Readying a Patent Portfolio for Sale: What You Need to Know to Be Successful

www.IAM-Market.com www.richardsonoliver.com

Preparing a Patent Package for SaleKent RichardsonSeptember 2016


Housekeeping

With so many attendees, we have a few housekeeping rules to make this event a pleasant experience for all:

• If you are on the phone for event audio, we are muting all attendees for the complete duration of the webinar.

• There will be time at the end of the webinar for Q&A. If you wish to ask a question, please use the ‘Chat’ functionality and send it to ‘Staff’.

• We will be running 4 polls during the webinar. Results will be shared at the end of the presentation in aggregated form only.

• The webinar will be recorded, and the recording will be made available to you within the next week.

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Today’s Speakers

• Moderator: Joff Wild, Editor in Chief, IAM• Been a journalist covering IP since 1992

• Has reported on IP for The Times, The Financial Times, The Wall Street Journal etc.

• Developed the idea for IAM and has been its editor since it launched in 2003.

• Editor in chief of the IP Division, part of Globe Business Media Group

• Speaker: Kent Richardson, Partner, ROL Group• Advises on patent strategy, patent buying and selling.

• Helped clients close on more than $70M in patent purchases/sales

• Former VP IP at Rambus, part of the team that helped grow revenue from $100-200M over 4 years

• Part of the IAM Strategy 300 for 7 years

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Agenda

Patent sales overview

Value driver patents

Contents and best practices

Diligence checklist

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What Is a Patent Package?

Definition – the materials a buyer needs to evaluate whether a group of patents might be worth buying

Signals that the patents are available for sale, that the seller is willing to sell, that there is a process to which the seller has committed

Typically a PowerPoint deck or written marketing material describing the patents, the relevant markets, and provides the contact information for the seller (or seller’s representative)

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Patent Sales as a Patent Monetization Option

•Definition: Private or semiprivate sale of groups of related patents and applications

•Considerations

•Fastest, but not fast, time to money

•Good for smaller groups of patents, smaller deal sizes

•Best and only monetization option for many organizations

•Minimal cost

Sales

•Definition: 3rd party takes ownership of the patents. Company receives a portion of any proceeds after costs are removed

•Considerations

•Minimal costs to engage

•Proceeds are net of costs… See Hollywood movie financials

•Legal environment continues to make this model more difficult. Acacia Research stock is down nearly 50% YoY

•Example partners include Acacia, Longitude Licensing, Conversant

3rd party licensing

•Definition: Company directly licenses the portfolio. Company builds licensing plan, value proposition, closes the licenses. Company takes the risk of any litigation

•Considerations

•Easily the highest return and expected value

•Longest time to money

•Highest costs (litigation, building team, impact on current products)

Direct licensing

•There are a number of other structures including partnering and debt financing

Other Structures

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What is in a Brokered Patent Package?

• Contents

• List of patents for sale, applicable market, infringement analysis (claim chart), background on the seller

• Additional information

• Asking price, bid dates, special circumstances (license back, specific encumbrances)

Typical package

• Confluence Patent Portfolio

• Single family (15 US Patents and 7 open applications) relating to social network data aggregation.

• 2006 priority date.

• Received July 2013

• Sold October 2014

• Asking prices: “7 figures”

• Multiple claim charts presented for

• Apple

• Google

• Facebook

• Purchased by an operating company

• Fingerprint Cards AB

Example package from Patent Profit (Will Plut)

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Copyright 2012-2016 ROL


Why care about the Patent Package?

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• The market is opaque

• Who is buying, what type of patents are hot, what is the price, what are selling best practices?

• 70% of the patent packages do not sell

• Some of the success factors relate directly to the sales package

What are the challenges in selling patents

• Buyers receive 1000 packages per year, about 5 per working day

• “If I don’t like this package, there will be another one tomorrow”

• How do your patents stand out…in a good way?

Buyers are busy

“When I’m selling my car on Craig’s List, I don’t list it as ‘CAR’.”Michael Pierantozzi, HPe


How Big Is the Patent Market?

