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IP Osgoode & Hennick Centre for Business & Law 2010 Conference February 11, 2010

IP Osgoode & Hennick Centre for Business & Law 2010 Conference February 11, 2010. AGENDA. Introduction to McLean Watson & i4i The i4i Story Lessons Learned Q&A. MCLEAN WATSON – THE WORLD OF VC’S. MCLEAN WATSON.

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IP Osgoode & Hennick Centre for Business & Law 2010 Conference February 11, 2010

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  1. IP Osgoode & Hennick Centre for Business & Law 2010 Conference February 11, 2010

  2. AGENDA • Introduction to McLean Watson & i4i • The i4i Story • Lessons Learned • Q&A 2

  3. MCLEAN WATSON – THE WORLD OF VC’S 3

  4. MCLEAN WATSON Tight knit group with shared values and complementary investment styles. 15 year track record of top quartile Venture Capital Investing in North America & Asia. 4 4

  5. MCLEAN WATSON HISTORY • 1820 Trading Company • 1972 School friends • 1987 – 1994 Softimage Financing & IPO • 1994 Sale to Microsoft • 1996 Fund 1 & 1999 Fund 2 • Today $300M AUM, Canada - Singapore 5

  6. LEADERSHIP & INNOVATION 6 6

  7. GROWTH RECORD 7 7

  8. GROWTH RECORD 8 8

  9. Asset Management and Security via Satellite 9

  10. BelAir Networks Integrated Mobile Broadband Network: Wi-Fi, WiMAX and Cellular 10

  11. IT Applied to Geophysics – Underground Snapshot 11

  12. I4I STORY 12

  13. CHAPTER 1 – MEETING MICHEL • Meeting • Competition • Promise & Handshake • i4i’s Office • i4i’s Vision • SGML • XML 13

  14. CHAPTER 2 – R&D/PATENT • 1994 filed for US patent 5,787,449 • Tweed jackets and blackboards • Evangelists 14

  15. CHAPTER 3 – GROWTH & FUTURE • 1998 Patent Issues • “Oracle of unstructured data” • “Overthrowing the Tyrant” • Key Customers - USPTO • 9/11 • White Papers, Green Papers… • What it is used for…pharma, carriers, plane, tanks, financial services, manufacturing • “The Henry Ford of data manufacturing” 15

  16. CHAPTER 3 – GROWTH & FUTURE • NASA • Awards • Articles • Top CTO’s & Founders • Robot • Newbridge 16

  17. CHAPTER 4 – SURVIVAL? • 2002 - massive change in sales pipeline • Internal adjustments • Every second light bulb removed • Refocus on pharma industry • Then more focus...on labels 17

  18. Sent: Tuesday, January 27, 2004 11:24 AM Loudon Owen From: mvulpe [mvulpe@i4i.com] Sent: Tuesday, January 27, 2004 11:24 AM Subject: patent issues with microsoft To be very serious here - MS has filed a patent application in the EU that appears to be what we are doing in x4o and have been for many years - it may also be an infringment on our core patent - the implications are somewhat obvious i would think?? 18

  19. 2004-2006 • Now what? • Crisscross USA • Prepare background information package • RFP to top firms • Find partner/capital • Choose lawyers • Sanity checks (patent litigation friends…) 19

  20. FILED - EASTERN DISTRICT • January March 9, 2007 filed • i4i LP (then law changed with EBay) • “Case always looks best on the first day” • Discoveries • Who – what – where – when – why • Documents • Documents • Documents • Documents (1 million pages?) 20

  21. JUDGE DAVIS • Leonard Davis (judge) • Leonard E. Davis (born 1948 in Fort Worth, Texas) is a district judge for the United States District Court for the Eastern District of Texas.[1] He was nominated by President George W. Bush on January 23, 2002 and was sworn in on May 15, 2002. He previously served as Chief Justice of the Twelfth Court of Appeals of the State of Texas and was a practicing civil trialattorney in East Texas for 23 years prior to becoming a judge. • Judge Davis graduated cum laude and first in his class from Baylor Law School in 1976 where he was Editor-in-Chief of the Baylor Law Review and a member of Baylor's interscholastic moot court and mock trial teams. He received his undergraduate degree in Mathematics from the University of Texas at Arlington in 1970, and his Master of Management Science Degree from Texas Christian University in 1974. He worked as a computer programmer and systems analyst prior to entering law school in 1974.[2] • He has received an American Jurisprudence Award for Excellence in Contracts and Federal Courts. • He is primarily assigned patent lawsuits in the US district court. [3] 21

  22. AND • April 19, 2008 – Markman Hearing (win/lose) • May 11 – 2009 Trial • Team of 30 • McKool Smith (rapid prep b/c illness) • Daily transcripts 22

