Valuing IP for the C-Level SuiteCapturing Value from Idea to Income (IP Value Chain)

March 2014 IP Law Summit, Red Rock

J. Bruce Schelkopf

& Melissa Bitting

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C-Level IP Metrics

• C-Suite’s Interest is Typically:

– Return on Investment

– Competitive Positioning & Asset Leverage

– Risk Mitigation

– Speed to Market

– Income

• Perception of IP Function’s Interest is Typically:

– Protection of the Patents

– Expense Line Item with Assets for Future

– Handle the Legal/Technical Issues and Some Education

• Clear Gap Exists in Capturing Business Value

3

Definition of Value Can Be Complicated

• Google was concerned about Freedom to Operate issues with Android Platform

– Why? Android clawed away nearly 44 percent of the market from Apple.

• Google Paid $12.5B for over 17,000 patents, but only likely needed a very few

• Core patents have been with Motorola since 1994, and were the heart of three Motorola lawsuits against Apple. This set of patents cover technology essential to the mobile device industry including location services, antenna designs, e-mail transmission, touchscreen motions, software-application management and third-generation wireless.

• In the purchase, there were 7,500 patents still pending (2012)

$760K / patent?

4

Value Algorithms Vary Widely

• Google Buys Nest for $3.2 Billion (A Thermostat Company) (2014)

– Why?

– Nest provides Google an ideal platform for stretching the power of its own intelligent machines beyond the web and into the internet of things

� Capturing data of users when they are not ‘actively’ on the web

� Part of a ‘connected home’ approach

� “Google wants to be the connective tissue for all the devices and all the services in our lives,” said Jan Dawson, an analyst for Jackdaw Research (Time, Jan 14, 2014)

• Nest filed 200 applications, worldwide (2013)

• Nest is being sued for patent infringement by Honeywell (2013)

• Nest obtained patent licensing deal with Intellectual Ventures (2013).

$16M / application?

5

Patent Litigation is the ‘Sport of Kings’

Exposure

• Exposure is on the Rise

• Costs to Be Involved are Increasing

• Exposure in Increasing Globally

• Traditional Plaintiffs are Less Traditional

Case May Span Years

Numerous or Few Defendants

Judgments Usually in Tens of Millions And/Or Injunction

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And Trolls are Front and Center

http://patentrolls.org

http://www.ipwatchdog.com/2012/08/26/here-they-go-again-this-time-with-the-patent-shield-

act/id=27476/

www.aipla.org

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Successful IP Strategies Achieve IP Wealth

Value Creation

Wealth

VC VE

RM

IP:

Value Extraction

Risk Mitigation

Obtain a High Return on

Investment (ROI) Through Early

IP Activities and Actions Aligned

with Innovation & Strategy

Pursuits that Grow the Company

Value of Each Attribute is Company and Culture Unique

But “Wealth” is Aligned with “Growth”

8

Identify Your IP Operational ValueDirectly Related to Company’s IP Approach

The IP Value Hierarchy Concept helps

provide alignment of Company Expectations

with measured IP Functional Performance

Defensive Level Includes:

� Stakes Claims and Builds Shields

� IP viewed as legal asset

Integrated Includes:

� IP present in daily activities

� Focus on Process, not just

assets with IP -leading others

� IP is strategic, embedded, and

has organizational focus across

technology and legal

Cost-Center Level Includes:

� Reducing Costs & Maintaining

Core Assets

� IP likely legal asset

Growth-Driven Level Includes:

� Assets Aligned to Growth Plans

� Possible Monetization & Licensing

� IP may be business asset

Visionary Includes:

� Positioned for technological

revolution and growing

Company future market-share

� IP priorities broadened and

aligned with Company-wide

pursuits with value extraction

� IP Functional Excellence

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Establish a Clear Line of Sight for IP’s Strategic Impact & Involvement

Strategy IProtect

Intangibles

Strategy IILimit

Competitors

Strategy IIIEstablish Income Stream

Strategy IVLeverage

Full Potential

• State of the Art

• Freedom to Operate

• Right to Use

• Design-Around

• Clearance

• Competitive IP Assessment

• Patentability& Asset Development

• Problem Solving – Internal, Customer, etc.

