Presented by

John A. Squires, Partner jsquires@perkinscoie.com 212-262-6917

ACC Patent Law Committee Program “Intangible Assets or a Corporate Goldmine? How Companies Can Recognize the Value of Their Patent Portfolios”

March 2014

Erez Levy, Managing Director elevy@fortress.com 415-284-7400

William J. Plut, President will@patprofit.com 415 225-6950

Historically, Patents An Invisible Asset (or, “Dude, Where’s my ‘R’ (return))?” Failure to Account for Value of IP Assets

Accounting approaches generally overlook IP as a long term asset

Patent with a 20 year life span If a company develops a patent worth more than the cost of development – the added value does not show up on the company’s balance sheet Because patents don’t appear on company balance sheets investors and shareholders were generally unaware of these hidden assets

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Under-Utilized Corporate Assets Companies Are Unaware of the Earning Potential of Their Patent Portfolios

“IP-savvy business leaders believe that, in a world where battles are increasingly being waged not for control of markets or raw materials but for the rights to new ideas and innovations, the management of intellectual property must become a core competence of the successful enterprise... . Therein lies one of the next great corporate challenges: figuring out how to unlock the hidden power of patents... . Yet most companies remain completely unaware of the earnings potential of their patent holdings.”

“Corporate America is wasting a staggering $1 trillion in underutilized patent assets.”

Harvard Business Review, “Discovering New Value in Intellectual Property”

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What Has Changed? Increasing Visibility of Patents As An Asset

Corporate Acquisition

Portfolio Acquisitions

Patent Litigation

Licensing

$12.5B $500M $1B

vs. $4.5B

$1.2B

Wall Street is taking notice 4

Patent Deals: Now A $19B Industry Trend

The Wall Street Journal Online Edition Monday, July 11, 2011 as of 3:14 PM EDT

CCTV.COM English

Wall Street banks eye patent deals as way to grow business

07-31-2012 09:52 BJT

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The 2011-2012 Patent Market Price Per Patent Reaching As High As $1.2M

Date Buyer Seller # Patents Sold

Technology Portfolio Price Price Per Patent

3/2011 CPTN Holdings LLC Novell 882 N/A US $450 million cash $510,204

5/2011 Apple Freescale Semiconductor

200 Computer hardware, wireless devices N/A N/A

7/2011 Rockstar Nortel Networks Corp

6,000 N/A $ 4.5 billion cash $750,000

7/2011 Google IBM 1,000 Operating systems N/A N/A

9/2011 Google Mosaid 18 Semiconductors, data compression, encoding, encryption

$11 million $611,111

1/2012 Acacia Research Adaptix 230 4G technology $100 million $434,782

1/2012 Intel Real Network 190

Media video (?) $120 million $631,579

4/2012 Facebook Microsoft 650 Mobile, web, and instant messaging tech $550 million $846,154

4/2012 Microsoft AOL 925 Internet technology from AOL $1.05 billion $1,135,135

6/2012 N/A Vuzix Corporation N/A Tactical Display Group $8.5 million cash + $2.5 million earn out

N/A

6/2012 Intel InterDigital 1700 3G/LTE technology $375 million $220,588

7/2012 Universal Display Corp Fujifilm Corp 1200 OLED technology $105 million $87,500

10/2012 Wi LAN Inc. Alvarion N/A Wireless broadband $19 million N/A

11/2012 Apple Maya-Systems 18 Mobile and PC user interface Unknown, reported multimillion dollar sale

N/A

12/2012 Intellectual Ventures LLC Kodak 1,100 Digital photography and web based photo applications

$525 million $477,272

8/2011- 5/2012

Google Motorola Mobility 17,000 Mobile technology $12.5 billion $735,000

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The 2013 Patent Market Date Buyer Seller # Patents

Sold Technology Portfolio Price Price Per Patent

2/2013 Kodak Apple, Google, Microsoft, Adobe, RIM, Samsung, HTC, Shutterfly, Fujifilm, Amazon, Facebook

1,100 Digital imaging $525M $477,272

3/2013 Network-1 Security Solutions

Dr. Ingemar Cox 4 Patents 1 app

Identifying media content $1M cash plus stock $200,000

3/2013 StemCells NsGene A/S 45 US Patents 250 Foreign Patents, plus active patent prosecution in 15 families

