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Is the System Broken? Identifying Good and Bad Behaviors In Licensing – LAIPLA Spring Seminar. Jay P. Kesan , Ph.D., J.D. Professor, University of Illinois at Urbana-Champaign; Patent Attorney; Entrepreneur. Phil Hartstein President at Finjan.

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slide1

Is the System Broken?

Identifying Good and Bad Behaviors In Licensing

– LAIPLA Spring Seminar

slide2
Jay P. Kesan, Ph.D., J.D.Professor, University of Illinois at Urbana-Champaign; Patent Attorney; Entrepreneur

Phil HartsteinPresident at Finjan

David RosmannExecutive Vice President, Acacia Research Group LLC

Michael KallusDirector, Client Development and Acquisitions, RPX Corporation

slide3
Jay P. Kesan, Ph.D., J.D.Professor, University of Illinois at Urbana-Champaign; Patent Attorney; Entrepreneur

Professor Jay P. Kesan's academic interests are in the areas of technology, law, and business. Specifically, his work focuses on patent law, intellectual property, entrepreneurship, cyberlaw, digital government (e-gov), agricultural biotechnology law, and biofuels regulation.

At the University of Illinois, Professor Kesan is appointed in the College of Law, the Institute of Genomic Biology, the Department of Electrical & Computer Engineering, the Information Trust Institute, the Coordinated Science Laboratory, the College of Business, and the Department of Agricultural & Consumer Economics.

He directs the Program in Intellectual Property & Technology Law at the College of Law. At the Institute of Genomic Biology (IGB), he is group leader of the Business, Economics & Law of Genomic Biology (BioBEL) theme, and he directs research on biofuel law & regulation at the Energy Biosciences Institute (EBI).

Professor Kesan continues to be professionally active in the areas of patent litigation and technology entrepreneurship. He was appointed by federal judges to serve as a special master in patent litigations, and has served as a technical and legal expert and/or counsel in patent matters. He also serves on the boards of directors/advisors of start-up technology companies.

phil hartstein president at finjan
Phil HartsteinPresident at Finjan

Phil Hartstein is President of Finjan Holdings Inc..  He oversees the direction and management of current assets and future investments and works directly with the executive management team and Board.

Phil has worked in a number of technology and intellectual property related roles the past 15 years.  He started with a boutique IP law firm, worked as IP counsel for a VC funded startup, spent time in IP consulting and IP brokerage firms, and prior to joining Finjan, spent four years bringing both private and public market capital, expertise, and credibility in licensing and enforcing patent rights on behalf of owners.

Phil holds a BS in industrial technology from California Polytechnic, San Luis Obispo.  He is a regular speaker and participant in industry and trade organizations, and is a named inventor and patent holder with more than two dozen pending and issued patents across a number of disciplines.

michael kallus director client development and acquisitions rpx corporation
Michael KallusDirector, Client Development and Acquisitions, RPX Corporation

Michael Kallus began his career as a judicial clerk for the Honorable Chief Judge C. Roger Vinson in the US District Court for the Northern District of Florida. He went on to private practice with Fish & Richardson’s Boston office and later as a founding member of Confluence Law Partners, focusing on the defense, development and strategic employment of his clients’ intellectual property assets. Prior to RPX, Mr. Kallus litigated complex patent issues in federal courts throughout the US and the ITC, negotiated lucrative technology licenses, reviewed IP portions of billion-dollar mergers and acquisitions, and advised businesses in capitalizing on their intellectual property.

Mr. Kallus is a graduate of the University of Virginia School of Law and the University of California, Berkeley. He is a member of the state bars of California and Massachusetts

david rosmann executive vice president acacia research group llc
David RosmannExecutive Vice President, Acacia Research Group LLC

Mr. Rosmann joined the company in October 2011 as Senior Vice President. He was appointed to Executive Vice President in May 2014.

Mr. Rosmann began his legal career as an attorney with Irell & Manella LLP in the High Technology/intellectual Property Group, where he represented Broadcom on I.P. and litigation matters as an outside attorney from 1996 - 2000. Most recently he was Vice President, Intellectual Property Litigation at Broadcom Corporation from 2000 - 2010.

