Negotiating and Closing Patent Purchase Transactions in the post-Alice/PTAB Review Era

November 2015

Lillian Safran Shaked, Adv. Partner E-mail: l illian@shaked-law.com Website: www.shaked-law.com

Electra Building | 98 Yigal Alon St. | Tel Aviv 6789141 | Is rael | Tel: +972-3-372-1114 | Fax: +972-3-372-1115

What is Patent Monetization? The generation of revenue or the attempt to generate revenue

by selling or licensing patents

Can be conducted by operating companies or non-operating companies

Reasons to Buy Patents?

Augment an existing portfolio – without added R&D costs Generate licensing revenue Build a defensive portfolio Attract investors

Reasons to Sell Patents?

Patents are a liability as well as an asset Patents in someone else’s hands may generate more revenues

than in your hands Bring in needed cash Core/non-core patents

What is the “Alice” decision?Alice Corp. v. CLS Bank International 2014 decision of the Supreme Court - considered as a decision on the patentability

of software patents and business method patents Computer-implemented, electronic escrow service used for facilitating financial

transactions based on anticipated future actions Implementation of an “abstract idea” on a computer - not enough to transform

that idea into patentable subject matter Post Alice - patents with abstract or obvious claims or claims subject to prior art

not eligible for patent protection despite the operation through or use of electronic means (such as a computer)

What is the PTAB Review/IPRs Era? The Leahy–Smith America Invents Act (the “AIA”) made significant changes to

the U.S. patent system:o Instituted post-grant opposition proceedings (“reexaminations”)

A reexamination is a process whereby a third party can have a patent reexamined by a patent examiner to verify that the subject matter it claims is patentable

Provides patent challengers an expanded base on which to attack patents Cost for a company to file and prosecute an IPR to a decision by PTAB is

between $200,000 and $500,000

Statistics: Since Alice in 141 Federal Court decisions – 104 patents were found invalid and 4,672 of 6,519

claims were found to be invalid. (http://www.bilskiblog.com/blog/2015/08/alicestorm-summertime-blues-continue.html)

In nearly three years following the first IPR having been filed, 71% of all patent claims reviewed were invalidated by the PTAB and 100% of all CBM claims were invalidated (http://www.uspto.gov/sites/default/files/documents/inter_partes_review_petitions_terminated_to_date%2001%2015%202015.pdf)

From 2012-2014, patent sales (in dollars) dropped by 84%, the number of patents sold dropped by 59% and the average price dropped by 61% (http://patentlyo.com/patent/2015/06/america-invents-trillion.html#_ftn1)

What is Fee Shifting?

On February 5, 2015, Rep. Robert Goodlatte introduced a proposed amendment to the AIA

– Award attorneys’ fees and litigation-related expenses absent finding that “conduct was reasonably justified or that special circumstances make an award unjust.”

Courts already have the authority to penalize parties bringing non-meritorious claims of patent infringement and to compensate those unjustly targeted

In Octane Fitness v. ICON Health & Fitness, the Supreme Court held that district court judges possess broad discretion to award attorneys’ fees in patent infringement litigations

Effects?

First stage - confusion and uncertainty – patent transaction market shuts down

Second stage – patent prices fall drastically, little movement of patents

Third stage – financial players emerge to pick up the pieces, offer both funding for deals, funding for litigation and insurance (fee shifting), patent syndicates emerge

What’s Changed?

Assets PlayersPricingDeal Terms

Assets type of assets (system, hardware, software) more homework and better preparation needed to be done by sellers (claim

charts, internal due diligence) bigger portfolios (more patents, continued prosecution, foreign assets)

Players

larger players (both buyers and sellers) more capital available deal structures – PIPCOs, reverse mergers into shells, SPVs bigger portfolio deals

Pricing

lower up front bigger back-end staggered longer time for payments net rather than gross share

Deal Terms

due diligence document production (declarations) reps and warranties (back-to-back, risk sharing) standing issues (exclusive rights, no reversion assignment) cooperation post-closing (access to inventors) indemnification limitation of liability (from payments to investment)

Timing

longer time to source, diligence, negotiate, close funding in the interim – options cost of capital

How to Succeed?Use consultants, brokers, prosecution counsel, licensing counsel, financing partners:

Understand the market Understand who are your potential buyers/sellers Diligence the assets in advance (both the actual assets and

similar assets) Set reasonable expectations Consider interim financing Have patience

Thank you