Neural cell patents, stem cell research tools and techniques

N/A N/A

3/2013 Pendrell Corp Nokia 125 Memory technologies for electronic devices N/A N/A

5/2013 Network-1 Security Solutions

Mirror Worlds LLC 14 Unified search and indexing, displaying & archiving documents in a computer system

$3M cash plus stock $214,286

9/2013 Spherix North South Holdings

224 Wireless communications, satellite, solar, radio frequency, pharmaceutical distribution

Acquired entire company: cost not disclosed

N/A

9/2013 Microsoft Nokia N/A N/A £1.65B (~ $2.8B) N/A

10/2013 Document Security Systems

Undisclosed 2 Portfolios Semiconductor manufacturing and low-power Bluetooth peripherals

$2.5M N/A

10/2013 Acacia Research Corp. Undisclosed 20+ Power managed security system technology, market sales data, multiple coordinated viewing devices, progressive deletion

N/A N/A

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The 2013-2014 Patent Market Date Buyer Seller # Patents

Sold Technology Portfolio Price Price Per Patent

10/2013 Marathon Patent Group Undisclosed 4 Process automation and enterprise resource planning

N/A N/A

11/2013 CopyTele Undisclosed 2 Portfolios (1) Multicast, Internet delivery of streaming data, media to large numbers of recipients within confines of specialized VPNs. (2) Integration of telephonic participation in web-based audio/video conferences via gateway between Internet and cellular/landline telephones

N/A N/A

12/2013 Twitter Inc. IBM Corp. 900 Digital computing, video delivery, messaging technology

$36M $40,000

1/2014 Inventergy Panasonic Corp. 500 3G and 4G communications N/A N/A

1/2014 Lenovo Google, Inc. 2,000+ (related to smartphones) Google sold Motorola Mobility to Lenovo for $2.91B

1/2014 Qualcomm Hewlett-Packard Co. 2,400 (1,400 US, 1,000 foreign)

WebOS-related IP Undisclosed, likely $50-$100M

Possibly $20,800-$41,000

1/2014 Spherix Rockstar Consortium

100+ N/A N/A N/A

1/2014 Google Nest Labs, Inc. 38 US patents 40 US apps Possibly 200-300 filed apps not yet published

Self-learning thermostat, smoke alarm, and home automation

For acquisition of company: $3.2B cash

N/A

2/2014 Facebook WhatsApp 1 published US app

Multimedia transcoding and formatting of data exchanged between mobile devices

For acquisition of company: $4B cash, $12B stock, $3B restricted stock

N/A

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Patents As A Mainstream Corporate Asset Trend What the Stats and Experts Are Saying

“Patents are a tricky asset to trade. But there is clearly a huge amount of value in intellectual property. And I think what we’re seeing is the beginning of a lot more monetization and trading of intellectual property rights.” Josh Lerner, an economist at the Harvard Business School. Intellectual property as an asset class is one of the strongest pillars supporting the US economy: “Intellectual property intensive industry” was responsible for over 22 million jobs and 35% of US GDP in 2010, according to a recent Department of Commerce study. Roughly one-third of US IP value is the form of patents, over a third is in software and other copyrighted materials, and the balance is in trade secrets. In 2010 patents held by US companies were worth nearly $2 trillion. Former chairman of the Federal Reserve Alan Greenspan said that 75% of the value of companies today is in intangible assets, up from 40% in the ’80s.

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Companies Are Noticing Trend New Avenues for Generating Revenue and Financial Leverage

Generate corporate revenue, add to bottom-line

Recover IP investments (prosecution costs, maintenance fees)

Finance new R&D and technologies

Leverage to acquire new customers

Access competitive technologies through cross-licenses and collaboration

Bankruptcy fallback (Kodak & Nortel)

Desire for alternative investment strategies

Growing expertise in structure IP transactions

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Patents As Assets Per Se Finance Perspective

Ericsson Example – • “Legal” no longer a cost center – but profit center

Patent Valuation derives from enforceability • Traditional choices:

- Enforcement: (problems arise vs. end users/customers) - Sale: (but no longer own asset)

