julian nolan – jnolan@patrious.com the role of ip and patents in enhancing the competitiveness of...

Julian Nolan – jnolan@patrious.com1

The Role of IP and Patents in Enhancing the Competitiveness of Business

Julian Nolan

9th June 2010

Julian Nolan – jnolan@patrious.com2

Agenda

– What is IP?• And who cares about it• IP and business – Scipher case study

– The Business of patents• And their value• Using patents to build a business – BTG case study

– Creating value through patent licensing• Strategies and tactics• Licensing to 80% of the PC market – Sensaura case study

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Julian Nolan – jnolan@patrious.com3

What is IP?

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Intellectual Property - what is it?

• Intellectual property is not just about patents.• It's about brand names, products, services,

music, software, paintings and many other creations of the mind.

Patents

Other IP

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Ways of thinking about IP

Trade Marks source identifierlogo’s, names, smells, shapes, packaging etc.

Patents technology protectorinventions, products, processes etc.

Designs protection to product shapeappearance: toys, clothes, household items etc.

Copyright protection of creativityartistic, aesthetic works, photography, books,

sculptures, computer code etc.

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© 2001 Lall & Sethi Advocates

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Managing IP - a real business issue

‘My focus is IP, I’m convinced that the management of IP is how value added is going to be created at Xerox. And not only here. Increasingly companies that are good at IP will win. The ones that aren’t will lose.’ ….. Richard Thoman - CEO Xerox

‘We are reducing our dependence on the businesses based on heavy assets and fixed capital and growing fast in new and flexible businesses based on intellectual capital. …. Only by cultivating outstanding ideas …… and protecting them as a source of value creation can we assure that ABB will continue to be successful.’ ….. Markus Bayegen - Senior Corporate Officer, Group R&D and Technology ABB

‘Intellectual Property is the oil of the 21st Century. Look at the richest men a hundred years ago, they all made their money extracting natural resources or moving them around. All today’s richest men make their money out of Intellectual Property.’ …. Mark Getty - Founder of Getty Images

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Why?

Source OECD: Compendium of patent statistics 2007

USPTO patent applications

About USD500B of transactions per year !

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The business of IPIncrease competiveness... market/competitor intelligence

New revenue... licensing/sale of your technology

New products & services... acquiring technology

Limited monopoly... patents

Brand creation/protection... trade marks

differentiation copyright

designs

collective marks

Mutual advantage... cross-licensing

Attack / defence... litigation

Mergers & acquisitions... evaluation, due diligence

Lower costs... core / non-core IP

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Source: Stephen Potter

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IP and Switzerland

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AOC

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IP and business

Scipher case study

Source material in this section contributed by Dr. Stephen Potter.

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1920 - 1979 “the world’s first multimedia company”

Innovations: electronic television, CT scanning

Production of CT scanners drives company to the wall

1979 - 1990’s Thorn - EMI conglomerate - >100 companies

licensing of scanner technology delivers >$150m

Conglomerates become unfashionable

EMI - the problem

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EMI’s Central Research Laboratory

Major innovations

Nobel Prize - Computerised Tomography stereo recording the “long tailed pair” first public television system first airborne radar systems

“corporate laboratory” ------- “business levy” formed in1924 - break the Westinghouse patents true corporate laboratory: “money over the wall”

+ levy on businesses

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1993 Focus the business: sell >120 companies

EMI - pure music company

Corporate laboratory: ~ 300 engineers, ~ 800 patents

= staff + IP £10m - ~£4.8/4.8m corporate/levy, ~£0.4 3rd party

Strategy: put the engineers on the street !

Unless corporate laboratory could be self funded.

Shut down the lab or spin it off.

EMI - the problem

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1994

agreed budget: £1m loss T/O fell to £6,5m 30% loss of people form 10 potential groups using indigenous people

1995 agreed budget: £650K loss 5 groups left externally funded work rose to 95% of T/O

EMI Central Research Laboratory

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Transition to Scipher plc

1996

• Scipher plc formed from CRL + other unwanted EMI businesses

• November 1996 Management Buy Out for ~$5M

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Acquire IPassets

Acquire IPassets

Commercialise IP assets

Commercialise IP assets

Release IP asset value

Release IP asset value

IP generation

IP generationCompetencies

CompetenciesValue extraction

Value extractionCRL

CRL

Corporate partners

Corporate partnersBusiness opportunities

Business opportunities

Licensing- P a te n t lic e n s in g- Te c h n o lo g y tra n s fe r

Licensing- Patent licensing- Technology transfer

Technology- E le c tro n ic s , o p tic s ,

m a g n e tic s

Technology- Electronics, optics,

magneticsBusiness creation

- s p in -o u t b u s in e s s- J V

Business creation- spin-out business- JV

Licensing revenue

Licensing revenueR&D revenue

R&D revenueProduct sales

Product salesEquity holding

Equity holding

StrategicObjectives

StrategicObjectives

BusinessProcess

BusinessProcess

Capitalvalue

Assetcreation

Technology development & licensing

Technology development & licensing

Valuecreation

Valuecreation

Scipher’s patent based business model

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Scipher plc

2000

• Initial Public Offering on the London Stock Exchange for

~ $1B (peak) !

