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Selling Your Technology:Selling Your Technology:How to Target Licensees and Create How to Target Licensees and Create Demand for Your TechnologyDemand for Your Technology

Derek J. Nuhn, B.Sc.E.ESenior Vice President and Chief Operating Officer

Semiconductor Insights

June 2004

www.semiconductor.com

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ObjectiveObjective

Objective

Traditional Tech Transfer emphasized hot, new technologies

Mature patents and technologies are actually more valuable than untried, untested technologies

– Faster payback

– Shorter licensing cycle

– Broader interest

– More strategic applications to licensees

Best Practices and Techniques of the most successful technology licensing companies

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OutlineOutline

Outline

Licensing Industry TrendsWhy your portfolio is likely more valuable

than you think

Licensing Best PracticesHow to find your best patents, how to find

the best licensees

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Our PerspectiveOur Perspective

Our Perspective

1. We are not lawyers • Industry and Business Intelligence and Technical

Opinion on Patent issues

2. Semiconductor Insights works from a technical perspective to help our clients develop patents, organize their portfolios and prove infringement

• Largest and oldest firm in this industry – Started in 1989, currently at 120 scientists, engineers, physicists, all with IP experience

3. Our clients are typically electronics and semiconductor firms, $100M – $60B in revenues, and their representing law firms

• Majority are US, Japan and European based

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Industry TrendsIndustry Trends

The Philosophy of IP is changing -

Patents are not only to facilitate product development, but are also a fundamental business asset themselves

• Licensing IP is an industry in and of itself– IBM generates $1.3B annually– Texas Instruments generates $800M annually– IP department is becoming a profit center, rather than a cost– Emergence of “Troll” Licensing organizations

• IP is one of the single largest opportunities for companies to increase strategic business value

– Access 3rd party technology, gain negotiating power– Create barrier to entry for competitors– Influence and direct technology/market directions

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Industry TrendsIndustry Trends

“IP is the most underutilized, unrecognized asset in technology businesses today” – Ron Epstein, IPotential

• IP represents a significant business risk – Over 2 Million effective patents today– Patents filed increased from 175K in 1992 to 334K in 2002

• The rush to monetize IP is on – Royalties increased from $500M to $100B in the 90’s– Number of suits doubled from 1992 to 2002– Litigation cost has increased from $1M to $3M/patent

“…top performers…do at least one intellectual property deal a month and earn licensing revenues of more that $10,000 annually for each active

patent…most companies average less than $1,000”

- McKinsey Quarterly

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Industry TrendsIndustry Trends

Cellphone Industry estimates a

minimum of 5000-7000 patents apply to each design

Laptop

10,000-15,000 patents apply

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Key MessageKey Message

The Message to Industry is:

– Intellectual Property is the key asset or holding of your investment in product development and R&D

Time to Patent is the new paradigm, not Time to Market

– Companies need IP to function in the industry, to facilitate strategic objectives and for defense, not just for technology development

This dramatically broadens the market for licensors

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How Licensing is done todayHow Licensing is done today

Licensing of the Past

– Defensive in Nature– Used to suppress competition

Old School Patent Licensing – “Our pile of patents is bigger than your pile”

• This will be ignored

Blue Sky Technology Licensing– “Isn’t this technology interesting – no, it

isn’t in a product yet, but in a few years, with tens of millions of investment $, a predictable technology cycle and a stable economy….”

• No ROI in 3 years, no interest from VC community

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How Licensing is done todayHow Licensing is done today

Licensing Trends

• There are 2-3 times the number of companies trying to license IP as 3 years ago

• Large corporations generally ignore first notice without “evidence of use”

• Difficult for smaller organizations or companies new to licensing to be noticed unless you have an extensive background and reputation in licensing

• Shotgun approach does not work, you need rifle shots

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How Licensing is done todayHow Licensing is done today

Today’s licensing model

1. Define Licensing Strategy– Aligning Licensing to Business Strategy

2. Review the Patent Portfolio– Careful selection and filtering of portfolio for

value - supportable, implemented technology3. Select and Target Licensees

– Based on industry trends, portfolio strengths, litigation and licensing activity

4. Develop Evidence of Infringement– Produce a comprehensive package of

evidence, demonstrate value5. Negotiations

– Typically 1 to 3% of product revenues

5% of the time, prepare to litigate

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Assemble the TeamAssemble the Team

Step One – Form Licensing Team and Develop Strategy

Business Expertise – understands market dynamics, relationships, direction

Technology/IP Expertise – identifies the value of your technology, evaluates portfolio

IP Transaction Expertise – knows how to structure a licensing agreement, royalty precedents

