By Steven W. Lundberg Schwegman, Lundberg & Woessner, P.A. An Analytical Framework for Determining the Value of Patents to an Ongoing Business By Steven W. Lundberg Schwegman, Lundberg & Woessner, P.A.

A Brief Introduction to SLW National Practice and Presence 80 Patent Attorneys Deep industry expertise, all technologies Procurement, Opinions, Diligence Assertion, Threat Response Portfolio Analysis, Strategy, and Management

Demanding and Patent-Savvy Clients Boston Scientific, eBay, Cisco, Micron, Intel, Apple, Honeywell, Cray Research, Fairchild Semiconductor, Silicon Graphics, Columbia University, University of Minnesota, University of Wisconsin, Iowa State University, Cornell, and University of Missouri, among others.

Recognized Quality and Cost-Effectiveness

Recognized Global Expertise

Industry-Recognized Innovation and Leadership Invented at SLW Spun out Sold in 2005 Used worldwide Invented at SLW Spun out Other Projects: ClaimTracker

Questions Answered Today What are patents really worth? When do patents really matter? What can I learn from a patent landscape?

Raw Count of Patents in Force 1980-2009

Primary Uses for Patents To provide a barrier to competition for an ongoing business. As a licensing asset to generate royalties , as a cross-licensing tool, or as a deterrent to would be aggressors.

Value for Ongoing Business Used as a barrier to competition, value or importance of a patent is relative to other natural or non-patent barriers. A patent only functions to enhance the value of a company’s technology/pricing power – if it doesn’t do that or isn’t needed, its useless.

How Much Value Enhancement? BEWARE! The vast majority of patents narrowly cover increments or species of technology that have little value and therefore the enhancement is of little value unless it is large in scale.

The Value of Most Patents Graph of Patent Value The Value of Most Patents Zero or Incremental Great Value

Patents are Rarely Critical A patent is a “last resort” barrier to entry – its best not to be entirely dependent on patents. Almost all successful businesses enjoy many non-patent barriers. to entry

Non-Patent Barriers to Entry Advertising/Branding Investment Control of resources Network effect Cost advantages Research and development Customer loyalty Inelastic demand Distributor agreements Supplier agreements Economy of scale Sunk costs Government regulations Vertical integration Trademarks/Copyrights Trade Secrets

BUT Don’t Forget Exceptions Sometimes patents are of great value or importance to a business, and greatly enhance the value of the business or technology. But when are they of value?

When are Patents Most Valuable? When even strong non-patent barriers to entry are insufficient to provide an acceptable technology ROI; or When patents are powerful enough to provide pricing power/market control on a valuable technology.

Examples of Important Patents Patents on FDA approved devices or drug Patents on breakthrough technology

Can a Narrow Patent be Valuable? For new technology requiring FDA approval, patents only have to cover the approved device or drug to be effective protection. Here the ability to design around is restricted by Government regulation.

What Value do Patents Have? For an ongoing business, the value of a company’s patents depends on whether the patents cover the company’s most valuable technology. If the patents don’t cover key technology, then may be worthless, unless its difficult to tell what is worthless and what isn’t.

What Can I Learn From Patents? If a company has valuable technology, its patent portfolio should reflect that value relative to other companies in the market. If a company’s portfolio is poor relative to competition, it raises concerns about the company’s technology position.

Companies that Don’t Need Patents Software companies Information companies Retail businesses Service businesses Financial services

Companies that Require Patents Medical Tech Drugs/Life Sciences High technology Technology leaders

For Large Portfolios Very large and dynamic portfolios – e.g., more than 5,000 patents – have unique benefits due to several factors: “Incremental” protection is powerful if in large scale These portfolios are difficult to decipher If new patents are added each year, there is fear factor

One More Thing: FTO A company also needs freedom to operate (FTO) in its technology space. This base needs to be covered to be safe, but usually only presents an issue with emerging growth companies or start-ups.

Patent Landscape Because a company’s position in the patent landscape is often a reflection of its technology position, its worth looking at.

Basic Landscaping Methodologies Patent statistics for a Technology Area Total Patent Counts For example, “Social Networking” In contrast, “Social Networking” v. “Stents”

Basic Landscaping Methodologies Patent statistics for a Technology Area Filing Trends and Timelines for “Social Networking”

in M&A activity or private investing in Social Media Social Media M&A/Private Investing In 2008 and 2009 there was over $2.2 B in M&A activity or private investing in Social Media

Basic Landscaping Methodologies VCR or “Video Cassette Recorder” Technology versus DVD or “Digital Versatile/Video Disk” Technology

Basic Landscaping Methodologies Assignee Statistics Assignees by Volume of US Patents for "Social Networking"

Basic Landscaping Methodologies Assignee Statistics Assignees by Volume of Patents and Revenue for "Social Networking"

Basic Landscaping Methodologies Assignee Statistics Assignees by Volume of Patents, Vision, and Resources for "Social Networking"

Basic Landscaping Methodologies Assignee Statistics Assignees by Date of Activity for "Social Networking" who has earliest patents who has most recent patents

Blue Ocean Patent Scenario Company is technology leader. Technology is emerging. Many opportunities for good patents, more freedom to operate.

Red Ocean Patent Scenario Company is technology follower. Technology is mature. Few opportunities for good patents, less freedom to operate.

Four Take-Away Principles A company’s patent position tells a story that is worth looking at If a company is a technology leader, patent portfolio should be strong If a company has a poor patent portfolio, it may indicate the company has a weak technology position All things being equal, a company with good patents is a better investment than one without patents

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