1. Patent Citation and the Economic Value of a Patent Gerald J. Siuta, Ph.D. President Siuta Consulting, Inc. (www.siutaconsulting.com) Workshop on Competitiveness of Technology Innovation and Research Achievements Workshop on Competitiveness of Technology Innovation and Research Achievements Taipei, Taiwan September 22, 2004

2. Presentation Outline Patent and Licensing Statistics Patent and Licensing Statistics AUTM 2002 Licensing SurveyAUTM 2002 Licensing Survey Patent Citation Patent Citation How can it assist in patent valuationHow can it assist in patent valuation Economic Value of a Patent Economic Value of a Patent Technology Valuation Technology Valuation Financial Value of a Patent Financial Value of a Patent S iuta Consulting, Inc.

3. Why file a patent application? S iuta Consulting, Inc.

4. Academic Technology Transfer in North America 1991-2002 S iuta Consulting, Inc. AUTM Licensing Survey: FY2002 199119962002 U.S. Patent Applications Filed 164332617741 License and Option Agreements Signed 127827414673

5. What is a Patent? S iuta Consulting, Inc.

6. Common misconception: A patent provides the inventor the right to make, use and sell the right to make, use and sell the invention the invention S iuta Consulting, Inc.

7. A patent for an invention is the grant of a property right to the inventor(s). The right conferred by the patent grant is “the right to exclude others from making, using, offering for sale, or selling” the invention in the United States or “importing” the invention into the United States S iuta Consulting, Inc. United States Patent and Trademark Office 2004

8. What is patent citation? S iuta Consulting, Inc.

9. Patent Citation Also called a “Patent Reference” Also called a “Patent Reference” A list of earlier issued patents that appears in the citing patent when it issues A list of earlier issued patents that appears in the citing patent when it issues Considered to be the most relevant prior art upon which the citing patent is based Considered to be the most relevant prior art upon which the citing patent is based Establishes novelty of the citing patent Establishes novelty of the citing patent Assesses impact of the technology Assesses impact of the technology S iuta Consulting, Inc.

10. When Citing Another Patent References previous patents in the same technological area as the citing patent References previous patents in the same technological area as the citing patent The cited patents represent the most relevant prior art to the invention The cited patents represent the most relevant prior art to the invention Provides a view of previous technology that forms the basis for the citing invention Provides a view of previous technology that forms the basis for the citing invention The cited company may be a potential licensing partner The cited company may be a potential licensing partner S iuta Consulting, Inc.

11. When a Patent is Cited The citing patent is related to the cited patent with respect to the subject matter The citing patent is related to the cited patent with respect to the subject matter Citation may indicate patent infringementCitation may indicate patent infringement Establishes the cited patent’s impact on subsequent inventions Establishes the cited patent’s impact on subsequent inventions Highly cited patents are considered to be more valuable Highly cited patents are considered to be more valuable High valuation is placed on companies that hold very highly cited patents High valuation is placed on companies that hold very highly cited patents S iuta Consulting, Inc.

13. Patent Citation Services Derwent Patent Citation Index Derwent Patent Citation Index library.dialog.com/bluesheets/html/bl0342.htmllibrary.dialog.com/bluesheets/html/bl0342.html Metrics Group (EKMS, Inc.) Metrics Group (EKMS, Inc.) www.patentcitations.comwww.patentcitations.com Mogee Research & Analysis, LLC Mogee Research & Analysis, LLC www.mogee.com/profile/profile.htmlwww.mogee.com/profile/profile.html Wisdomain, Inc. Wisdomain, Inc. www.wisdomain.com/CitationModule.htmwww.wisdomain.com/CitationModule.htm S iuta Consulting, Inc.

14. Patent citation provides a means to determine the value of an issued patent S iuta Consulting, Inc.

15. Economic Value of Patent Confers the right to prohibit others from making, using and selling the invention Confers the right to prohibit others from making, using and selling the invention Protects an investment in the invention Protects an investment in the invention A company is more inclined to develop a product with the assurance of being able to prevent others from using the inventionA company is more inclined to develop a product with the assurance of being able to prevent others from using the invention Limits the risk of developing new products by guaranteeing the patent holder a competition-free head start to make a profit Limits the risk of developing new products by guaranteeing the patent holder a competition-free head start to make a profit S iuta Consulting, Inc.

16. A patent (or patent application) has little economic value unless a company is willing to invest in the commercial exploitation of the technology S iuta Consulting, Inc.

17. Since most technologies are licensed and/or start being developed long before the patent issues, patent citation provides limited utility in determining the value of a novel technology S iuta Consulting, Inc.

18. Therefore, the key is the value of the technology S iuta Consulting, Inc.

19. Technology Valuation What is the technology What is the technology How will it be used How will it be used Is there a potential product Is there a potential product Is the product novelIs the product novel An improvement to a marketed productAn improvement to a marketed product Is there a market for such a productIs there a market for such a product What are the competitive productsWhat are the competitive products Time and cost to develop the productTime and cost to develop the product S iuta Consulting, Inc.

20. Is there a formula to determine the financial value of a patent? S iuta Consulting, Inc.

21. Value of a Patent License Term: License Term: The obligation to pay royalties with respect to net sales of the Product shall commence on the Effective Date of the License Agreement and continue until the later of (a) expiration of the last to expire patent covering such Product or (b) a period of ten (10) years from the date of first commercial sale of such ProductThe obligation to pay royalties with respect to net sales of the Product shall commence on the Effective Date of the License Agreement and continue until the later of (a) expiration of the last to expire patent covering such Product or (b) a period of ten (10) years from the date of first commercial sale of such Product S iuta Consulting, Inc.

22. Value of a Patent (continued) Royalty on Net Sales: Royalty on Net Sales: In any country where a patent application does not issue, the royalty rate due to the Licensor will be reduced by one-half on net sales of each Product that is marketed by the Licensee or any of its sublicensees and payable for ten (10) years from the date of first commercial sale of such Product.In any country where a patent application does not issue, the royalty rate due to the Licensor will be reduced by one-half on net sales of each Product that is marketed by the Licensee or any of its sublicensees and payable for ten (10) years from the date of first commercial sale of such Product. S iuta Consulting, Inc.

23. Pitfalls to Avoid Pursue licensing before technology is sufficiently developed Pursue licensing before technology is sufficiently developed Publish before filing patent applications Publish before filing patent applications File patent applications too early File patent applications too early Fail to file patent applications worldwide Fail to file patent applications worldwide Mistake new use for new product Mistake new use for new product Overestimate the value Overestimate the value S iuta Consulting, Inc.

24. It’s not the patent, but rather the technology that has the real value S iuta Consulting, Inc.