Mr. Rosmann holds a B.S., Engineering Science and Mechanics/Biomedical Engineering from Iowa State University, a Master of Science Electrical Engineering from the University of Southern California and a J.D. degree from Loyola Law School, Los Angeles.

going beyond types of paes
Going Beyond Types of PAEs

Jay P. Kesan, Ph.D., J.D.

Professor and Workman Research Scholar, University of Illinois at Urbana-Champaign

motivations
Motivations
  • “Suits brought by PAEs have tripled in just the last two years, rising from 29 percent of all infringement suits to 62 percent of all infringement suits.”
    • Colleen V. Chien, Patent Assertion Entities, Presentation to the DOJ/FTC hearing on PAEs
  • “Patent infringement litigation by patent monetization entities has risen dramatically over a remarkably short period of time. One of the most striking results is that in 2012, litigation by patent monetization entities represented a majority of the patent litigation filed in the United States.
    • Robin Feldman, The AIA 500 Expanded: The Effects of Patent Monetization Entities
motivation for this panel
Motivation for this Panel
  • Much of the response against PAEs has attempted to better define the nature of the PAEs involved in patent litigation to understand their incentives and strategies
      • Universities
      • Individual inventors
      • Failed startups
      • Technology development companies
      • Patent holding companies
      • Mass patent aggregators
      • IP subsidiaries of operating company
focusing on types of behaviors employed by paes
Focusing on Types of Behaviors Employed by PAEs
  • How can we facilitate a “liquid” market for patents?
  • Are patents ever likely to be a “commodity”?
  • How can we generate reliable and reproducible valuations for patents?
  • Can we have a service like Zillow for patents?
  • How can we define and develop best practices for patent licensing to advance the creation of a market of patents?
laipla spring seminar june 6 8 2014 phil hartstein president finjan holdings inc

LAIPLA Spring SeminarJune 6 – 8, 2014Phil Hartstein, PresidentFinjan Holdings, Inc.

NASDAQ: FNJN

slide12

Finjan as Technology, Product Producing, Operating Business

  • Broad Portfolio of Patents
    • 40+ Issued and pending patents around the world
    • Patents covering Finjan developed products
    • Fundamental, not “feature,” patents

Top Technology Investors

  • Early Innovator in Software Security
    • Spurred by a challenge to develop a “killer” Java application
    • Founded by ShlomoTouboul, notable security expert
    • Early recognition that inventions needed patent protection
  • Over $65M Invested in R&D
    • 10 Facilities worldwide
    • 150 employees
    • 12 inventors across the patent portfolio

VC’s

Corporate

Network Products Guide – Finjan’s unified Secure Web Gateway announced the winner in the 2009 Product Innovations Web Security category

Finjan's Vital Security Web Appliance 8.4 named WINNER for the Network Datastream Protection Category in eWEEK's Excellence Awards Program

slide13

Finjan’s Evolution as a Technology Company

1997- Finjan Founded on novel, behavior-based security technology

2005 - Finjan completes first license of its patented technology

Negotiated transaction, no litigation required

2009 - Finjan divests its product business, research center, retains its IP

Acquiring company continues to sell Finjan products

2011 (filed 2006) - Finjan wins first patent trial and subsequent appeal at Federal Circuit

Patents found valid and infringed, enhanced damages award from $X million to $4X million

2013 - Finjan’s investors decide on public company path, install new management team

Implements transparency in business dealings while providing liquidity to investors

Intellectual property expertise installed internally to drive strategy, tactics, and growth

2013 - Finjan re-engages security industry through licensing and continued investment