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The business of Patents

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- novelty: product, method or process

- inventive step: not obvious to those skilled in the art

- industrial application: reduction to practice

----------------------------

- must not have been disclosed to the public (except under US patent law)

Patents

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Patents that mean business

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Use of ‘business method’ patents by Internet companies

– Amazon vs Barnes&Noble - one click process- Obtained court injunction against Barnes & Noble

– Priceline vs Expedia - reverse auctioning- Seeking patent infringement judgement- Marketel issued lawsuit against WalkerDigital for breaching trade secrets

– lBM & Dell - integrated order, build & ship process- $16bn cross licensing deal- IBM gains free access Dell’s 42 business process patents - Dell gains free

licence to IBM’s PC technologies on which competitors pay royalties – Wal-Mart vs Amazon - business process s/w (no patents)

- Out of court settlement with no financial compensation - Amazon agreed not to use poached staff to work in similar area

“you can get much further with a kind word and a gun than with a kind word alone” ……… Al Capone

Source: Stephen Potter

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0% 5% 50%

Val

ue

Portfolio

High Value Patents

Defensive Patents Overhead or Non-strategic Patents

But ... most patents are worthless

Source: Stephen Potter

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What to do with patented IP

None Alternative solution

ImprovementPatents

Technology/ Product concepts

Master Patents

No

ne

Tech

nic

al

skill

sTe

chn

ica

l E

xpe

rtis

e

Info

rmal

In

tell

ect

ua

l As

sets

Formal Intellectual Assets

High-tech product based spin-out opportunities

Consulting or Technology development spin-outs

IPR Licensing

Non-technology based spin-outs

IPR basedTechnology - transfer

‘Pro

prie

tary

K

no

w-h

ow

’

Know-how based Technology - transfer

But mostly ...

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Quartz crises in Switzerland

• GIRARD PERREGAUX– Invented

• But– Did not exploit

• Swiss watchmaking– Employed

• 90,000 in 1970• 30,000 in 1984

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BTG case study (1)

• BTG– Manufacturer of ceramic coated

blades for cutting paper/board• Reduces down time• Big impact on profitability

– High selling price of blade substantiated

• Patented– Used to initially protect margins ...

But what happens when the patents expire?

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BTG case study (2)

• Before the patent expired, BTG– Developed relationships with customers– Put in place class leading logistics– Onward developed the technology and filed new

patents• Result

– Small decline in revenues but largely business as usual

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Creating business valuethrough

patent licensing

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What is licensing

Licensing is a direct way of creating value from IP

“A License is a written authority granted by the owner of a patent or other intellectual property (licensor) to another party (licensee) empowering the latter to make or use the article for a particular application.”

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The licensor sets the rules

…..and can limit the licensee’s use of the licensed material by:

• Market• Geography• Time• Specific Application• Grant of Rights Usage

• Make, have made, sell, market, sublicense, etc.

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Licensing deals can include ...

• Non-core or mature technology or patents• Core technology or patents• Struggling businesses or products (new or mature)• Non-strategic businesses or products (new or mature)• Services• Technology that can be applied to other markets• Trademarks• Patent Enforcement

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Sensaura case study (1)

• Sensaura Ltd. – London, UK– 3D audio technology

• Virtualises 3D audio from only two loudspeakers• Patents, software, documentation• Licensed to >80% of PC market + CE manufacturers

– Embedded in audio chipset

• Patents used to sustain competitive position

But, why license instead of selling hardware ?

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Sensaura case study (2)

– Resources• Technology development / licensing

Vs.

• Much broader investment

– Marketing• Value chain positioning• Ability to reach customers / sales cycle time• Industry dynamics

– Result• Licensing strategy resulted in successful business faster and at

lower risk than if company had moved up the value chain.• Acquisition by Creative Labs .

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Recap

• 80:20 flip between tangible and intangible assets

• Intellectual Property key for success in many industry sectors

• Patents are an asset (like any other)– Use them to make money– License-in to help grow business

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Thank-you

9th June 2010

Julian NolanPatriousAvenue des Alpes, 4PullySwitzerland

E-mail : jnolan@patrious.comBBC Column : http://news.bbc.co.uk/2/hi/business/8551808.stm