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$0.00

$1,000.00

$2,000.00

$3,000.00

$4,000.00

$5,000.00

$6,000.00

$7,000.00

$8,000.00

$9,000.00

$10,000.00

$11,000.00

$12,000.00

Total Asking Prices ($M) - Brokered and Private Market

Total Asking Price (Entire Market) Total Asking Price (Sold)

• Since 2011, we have tracked $7.2B of brokered patent packages + $3.7B of non-brokered

• Over 3,600 packages with over 87,000 patent assets

• 108 technology categories represented from LEDs, Displays, Social Networks, Automotive

Robust market – More than $11B of patent deals tracked

• 780 brokered packages received containing nearly 14832 patent assets

• Big uptick in listed packages from IAM Market and other sources

• Sales from the newly listed packaged are expected to be visible in 2017

2016 market remains robust

Source Richardson Oliver Law Group LLP, August 2016


Patent Market Transaction Ecosystem

Patent Market

Buyers

• Apple, Amazon, Facebook, Google, Intel, Microsoft, Qualcomm

• Intellectual Ventures, Acacia

• RPX, OIN, AST, Unified Patents

Sellers

• SMEs, Cisco, Yahoo!, ATT, Verizon

• Intellectual Ventures, AST, RPX

Deal Makers & Brokers

• Richardson Oliver Law Group

• Patent Profit, Quinn, ICAP

• Bankers, law firms, IAM managers

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Sales Process – Readying the Package

•Assist in closing sale

6. Monitor bidding and select buyer

•Looks like a smaller investment banker process

5. Bring package to market

•Value proposition properly articulated

•Test package for completeness

4. Complete package

•Market analysis

•Value drivers

•Overall package information

3. Build value proposition

•Allow seller to test brokers for potential working relationship

•Subset of brokers selected from over 50 potential brokers

2. Direct or brokered sale

•Each value driver patent is grouped with related patents to build a compelling potential patent package

•Value drivers have Evidence of Use (EOU)

1. Finalize groupings around value drivers and supporting patents

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2-3 months

6-12 months


Agenda

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Diligence checklist


Identifying Value Driver Patents?

• Patents with claim charts against high volume, high revenue products/services

• Claim charts may include assumptions

• Often referred to “Evidence of Use” or “Indications of Use” (EOU and IOU)

Value drivers

• Relates to why buyers buy

• Focus your bundles around value drivers

• Focus the marketing materials

• Pricing and chance of sale improve

Why value drivers

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Why Care About the EOU?

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•“I don’t care what the seller says. I’m going to skip their package and look directly at the patents.” – Patent Buyer at large corporation

•BUT

•Data says differently

•41% more likely to sell with EOU, 23% less likely to sell without EOU than the average sales rate

•Asking pricing premium of 34%

How much does the EOU matter?

•Buyers do not accept the sellers EOUs. They will rebuild them, but the existence of the EOU matters

•Signals which of the patents and which specific claim matters

•Signals which product(s) matter

•Takes the abstract discussion of “here are some patents applicable to this market” to “here is the claim infringed by that product” – much more specific and valuable

What’s going on?


More Than 1,000 EOUs Tell Us What’s Hot

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Who and what gets targeted?

Over 1,000 EOUs reviewed

5 years of data

Hot companies Apple

Google

Microsoft

Samsung

Hot technologies Communications and smartphones

Social

Wearable, storage, RFID, mail

Hot products iPhone, Galaxy

Bing

YouTube

Xbox, TiVoSource: Richardson Oliver Law Group, LLP


Agenda

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Diligence checklist


Contents of a Package

• What is being offered

• “5 issued US patents in 2 patent families are offered for sale”

• Applicable market and technology description

• “$4B annual market for white light LED light bulbs”

• Patent list

• Complete patent list including full patent families

• Status of patents in the list

• Bonus: patent family indicator, priority date, INPADOC ID, expiration date, key patent highlighted