Finjan invests in JVP Cyberfund focused on bringing new security technologies to market

finjan s core values best practices campaign
Finjan’s Core Values & Best Practices Campaign
  • Finjan’s Core Values
  • Invest in, protect and support the broad dissemination of technological advancements, which in turn create rewards for investments in innovation and job creation.
  • Preserve our integrity by consistently being honest, truthful, and transparent in our actions.
  • Show leadership and commitment as credible advocates of IP rights standing up as trustworthy experts in our industry.
  • Build strong relationships through strong communications.
  • Best Practices
  • Ensure focused licensing and enforcement programs pursuing the provider of the patented technology and not its customers, consumers or end users.
  • Conduct reasonable diligence to determine a patent’s enforceability and use with respect to prospective licensees, and make that information available to them.
  • Respect procedural rights and judicial efficiency in the courts and in the prosecution and protection of IP behind the innovation.
  • Be transparent with the intent in each discussion, and articulate the cause and effect scenarios which would prompt a shift in communication and an escalation of each discussion.
  • Provide useful facts to prospective licensees and defendants to foster productive business discussions early and often to aid in informed decision-making.
  • Offer fair value licenses or settlements based on legitimate factors and considerations.
  • Commit to keeping lines of communications open between the patent owner and prospective licensee to preserve a path for the parties to find an amicable solution or resolution for their respective businesses.

“Patent licensing may be the only major industry without a code of conduct or standards of ethical behavior.” ~Marshall Phelps

slide15

Finjan and its Best Practices in Licensing

Finjan’s Innovation and Technology Continue to Drive Economic Change

  • More than 200 years with a patent system as the foundation for a modern economy
  • Commitment to enabling further technology development through licensing and investment

Our Licensing and Enforcement Programs are Defined by Integrity and Transparency

  • The company established Core Values by which it will commit in operating its licensing business

Best Practices in Licensing Encourage Meaningful and Efficient Transactions

  • Seven Best Practices address common stages in licensing, focused on the merits
  • Not addressing specific proposed reforms or reactive to legislative actions
  • No requirement of prospective licensee to acknowledge adhere but

Realities of Licensing

  • Bad behaviors exist on both sides – patent owners and prospective licensees
  • Reforms are focused on categorizing patent owners, should be redirected to behaviors
  • Return the focus to the merits of each case and managing resources judiciously
  • To be credible you have to build an infrastructure to deliver on these commitments

Through these – or other – best practices, we are working to restore credibility to the licensing industry. First, in leading by example and from there advocating for a return to an efficient marketplace.

slide16

Two Distinct Paths to Achieve Fair Value in Licensing

We are one year into our renewed licensing campaign and have several enforcement actions. We are seeing a positive response from the industry, less contentious negotiations, and over time we expect decreased timeline.

Licensing Discussions

Pipeline

  • Initiating a discussion with Licensees on a factual basis
  • Conducting real technical and financial analysis establishes credibility
  • Engaging in a rational discussion has moved us to pricing and terms faster
  • Continued support and interaction on validity and infringement arguments
  • Enables multiple concurrent licensees without escalation to enforcement

Enforcement Actions

Case Timelines

  • Credibility with the Court and Defendants with heightened pleadings
  • Interacting directly with Defendants (not counsel) builds trust
  • Maximizing opportunities to engage in mediation/settlement talks is important
  • Utilizing judicial resources and staying focused on the merits reduces costs
  • Fairness in pricing and recognizing discounted terms earlier will reduce risk
slide18

ACACIARESEARCH

GROUP, LLC

David RosmannExecutive Vice President

NASDAQ: ACTG

A Subsidiary of Acacia Research Corporation

UNLEASHING patent POTENTIAL.

good practices rewarding the idea makers and the world changers
Good PracticesRewarding the Idea Makers and the World Changers

Patent Owners

Products

& Services

Acacia is a leading player in the secondary patent market

  • Most patents are owned by entities that do not make products covered by their patents
  • Acacia partners with patent owners to bridge the gap between invention and production, helping patent owners get paid by licensing their patents to the companies that use them
  • Outsourced IP licensing transactions help promote a secondary market for these patents

ACACIA (Clearinghouse)

good practices financial models
Good Practices - Financial Models

Partnership

Hybrid Partnership

Acquisition Model

Acacia buys 100% of the patents for 100% of the profits

Typical partners:

  • Distressed Corporations
  • Failed Corporations Controlled by VCs

Higher margins with increased upside potential

Typical partners for Acacia:

  • Major corporations
  • Research labs and universities
  • Individual inventors

Protects patent owner from countersuits

High margins with upside leverage

How it works:

