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

3. Copyright 2009 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved.  National Practice and Presence 80 Patent Attorneys Deep industry expertise, all technologies Procurement, Opinions, Diligence Assertion, Threat Response Portfolio Analysis, Strategy, and Management A Brief Introduction to SLW

4. Copyright 2009 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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.

5. Copyright 2009 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Recognized Quality and Cost-Effectiveness

6. Copyright 2009 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Recognized Global Expertise

7. Copyright 2009 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Industry-Recognized Innovation and Leadership Invented at SLW Spun out Sold in 2005 Used worldwide Invented at SLW Spun out Other Projects: ClaimTracker

8. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Questions Answered Today What are patents really worth? When do patents really matter? What can I learn from a patent landscape?

9. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Raw Count of Patents in Force 1980-2009

10. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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. Primary Uses for Patents

11. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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. Value for Ongoing Business

12. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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. How Much Value Enhancement?

13. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Graph of Patent Value The Value of Most Patents Zero or Incremental Great Value

14. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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 Patents are Rarely Critical

15. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Non-Patent Barriers to Entry Advertising/BrandingInvestment Control of resourcesNetwork effect Cost advantagesResearch and development Customer loyaltyInelastic demand Distributor agreementsSupplier agreements Economy of scaleSunk costs Government regulationsVertical integration Trademarks/CopyrightsTrade Secrets

16. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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? BUT Don’t Forget Exceptions

17. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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. When are Patents Most Valuable?

18. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Patents on FDA approved devices or drug Patents on breakthrough technology Examples of Important Patents

19. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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. Can a Narrow Patent be Valuable?

20. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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 Value do Patents Have?

21. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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. What Can I Learn From Patents?

22. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Software companies Information companies Retail businesses Service businesses Financial services Companies that Don’t Need Patents

23. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Medical Tech Drugs/Life Sciences High technology Technology leaders Companies that Require Patents

24. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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 For Large Portfolios

25. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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. One More Thing: FTO

26. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Because a company’s position in the patent landscape is often a reflection of its technology position, its worth looking at. Patent Landscape

27. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Patent statistics for a Technology Area Total Patent Counts For example, “Social Networking” In contrast, “Social Networking” v. “Stents” Basic Landscaping Methodologies

28. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Patent statistics for a Technology Area Filing Trends and Timelines for “Social Networking” Basic Landscaping Methodologies

29. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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

30. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. VCR or “Video Cassette Recorder” Technology versus DVD or “Digital Versatile/Video Disk” Technology Basic Landscaping Methodologies

31. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Assignee Statistics Assignees by Volume of US Patents for "Social Networking" Basic Landscaping Methodologies

32. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Assignee Statistics Assignees by Volume of Patents and Revenue for "Social Networking" Basic Landscaping Methodologies

33. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Assignee Statistics Assignees by Volume of Patents, Vision, and Resources for "Social Networking" Basic Landscaping Methodologies

34. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Assignee Statistics Assignees by Date of Activity for "Social Networking" – who has earliest patents – who has most recent patents Basic Landscaping Methodologies

35. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Company is technology leader. Technology is emerging. Many opportunities for good patents, more freedom to operate. Blue Ocean Patent Scenario

36. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. Company is technology follower. Technology is mature. Few opportunities for good patents, less freedom to operate. Red Ocean Patent Scenario

37. Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved. 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 Four Take-Away Principles

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