using

competitors’

IP

What IP to

retain?

Skadden, Arps, Slate, Meagher & Flom LLP | 8

Pros/Cons of Different Monetization Approaches

Pros Cons

Pure Sale

of Patents

• Fastest time to money

• Low burden on management

• No continued revenue stream

• Not recognizable revenue

• Permanent loss of asset

Direct

Licensing

• 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

• 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

Indirect

Licensing

• 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

• 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

Skadden, Arps, Slate, Meagher & Flom LLP | 9

Examples of Patent Sales

Parties Patents Price Per Patent

Average

AST – MIPS (2013) 498 $350M $703K

Facebook – Microsoft (2012) 650 $550M $846K

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

Skadden, Arps, Slate, Meagher & Flom LLP | 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.

Skadden, Arps, Slate, Meagher & Flom LLP | 11

Examples of Indirect Licensing

Parties Patents Consideration

Micron – Round Rock (2009) 20% of portfolio

~4000 ?

License to Micron from IV; other (non-

public) consideration; speculation is 20% of

gross and/or $400M promissory note

Nokia – MOSAID (2011) 2000 Revenue share

Ericsson – Unwired Planet 2185

20% revenue share of first $100M

50% revenue share of $100-500M

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)

Skadden, Arps, Slate, Meagher & Flom LLP | 12

Examples of Settlements or Initial Judgments

Dispute Value

TiVo v. Google, Cisco (2013) $490 Million

TiVo v. AT&T (2012) $215 Million

TiVo v. Echostar (2011) $500 Million

EMC v. HP (2005) $325 Million

Broadcom v. Qualcomm (2009) $891 Million

Johnson & Johnson v. Boston Scientific (2010) $1.7 Billion

Dolby Labs v. Research In Motion (2011) $28.7 Million

Nokia v. Apple (2011) $608 Million

Apple v. Samsung (2012) $1.05 Billion

Carnegie Mellon University v. Marvell Semiconductor (2012) $1.17 Billion