• A third way: Asset per se - Asset backed financing alternatives

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Companies Unable to Monetize Patents without Risking Company and Patents Business

Perspective

Patent as Negotiable Instrument

License / Assert

• Time-Consuming Process • High Cost • Risk of Patent Loss and Countersuit • Case Against Customers

Contingent Fee Lawyers / Enforcement Companies

• Patent Loss • Not Maximizing Patent or

Company Value

Aggregators / Brokers Sell

The Third Alternative: Asset per se - Asset backed financing alternatives

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Intellectual Property Finance Product Offerings

Intellectual Property Finance Group

Monetization Program Finance

IP Backed Loans

Business Perspective

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IP Backed Loans: Meeting Financing Needs of Innovative Companies

Borrower Benefits

• Immediate Liquidity • Retention of Core Patent Assets • Lower Cost of Capital • Increased Company Value • Complement to Other Financing • Monetization Potential Even in Default

Liquidity for Traditionally Unbanked

Increased Flexibility for Bankable

Typical Borrower Profile • Strong Patents • Tired Equity Syndicate • Slower Revenue Growth • No Access to New Equity • Little Access to Bank Debt

• Strong Patents • Supportive Investors • High Revenue Growth • Access to Bank Debt • Access to New Equity

Fortress’ Financing Solution Collateralize High Value, Core Patents to Provide an

Attractive New Source of Capital

Business Perspective

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Monetization Program Finance

An effective approach to fund IP Monetization

How it works

• Provide capital to ongoing or new patent monetization situations

• Debt like financing • Capital provided as the case

progresses • Initial capital from outcome to be

used to repay loan and associated cost of capital

• Moderate share of upside compared to contingency fee

• Quality of patent and portfolio

• Monetization strategy • Legal counsel • Management • Expected stage and timing

Underwriting Criteria

Business Perspective

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The Business Case

1. When to monetize? 2. Goals 3. Sell or license? 4. Pitfalls to be wary of 5. Do’s and Don’ts 6. Putting it all together

Finance Perspective

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PPI Introduction

Head Office: Silicon Valley, California • Team in: Canada, Israel, Korea, other parts of U.S.

2009-2013: • Reviewed ~ 200-250 opportunities each year • Take only top 20-25 portfolios to market each year

2014: • Increase on all fronts by 5-10X

William J. Plut • Silicon Valley innovator: 50+ patents and apps • Founded 3 StartUps; helped grow dozens

Finance Perspective

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1. When to Monetize

Abandoning • Valuing asset at less than the cost of the maintenance fee • Analogy: car at the side of the road

Biz unit shut down

Not using the patents

Too many patents in a tech area

Finance Perspective

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2. Goals

Think like a business person: profit • Sell for more than Cost = win • 2X Cost looks good to bean counters • 8X-20X cost is a normal selling price • Expiring milk analogy • Golf club analogy

Turn Patent Department into a Zero Cost Center • Have multiple clients who have achieved this

Finance Perspective

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3. Sell or License?

Depends on: • Industry – medical, pharma, hi tech, etc. • Time • Stomach • Monetization Resources - $ and internal • Quality of assets • Goals – financial; 10X ok? want 400X? • Technology – detectible? • Market around technology – growing, dying? • Circumstances – patent wars

Finance Perspective

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4. Pitfalls to be Wary of

Business Repercussions • You choose who you sell to, and who you don’t • Competitors, supply partners, etc.

Internal Stigmas • Why did we patent this in the first place?

Perception of Patents • ONLY a legal asset • Not meant to carry value of biz or biz unit

Grant backs

Finance Perspective

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5. Do’s

Use a small test case for the first time

Use a pro

Get all internal approvals before going to market

Get expectations under control before the first meeting

Finance Perspective

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5. Don’ts

Overpromise internally

Wing it

Underestimate the other side, or the field

Have a short term focus

Finance Perspective

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6. Putting it All Together

Option A: • Dispose of old assets … in a field no longer important to the

company … that expire in 7 years … for 10-40X Cost + • New assets that expire in 20 years … in an important field to

the company … and pocket the difference

OR

Option B: • Keep old assets… that are not being used … and are

technically losing money

Finance Perspective

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