IP Legal Expertise – knows the legal system, can litigate if negotiations fail

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Find your assetsFind your assets

Step Two – Perform a Thorough Review of your Portfolio

– Look for substance, not flash

– Older, solid technology patents are much more valuable than new ones

– Look for technologies already in use– Look for parallel applications – Sony Playstation example

– Huge advantage from a licensees perspective• Little incremental investment needed• Can be used strategically against competitors, today• Justification and ROI for licensee is both a business opportunity and

elimination of a potential threat

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Find your assetsFind your assets

…roughly in order of ease of evaluation versus go/no go

Common Metrics

1. Core Business/Strategic

2. Previously Licensed

3. Commercial Merit

4. Use in Industry

5. Patent Life Span

6. Strength of Invention

7. Ability to Support Claims

8. Probability of Prior Art

9. Claim Construction

Patent Mining System

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Find your assets - Find your assets -

25% Divest, donate or abandon

0-5% Key patents, high value, enforceable

75% Protect existing business, defensive

Typical Portfolio Analysis and Breakdown

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Mining Patent Portfolios - Mining Patent Portfolios -

The key to mining patent portfolios is to get a range of inputs from a diversity of experienced professionals

There is no software, no criteria related to citations, # of claims, # of pages, length of patent, brevity of patent, etc. that proves a good patent, but these can be

good indicators of where to look.

The best practice is to engage professionals who have reviewed a large number of patents, have a broad and active view of the industry, are well versed in the

technology and have extensive involvement in licensing campaigns in that technology.

There is no substitute for experience.

The Critical Element…

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Find your clientsFind your clients

Step Three – Identify and Target Licensees

– Target the major players

– Research and consider the non-obvious• Look for licensing activity – most of which is not disclosed• Look for convergence – digital cameras/cellphones• Look for strategic customers of major players – can be used to

negotiate better supply agreements – hypothetical ATI/Nokia example• Look for new entrants

– Overview the Patent Landscape of the technology

Target 10+ companies to approach, 5-7 to present, 3-4 minimum to bid

Be open – let all companies know your timeframe, agenda

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Profit Center

Cost Control

Defensive

Integrated

The IP Value HierarchyThe IP Value Hierarchy

Visionary

Copyright © 2003 ICMG All Rights Reserved

Accumulate patents “after the fact”, “just in case”

Filter new IP for value, cull existing IP

Organize, sort IP to find value, start proactive licensing

Align IP with Business Strategy, manage IP as an asset, monitor competition

Examine technology Trends, IP trends, patent strategically – use the system

Courtesy:

““Edison in Edison in The Boardroom”The Boardroom”

By Suzanne S. HarrisonJulie Davis

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Sell your technologySell your technology

Step Four – Demonstrate Evidence of Infringement and Develop the Licensing package

Build your client an irrefutable business case

Put a strong marketing package together to approach the target1. Emphasize ROI – VC’s look for 3X return in 3 years

2. List potential applications – parallel applications

3. List specific companies of interest – use the carrot and the stick

4. Show Due Diligence on prior art and validity issues

5. Show likely target products and associated revenues

6. Include evidence of infringement

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What is “Evidence of Infringement”?

•Independent, 3rd party evidence of current use of technology in the industry

What is NOT Evidence:•Datasheet information

•Marketing information

•Technical papers

•Conference presentations

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You’ve got to take it apart and look at it….

…and when you do, you find the “smoking gun”…

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Reverse EngineeringReverse Engineering

From actual samples of device –

• Reconstructed Circuit Diagrams, • System Architecture diagrams• Device Physical Layout Information

No theory, no surmising, no assumptions – actual evidence in real world use –

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Means for applying a first two-valued binary signal to...

A second two-valued binary signal...

Use of Reverse Engineering...

Reverse EngineeringReverse Engineering

Portfolio Management and Patent Evaluation

Portfolio Management and Patent Evaluation

Licensing Target

Assessment

Licensing Target

Assessment

Technical Analysis

and Patent Infringement

Licensing and

Litigation Support

Licensing and

Litigation Support

USP 4,344,005 discloses:

means for applying a first two-valued binary signal to…

a second two-valued binary signal...