• Excel spreadsheet – 1 asset per row

• Contact information

• Who is the contact person for more information

• Who is the seller

• Sale process

• Bid due date, explanation of the process

• Disclaimers **

Minimum viable package

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Contents of a Package

• EOU available or provided

• Providing EOUs can be tricky – be prepared to provide EOU outlines, track NDAs, representations regarding notice and damages

• Use a data room if necessary

• Pricing information

• History of the seller/inventors/commercialization

• Additional marketing and technical material

• What problem is present in the market and how does the invention address that problem

• Companies identified as potentially infringing

• Technical references

Best practices package

• Citation and ranking analysis

Can be included

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What Else Do You Need?

• OCR’d copies of the patents and file wrappers

• Consider including prosecution of any international patents and any unissued applications

Patents and file wrappers

• Exact asking prices, ranges, “mid seven figures”

Pricing

• Licenses and other encumbrances – not all will be listed at the PTO

• Covered in NDA

• Use whitelists and blacklists

• Whitelist – these companies are not licensed

• Blacklist – none of these companies can be licensed

• Triple check this – after failed EOUs, it’s the next most common impact to your credibility

Encumbrances

• Check them ahead of time

Assignments

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Agenda

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Diligence checklist


Presales Diligence

Necessary

Can you sign the representations and warranties?

Chain of title check

Complete assignments

Encumbrances identified – the biggest ones at least

Good ideas

Inventors were employees

Government funding

Standards bodies

Small entity status

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Conclusions and Final Thoughts

•Market analysis

•Sales process

•Technology assessment

•Legal diligence

Multidisciplinary skill set needed

•You may only get one bite at the apple

Good checklists and templates help

•Managing the sales process, contacts, feedback, pricing

Sales job isn’t done

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… Remember not to list your valuable patent package as “PATENT”


Addendum

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2016 Market Pricing

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Asking Price $K

Top and bottom 5 data points from each set removed

Per Asset Per US Patent

Average $197.32 $271.44

Min $16.67 $36.11

Max $750.00 $1,000.00

StdDev $177.44 $217.53

NumData 431 416

• Prices are down stabilizing

• Prices vary substantially by package size

Market pricing

Copyright 2015 ROL


Value Life of a Patent

• Mark Lemley litigation research

• Jonathan Retsky, Motorola internal study

• Kent Richardson, Rambus portfolio analysis

Most valuable patents are ~12 years old

• 4-5 years

Patents take a long time to obtain

• 8 years before volume production of products using the inventions

• $XB markets take time to develop

But volume production takes longer

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Characteristics of More Valuable Patents

• > 8 years old

Age

• >$1B

• Many companies

• Few patents

• Demonstrated use in the market

Market

• Open continuations

• Many cited patents

• Clear demonstration of further patent development in the family

• International coverage

• Clear claims

• Varying scope of claims

Prosecution

• Ability to quickly see if someone is using the patented technology

Visibility

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Value Distribution of a Typical Patent Portfolio

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OurCo’s Ecosystem of Patent Risk

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Patent threats come from OurCo’s near

ecosystem What is OurCo’s business ecosystem?

Competitors

CustomersSuppliers

Partners

OurCo

Corporate asserters

OurCo’s potential patent

risk

Copyright 2015 ROL


OurCo’s Ecosystem of Patent Risk - Filtered

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OurCo’s potential patent

risk

?? ? ?? ? ?

OurC

o

Which risks is OurCo going to address?

Copyright 2015 ROL


Contact us

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IAM Market

IAM Market – Asia:

Daniel Cole

Business Development Director, Asia

[email protected]

+852 3956 1600

IAM Market – Rest of the world:

Gavin Stewart

Managing Director, IP Division

[email protected]

+44 20 7940 4863

Kent Richardson

Partner

[email protected]

+1 650 967 6555

ROL Group

Readying a Patent Portfolio for Sale: What You Need to Know to Be Successful

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