• Portfolio Development

• Standards and Pooling

• Assertion Practice

• IP Appetite/Risk: Low, Medium, High

• Etc.

10

Consider an Integrated IP Growth Strategy

– Alignment with business strategy and not just products or asset creation

– Culturally Instilling an IP mindset

– Competitively Assessing IP opportunities/risks

– Knowing what to protect, where to invest, and how to leverage protection timing

– Defining Core IP processes, resources and priorities with Reduced Cycle Time & Improved Efficiencies

– ReDefine and Topgrade the “Patent Guy”

– Constant Value Creation and Opportunity Leverage through IP

Technology / Marketing Strategy

Business Strategy

IP Strategy

Tax Strategy

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Show How IP Contributes& Measures / Reports Value

• Align Value to IP Team’s Activities– The Work is Aligned to Strategic Focus of Company

� Strategic Strength of Services & Assets; Dashboards

• Raise Awareness Level of IP Impact– Involvement at Core and Income Opportunities

• Demonstrate Impact Beyond Legal Function– Education, Income, Competition, etc.

• Go beyond:– Cost Avoidance

– Cost Savings

– Portfolio Strength and Innovation

• Idea to Income Value Chain

Speed & Savings

Portfolio Alignment

Accessible Processes

Align Targets with

Company Culture

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SI 1

Strategic

Initiatives

Common

Critical InitiativesIP Team Projects & Activities

3P Performance Metric Alignment

Enterprise

Objectives

SI 2

SI 3

SI 4

SI 5

SI 6

OB 1

OB 2

OB 3

CCI 1 CCI 2

CCI 3 CCI 4

CCI 5 CCI 6

CCI 7 CCI 8

CCI 9 CCI 10

CCI 11 CCI 12

IPT 1 IPT 2

IPT 5 IPT 6

IPT 9 IPT 10

IPT 13 IPT 14

IPT 17 IPT 18

IPT 21 IPT 22

IPT 3 IPT 4

IPT 7 IPT 8

IPT 11 IPT 12

IPT 15 IPT 16

IPT 19 IPT 20

IPT 23 IPT 24

SBU

Reporting

SBU 1

SBU 2

SBU 3

SBU 4

SBU 5

SBU 6

SBU 7

SBU 8

SBU 9

SBU 10

SBU 11

CTO, CFO

& GC

Reporting

CTO 1

GCR 3

CEO

Reporting

CEO 1

Establish & Align People, Processes & Priorities with Performance Metrics

Acquire Data for Analysis to Know Performance and Status for Growth via Analytics

Increase the “IP Intensity” Value Metric For the Company Every Year

CFO 2

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Establish Key Metrics with Growth Vision

1. Develop IRC procedures and processes to streamline invention disclosurereviews to less than XX days/disclosure-to-decision on average, representing aXX% reduction over 2013, and a XX% over 2012.

2. Improve diversity of member participation for each IRC, and install Hi/P SMEleaders in at least XX Core Strategic Revenue Technologies.

3. Improve average patent filing timelines by BU to have applications preparedand filed in less than XX days on average per application, (representing a XX%reduction over 2013, and a XX% over 2012) and at an average preparation feenot exceeding $XXXX / application.

4. Increase #Disclosures Submitted for Top AA Technology Focus Areas byXX% while achieving a YY% reduction of average disclosure cost as f($R&D).

5. Increase Annual Licensing Revenue on Y Core Technologies by XX%

6. Achieve at least $XXM in cost avoidance benefit and $XXM in cost savingsthrough implementation of effective and efficient IP strategies, processes andtactics

Be Careful What You Measure…

For that may be the Best You Achieve

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Consider Updating Traditional Metrics

• # Patent Counsel / $B in revenue vs. #Patent Counsel / $M R&D

• # Patents in Product Portfolio [f(t)] / increase product revenue over time

• Average Patent Life Cycle Costs of Core Portfolio as f(internal labor costsover Avg. Patent Life Cycle)

• % Foreign Assets aligned with Co.’s annual geographic revenue

• Average National O/C Preparation Costs are with X% of any provider(independent of technology and geography) and average prosecution caseperformance is within X% of corporate-defined performance objectives asf(spend and time).