  • Up-front capital infusion as an advance on future licensing
  • Acacia receives 100% of return until capital infusion is returned

Objectives:

  • Recover capital infusion in 18-24 months
  • Upon return of capital infusion, net profit revenue split with patent partner begins
  • 3x return of capital in 5 years

Purpose:

  • Increases Acacia’s total addressable market
  • Strong Balance Sheet yields competitive advantage

Acacia

70-100%

40%

Patent Owner

40%

Acacia

Patent

Diligence

Split net

profit 50/50

with patent

owner

License

patents to

corporate users

20%

Law Firm

Legal

0-30%

Pay legal costs

good practices portfolio strength smart phone coverage
Good Practices – Portfolio StrengthSmart Phone Coverage

Silicon Image 2

10 Patents

High Speed Display Interfaces

NSN

74 Patents

2G/3G Power Control, Handover, Coding

Rambus

69 Patents

LED back lighting

Adaptix

205 Patents

4G/4.5G OFDM, Cooperative Diversity

Access

125 Patents

Sync, Apps, User Interface

Silicon Image

138 Patents

High Speed Chip Interconnect

VoiceAge

274 Patents

High Fidelity Voice Codecs

the future of invention ip legislation patent reform is fundamentally good for acacia s business
The Future of Invention: IP LegislationPatent Reform is Fundamentally Good for Acacia’s Business

The Goodlatte Innovation Act Overview

Proposed Reforms

#1 – Reduce abusive litigation, costs and time—Acacia agrees

#2 – Mandatory disclosure of patent holdings for NPEs—Acacia agrees

#3 - Core discovery expenses are born by each party but each party must pay the other for excessive discovery requests—Acacia agrees

#4 – Protect end user—Acacia agrees

#5 – Loser pays—Acacia agrees if mutually applicable

there in no frivolous patent lawsuit crisis 5 27 14 ip law360 article by acacia evp jaime siegel
There In No Frivolous Patent Lawsuit Crisis(5/27/14 IP Law360 Article by Acacia EVP, Jaime Siegel)
slide25

ACACIARESEARCH

GROUP, LLC

NASDAQ: ACTG

A Subsidiary of Acacia Research Corporation

UNLEASHING patent POTENTIAL.

patent valuation
Patent Valuation

June 8, 2014

Michael Kallus, Director, Client Development and Acquisitions

rpx overview
RPX Overview
  • Founded 2008 to manage operating company NPE-related risk
  • Key Features
    • Entirely defensive- does not litigate
    • Purchase patents and acquire broad sub-license rights to manage client risk
    • Syndicated transactions
    • Insurance services
    • Patent quality initiative – IPRs
    • Patent transparency initiatives
  • Corporate Snapshot
    • Publicly-traded company (NASDAQ:RPXC)
    • 178 clients
    • 4,300+ patent rights
    • $800M+ in defensive acquisitions; 523 dismissals
objective due diligence
Objective Due Diligence
  • Technical Analysis
    • Claims
    • Specifications
    • File history
  • Prior Art
    • Identified during triage
    • Internal search
    • Outside firm
    • Identified during prosecution or IPR
    • Provided by RPX client
  • Commercial Analysis
    • Track accused products
    • Understand market shares and associated revenue streams
subjective due diligence
Subjective Due Diligence
  • Case Posture
    • Forum
    • Strength of case
    • Counsel
    • Motions and rulings
  • Existing Licenses
  • Other
    • Indemnities
    • Cross-licenses
    • Damage models
leverage
Leverage
  • Client Network
    • 178 companies with various aligned interests
  • Plaintiff Risk
    • Cash position
    • Expected returns
    • Public market pressures
    • Litigation costs
  • Litigation pressure
    • IPR
    • Claim construction and dispositive motions
deal valuation
Deal Valuation
  • Scope of license
  • Value to clients
  • 66 Litigation in-licenses to date
slide38

Stradling Yocca Carlson & Rauth, P.C.

www.sycr.com

NEWPORT BEACH

RENO

SACRAMENTO

SAN DIEGO

SAN FRANCISCO

SANTA BARBARA

SANTA MONICA