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In Closing…In Closing…

Summary

IP is an absolute necessary element of technology businesses today

Don’t dismiss your mature patents – potentially more valuable

Licensing mature technology patents to Canadian companies gives them great benefits for generating licensing revenues and for strategic negotiations

Use reverse engineering to get noticed, accelerate negotiation process and remove risk from licensing

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OutlineOutline

For a copy of today’s presentation,

Derek J. NuhnSenior Vice President and Chief Operating Officer

Semiconductor Insights

Ottawa, Ontario

(613) 599-6500

derek@semiconductor.com

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Some of our IP clientsSome of our IP clients

• Texas Instruments secured a licensing royalty settlement of $US800 Million

• "Reverse engineering provides the ‘ammunition’ … the technical investigation and documentation provided by SI lets us focus on the target.“ – Motorola

• “SI is integral to both our defensive and assertive licensing efforts” - Intel

• Agere verified patent infringement by and subsequently licensed a key competitor

• Mosaid has been so successful in licensing its patents that licensing is now 60% of their total revenues

• Average 75 Licensing campaigns / year

• 300+ Licensing Target Assessments completed

• Investigate 30-40 new parts each month

• Average 75 Licensing campaigns / year

• 300+ Licensing Target Assessments completed

• Investigate 30-40 new parts each month

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AppendixAppendix

Appendix

Sources of Technical evidence – pros and cons

Analytical Techniques applied to semiconductors

Examples of Evidence of Infringement

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Where to LookWhere to Look

Sources of Technical Evidence – 4 primary providers

Technical Laboratory Service Companies

– (Charles) Evans Analytical, Accurel, Materials Analytic

– Excellent technical services, cost effective

– Watch for: lots of data, no interpretation vis-à-vis patents, missing analytical techniques

Clients internal technical support groups

– Internal engineering resources, failure analysis labs

– Detailed knowledge of design issues

– Watch for: narrow view of industry, inexperienced or technical claims interpretation

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Where to REALLY look…Where to REALLY look…

Sources of Technical Evidence continued…

Industry Experts– Senior technical people, now consulting– Academic professors, researchers– Great credentials for litigation– Watch for: visibility into

“What Is Used in the Real World”

Technical IP Analysis Firms– Technical IP interpretation and management of IP– Reverse engineering and analysis expressly for patent claims

investigation– Broad view of technology, experienced in what is used where– Extensive knowledge of what can be supported, and what is practical

to support

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Structural AnalysisStructural Analysis

Tools Used:• Scanning Electron Microscopy (SEM)

• Transmission Electron Microscopy (TEM)

• Scanning Capacitance Microscopy (SCM)

• Energy Dispersive X-Ray (EDS)

• Wavelength Dispersive X-Ray (WDX)

• X-Ray Diffractometry (XRD)

• Electron Energy Loss Spectroscopy (EELS)

• Fourier Transform Infrared Spectroscopy (FTIR)

• Secondary Ion Mass Spectroscopy (SIMS)

• Spreading Resistance Profile (SRP)

• Auger Electron Spectroscopy (AES)

• and much much more

Dissection of the package and die to determine

• Construction methods, • Materials composition, • Structural design techniques

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Functional TestingFunctional Testing

Monitoring of select key signals, both internal and external to determine algorithms used...

Techniques Used:• Focused Ion Beam (FIB)

• Voltage Contrast E-Beam

• Fluorescent Microthermal Imaging

• Infra-red Optical Microscopy

• Test Equipment Measurement

• Microprobing

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Circuit ExtractionCircuit Extraction

• Extraction of device circuitry - whole or partial

• Generation of hierarchical schematics and block diagrams - Viewlogic or Cadence formats - facilitates simulation and net listing

• System or board level teardown analysis

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Circuit ExtractionCircuit Extraction

From actual samples of device –

• Reconstructed Circuit Diagrams, • System Architecture diagrams• Device Physical Layout Information• No theory, no surmising, no assumptions – actual evidence in real world use – no arguments

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Means for applying a first two-valued binary signal to...

A second two-valued binary signal...

Use of Reverse Engineering...

Evidence of Infringement ExampleEvidence of Infringement Example

Portfolio Management and Patent Evaluation

Portfolio Management and Patent Evaluation

Licensing Target

Assessment

Licensing Target

Assessment

Technical Analysis

and Patent Infringement

Licensing and

Litigation Support

Licensing and

Litigation Support

USP 4,344,005 discloses: means for applying a first two-valued

binary signal to… a second two-valued binary signal...

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first insulated gate field effect transistor...

second insulated gate field effect transistor...

Use of Reverse Engineering...

Evidence of Infringement ExampleEvidence of Infringement Example

Portfolio Management and Patent Evaluation

Portfolio Management and Patent Evaluation

Licensing Target

Assessment

Licensing Target

Assessment

Technical Analysis

and Patent Infringement

Licensing and

Litigation Support

Licensing and

Litigation Support

USP 4,199,733 discloses:first insulated gate field effect transistor…second insulated gate field effect transistor