Jim Brelsford
Intellectual Property Group
Skadden Arps (Hong Kong/Silicon Valley)
Global IP & Innovation Summit
Shanghai China
September 4-5, 2013
“Patent Monetization”
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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.
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Intermediaries Operating
Companies
IP aggregators
& Patent
Funds
NPEs
Defensive
Services
Privateers
New Complexity of Patent “Ecosystem”
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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
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• 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
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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
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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?
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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
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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
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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)
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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