  23. AND • May 19, 2009 – Jury Instructions • Bankers? • Photos • # witnesses • Canadians in Texas • Experts 23

  24. May 20, 2009 - 1:02 PM From: Loudon Owen [mailto:LOwen@mcleanwatson.com] Sent: Wednesday, May 20, 2009 01:02 PM Central Standard Time To: Thomas L. Crisman Subject: Very urgent I don?t know how you deal with this but there is a major date problem in the transcript of Judge Davis instructions to the jury. On page 139-140 his instruction to the jury says ?here are ways that Microsoft can show that a claim of the ?449 patent is not new ?if the claimed patented method was known or used by other ? before June 14, 2004? This date should be June 14, 1994 24

  25. May 20, 2009 - 2:35 PM From: Thomas L. Crisman [tcrisman@McKoolSmith.com] Sent: Wednesday, May 20, 2009 2:35 PM To: Loudon Owen Subject: RE: We won 200M Tom 25

  26. “Does that mean you’re going to stop shouting at me, Gordon” 26

  27. THE END • July 9, 2009- Post Verdict Motion Hearing • August 11, 2009 – Final Judgment & Permanent Injunction - THE END - 27

  28. Twitter, Conan…Apocalypse Word 28

  29. APPEAL • August 11, 2009 – Final Judgment & Permanent Injunction • August 18, 2009 – MSFT notice of appeal, Emergency stay motion • August 24, 2009 – Amicus Dell, HP • Sept 3, 2009 - Stay granted, WLF amicus • Sept 23, 2009 – Appeal heard in DC • Re-examination at same time • Dec 22, 2009 – Judges Ruling on Appeal 29

  30. AND • Dec 22, 2009 – Judges Ruling on Appeal • Jan 8, 2010 – Petition for rehearing • Going forward…. 30

  31. KEY LESSONS • Lifestyle vs. Economic Decision • Daily Surprises, uncertainties • Reality facing larger opponents • Power of Press, NPE • Why not infringe? • Where are all the Angels? All the Investors? • Business is People • Patent Enforcement is People 31

  32. THE PATENT WORLD 32

  33. MEMO From: CEO To: Board of Directors We believe Giant Corporation International is violating our US patent 7,328,999. We need to take action immediately. We want to sue, but the risks are high and we don’t have internal expertise. Please advise what you authorize and recommend ASAP? Now What Happens? 33

  34. Challenge to Board Member • Describe Patents • Do you know what they cover? • Evidence of Infringement • Claims construction analysis vs. infringers products • Damages Theory • Is the potential return worth the risk • Strategy • Negotiate a license? Litigate? Wait? Ignore? • Funding • Internal? External? Contingency? Funding Expenses? Management Opportunity Cost? • Risks • Validity challenges: What prior art existed at the time? Obviousness? Inequitable conduct? • Non-infringement • Counterclaims from infringers patents • Willingness and ability of management and inventor to testify • Complex patent case decided by non-technical jury • Re-examination • Legal Landscape • Are you current with Supreme Court Decisions, precedents, venues, patent reform 34

  35. Value Maximization - Structural Hurdles • Asymmetry #1 - Rookie mistakes • first time plaintiffs vs. defendants with 100 cases. Defendants capitalize. • Asymmetry #2 - control in lawyers hands • Fee – clear conflicts of interest • Contingency – often misaligned & under funded; wide variance in quality and objectives • Power shift from principals to intermediaries • (Would you ask law firm to manage your sales and marketing, R&D, or finance?) • Asymmetry #3 – large defendant vs. small/mid sized plaintiff • Can turn to advantage IF have capital and expertise • Plaintiffs often run of out capital later in process, when case is strongest & nearest to realization Expertise, Control & Power Asymmetries 35

  36. Unique Dynamics of Patent World • Huge industry, immense value & importance • Complicated & specialized • Lawyers rule - seasoned executives live in mortal fear • Large companies manage hundreds of cases versus most companies that never enter fray (a 100:1 ratio tilts the field, and owners of key patents are often in weak position) • Unrealized patent value. Extensive risk & value arbitrage • Despite industry size, massive holes in services/expertise & capital • Global opportunity - US enforcement model poised to move overseas 36

  37. Industry Players • Patent Aggregators • Intellectual Ventures • RPX • Allied Security Trust • Patent Brokers • IPotential • Intellectual Property Investment Funds • Northwater Intellectual Property Fund • Altitude Capital Management • Patent Licensing/Litigation Companies & Funds • General Patent Corporation • Acacia Technologies • Rembrandt Management • Public companies with patent licensing business models • Hedge Funds • Fortress • Patent Litigators • Contingency Patent Litigators • Few pure contingency firms • IP Merchant Banks • Ocean Tomo • Specialized Consulting & Advisory Service Firms • Invotex 37

  38. Value of a Patent? A very different investment with potential for strong, risk adjusted returns uncorrelated to the capital markets in an inefficient, poorly understood yet very important asset class 38

  39. Q&A – www.i4iLP.com 39

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