• # technologists, by region, IP educated and certified at Level 1, 2, 3 (multi-program training) as f(total innovation community)

• Etc.

Premier Performance in an IP-savvy Culture

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Reduce Process Complexity

And Improve AccessibilityExecuting across clients and non-IP groups…

• Assess Improvements via- Value, time, savings, cost avoidance, operational excellence

• Identify and Report Savings via a Dashboard

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Improve Internal Consistency of Decision Making

• Developing and Educating on a Common and Consistent Means to score:

– Technical Impact

– Commercial Relevance

– Detectability

– Anticipated Claim Coverage

Technology

Not in Plan Adjacency Project

Planned

Funded

Project

Exists

Core Funded

Project

Exists

Strategic

LRP / MGP

Plans

0 0 0 0 0 2

0 0 0 0 2 4

0 0 0 2 4 6

0 0 2 4 6 8

0 2 4 6 8 10

2 4 6 8 10 12Tranformational

Revolutionary

Core Concept

Evolutionary

Customary

Other

• Utilize Common Tools for standard work

• Build Common practices for Consistent results

• Add Rigor for Feedback and Improvement

– Refine the process

– Incorporate strategic aims

� Key program

� Key Market Pursuits

� Etc.

– Remove Emotion from technical Decisions

Example: Disclosures & Filing Decisions

17

Visualize Patent Mapping to Products & Markets

www.ipcg.com

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Know Your Assets… and Your Competitors’

19

Intensify Competitive Monitoring

20

21

Patent Life Cycle with Post-Grant Challenges under AIANot all available post-grant proceedings may occur for a given patent

Patent

Application

Filed

Patent Suit

RestartsPossible

Post-Grant Review

Process & Appeal

Potential

Inter Partes

Review

or Ex Parte

Reexam

Patent

Issues

SEC. 18

Petition

Filed

Motion

to Stay

(Note 1)

Petition Process

Ends;

Appeal begins

Potential Section 18

Proceeding for BMPs

Appeal

Ends

Patentee

Files

SuitPatent

ExpiresPossible additional

Ex Parte Reexams,

Inter Partes Reviews

and SEC. 18 Processes

Potential

Inter Partes

Review

or Ex Parte

Reexam

Note 1: There is an immediate right to interlocutory appeal to CAFC from

district court decision on Motion to Stay for a Section 18 proceeding.

Note 2: There is a range of possible pendencies for a Section 18

proceeding: shorter if the USPTO can meet the statutory deadlines,

and longer if not. This may depend on the USPTO receiving sufficient

funding to properly carry out Section 18 proceedings.

(See Note 2)

Note 3: Completion date depends upon pendencies in the Section 18

proceeding.

(See Note 3)

0 1 2 43 5 6 7 8 9 10 11 1312 14 15 16 17 18 19 20

No USPTO proceeding pending

USPTO proceeding pending

Enforcement stayed

Communicate a Competitive Prosecution Strategy for Growth

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� Capture Business Value through IP

� Bring IP to the C-Level Suite as a Strategic Business Asset and Operation

� Resource & Align IP Operations with Your Business Strategy

� Highlight Process Alignment & Functional Excellence

� Establish, Align & Execute on Performance Metrics for Growth

� Optimize Your Disclosure, Patent & TM Processes for Speed & Quality

� Provide IP Scorecard Metrics Across Organization & Externally

� Improve your IP Intensity

� Deliver Results for Growth; Create Premier Peforming Teams; Topgrade Now

� Educate Your Organization on Your Revised Strategies & Policies; Active Engagement.

Next Steps – Show “Idea to Income”

Is Your CEO Ready to Talk “IP”?

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Questions?

Invest. Invent. Innovate.

J. Bruce Schelkopf | Bruce.schelkopf@irco.com

Melissa Bitting|Melissa.bitting@irco.com