1. ©2009 Townsend and Townsend and Crew LLP. All Rights Reserved. w w w. t o w n s e n d. c o m S A N F R A N C I S C O  P A L O A L T O  W A L N U T C R E E K  S A N D I E G O  D E N V E R  S E A T T L E  W A S H I N G T O N, D C  T O K Y O Presented by A. James Isbester March 20, 2009 COMMERCIALIZING INNOVATION The Role Of IP, A Perspective From South of the Border

2. ©2008 Townsend and Townsend and Crew LLP. All Rights Reserved. w w w. t o w n s e n d. c o m 2 The Silicon Valley Dream  Big Inc. won’t pursue great new technology so individuals Big Inc. and form Start Up Corp to do so  Seed money rents a garage and buys some machines  Venture Rounds A, B, C get product to market  Sales start to take off  Start Up Corp goes public  Start Up Corp renamed Even Larger Corp, gets risk averse, won’t pursue next new technology  Cycle repeats

3. ©2008 Townsend and Townsend and Crew LLP. All Rights Reserved. w w w. t o w n s e n d. c o m 3 Dominant Trends In Start-Up Financing  Money is getting more expensive  “Mezzanine” money more readily available than seed money  Investors/venture capitalists are looking for five year exit strategy  IPO’s were increasingly rare in 2008, pre-crisis  Acquisitions increasingly common as an investor exit strategy

4. ©2008 Townsend and Townsend and Crew LLP. All Rights Reserved. w w w. t o w n s e n d. c o m 4 Interesting Cross-Industry Trend  As between “Innovation” and “Development,” development taking more $, more time  Semiconductors – qualifying, interoperability, standards adoption, customer acceptance  Life sciences – clinicals and regulatory approvals, adoption as standard of care  Telecom – standards adoption, provider purchasing cycles, infrastructure implementation

5. ©2008 Townsend and Townsend and Crew LLP. All Rights Reserved. w w w. t o w n s e n d. c o m 5 Industry Examples  Semiconductor typical time to market  1970 – three years including fabrication  2005 – seven years, assuming an available foundry  Medical device FDA approval time  1987 – six months  2007 – three years  Pharmaceutical PMA cost  1985 -  2008 - $100 million?

6. ©2008 Townsend and Townsend and Crew LLP. All Rights Reserved. w w w. t o w n s e n d. c o m 6 The Dominant Trends In Recent US Patent Law  Patentees losing their advantage in the courts  Injunctions  Venue issues  Declaratory relief jurisdiction  Patentees losing their advantage in the Patent Office  Patentable subject matter  Renewed vigour to obviousness  Inter partes reexamination  Bottom line – an innovator’s patents are now subject to greater scrutiny than ever before

7. ©2008 Townsend and Townsend and Crew LLP. All Rights Reserved. w w w. t o w n s e n d. c o m 7 Legislative Reforms  Maybe this year?  Reduced damages  Procedural impositions upon patent owner  Tilt playing field even further against patentee

8. ©2008 Townsend and Townsend and Crew LLP. All Rights Reserved. w w w. t o w n s e n d. c o m 8 Lessons To Be Drawn  As innovation is comparatively less expensive, time consuming, patent protection becomes more important  Hard to innovate faster than competitor  As pendulum continues to swing against patentees,  Emphasis on quality rather than quantity  Audience is changing  Corporate purchaser not public markets  Patent Office examiners rather than juries  Plan where to innovate  Blocking patents possible  Elbow room available  Competitors’ patents are not preclusive

9. ©2008 Townsend and Townsend and Crew LLP. All Rights Reserved. w w w. t o w n s e n d. c o m 9 An Uncomfortable Thought  Innovation requires  Motivation  Opportunity  Ability  Motivation:  customer contact  reward  Opportunity comes from engineering involvement  Design  Manufacturing  Ability comes from training  What happens in an economy in which  a) fewer kids take hard sciences/engineering  b) those who do are better off becoming lawyers  c) design and manufacturing are done “somewhere else”

10. ©2009 Townsend and Townsend and Crew LLP. All Rights Reserved. w w w. t o w n s e n d. c o m S A N F R A N C I S C O  P A L O A L T O  W A L N U T C R E E K  S A N D I E G O  D E N V E R  S E A T T L E  W A S H I N G T O N, D C  T O K Y O w w w. t o w n s e n d. c o m