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LES COMMUNITY CONVERSATIONS NOVEMBER 27, 2012 NANOTECHNLOGY COMMITTEE HIGH TECH SECTOR WEBINAR: The Path to Creating, Managing and Extracting Value from.

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Presentation on theme: "LES COMMUNITY CONVERSATIONS NOVEMBER 27, 2012 NANOTECHNLOGY COMMITTEE HIGH TECH SECTOR WEBINAR: The Path to Creating, Managing and Extracting Value from."— Presentation transcript:

1 LES COMMUNITY CONVERSATIONS NOVEMBER 27, 2012 NANOTECHNLOGY COMMITTEE HIGH TECH SECTOR WEBINAR: The Path to Creating, Managing and Extracting Value from IP in Nanotechnology

2 WEBINAR OUTLINE Opening ◦ Erin Murphy, Manager – Chapter Relations, LES Speaker Introductions ◦ Luca Escoffier (Moderator), CEO, Usque ad Sidera, LLC Speaker Presentations ◦ Sarah Rouse, Corporate IP Counsel, Onyx Pharmaceuticals ◦ Ken Epstein, Principal, NewCap Partners, Inc. ◦ Lance Criscuolo, President, Zyvex Technologies ◦ Efrat Kasznik, President, Foresight Valuation Group; Chair, Nanotech Committee, High Tech Sector, LES Audience Q&A 2

3 IP Landscape for Nanotechnology Based Inventions Sarah Rouse Janosik, Ph.D., J.D. ◦ Corporate IP Counsel, Onyx Pharmaceuticals ◦ Registered Patent Attorney  3

4 4 Speaker Presentation: Sarah Rouse Janosik, Ph.D., J.D. Corporate IP Counsel, Onyx Pharmaceuticals 1. IP landscape for nanotechnology-based inventions 2. How is the patenting of nanotechnology inventions different from other fields? 3. What are the major implications of the introduction of the AIA for nanotechnology applicants? 4. What is the best way to perform a nanotechnology due diligence assessment to structure for investment?

5  Nanotechnology is at the forefront of technology innovation across multiple disciplines, with the common scheme being scale.  “Nanophase” is a special state of subdivision implying that particles or atomic clusters have average dimensions smaller than approximately 100 nm (100x10 -9 m). 5 Cascade Blue/SiO 2 Nanoparticle Nanotechnology

6  Nanophase materials frequently exhibit unique properties not observed in their larger bulk phase counterparts such as enhanced magnetic properties, increased structural activity, altered electrical or optical activity, or altered chemical or biological activity.  Nanotechnology-based inventions are currently being used in biomedicine, electronics, information technology, environment and sanitation applications, energy production, lithography, data storage, optics, aerospace applications and molecular robotic manufacturing, among other areas. The global market for nanotechnology-based products is projected to be US $2.41 trillion by 2015.* 6 Nanotechnology *Nanotechnology: A Global Strategic Business Report, Global Industry Analysts, Inc., October 2010.

7 7 IP Landscape for Nanotechnology-Based Inventions  Broad overlapping patent rights granted to nanotechnology-based inventions have resulted in a “patent thicket”.  A “patent thicket” is a situation where unreasonable breadth of patent claims of issued patents increases the potential for patent litigation and makes commercialization difficult or impossible for a new entrant in a particular business sector. –Carbon nanotubes –Dendrimers –Quantum Dots  Many practitioners fear that the patent thicket will hamper research and innovation in nanotechnology.

8 8 Maneuvering through the Nanotechnology Patent Thicket  Cross-licensing –Parties license patent rights among themselves with promise not to sue one another –Viable strategy for late-comers looking to enter saturated nanotechnology field  Patent Pooling -Parties assemble overlapping patent rights into single agreement, with each party taking exclusive or non-exclusive rights to a particular field of use covered by the combined patents -Risk that parties will overvalue own contributions, thereby foreclosing participation by new parties

9 9 How is the Patenting of Nanotechnology Inventions Different from Other Fields?  As many nanotechnology inventions already exist at the macroscale, certain claims to nanotechnology inventions could be deemed anticipated by their larger-scale counterparts. -When drafting the claims of a nanotechnology patent application, the improvement offered by the invention should be emphasized  A mere decrease in size to the nanoscale may be deemed as obvious. -Where the invention is not merely a reduction in size, but rather a solution of a new problem, the claims should focus on the solution

10 10 How is the Patenting of Nanotechnology Inventions Different from Other Fields?  Use of overly-broad or unspecific terminology in nanotechnology applications may result in the rejection of claims for lack of written description or enablement. -When possible, well-known terms of art should be used to describe the invention -Ambiguous or unclear terms should be clearly defined and consistently used in the specification -Characterization techniques (e.g., atomic force microscopy (AFM), powder X-Ray diffraction (PXRD), scanning electron microscopy (SEM), particle size analyzers, zeta potential measurements) and sample preparation should also be clearly described in the specification

11 11 What are the Major Implications of the Introduction of the AIA for Nanotech Applicants?  America Invents Act (“AIA”) went into effect September 16, 2012  Overhaul of US patent system -Patent prosecution -Patent litigation -USPTO post-grant proceedings  Fundamental change in approach to inventorship -Transition from first inventor to invent to first inventor to file -Independent conception of invention by a first filer can result in an awarded patent regardless of whether another invented first  US approach to inventorship now homogeneous with rest of the world

12 12 AIA: Transition from First to Invent to First to File Patent System  Applicable to patent applications with an effective filing date of March 16, 2013 or later  Pressure to file first must be balanced with enablement requirements -Specification of patent application must describe how to make and use the invention in such full, clear, concise and exact terms to enable a person skilled in the technology to carry out the invention without undue experimentation (the ”enablement requirement”) -Enablement is determined as of the filing date of the patent -Nanotechnology commercialization significantly lags development: nontechnology-based inventions often exist on "paper" and have not been fully realized in a laboratory setting

13 What is the Best Way to Perform a Nanotech Due Diligence Assessment to Structure for Investment? 13  Patents = key business assets -Weak patent position can prevent financing -Weak patent position can prevent acquisition -Weak patent position can have negative impact on valuation  A robust patent portfolio is based upon and supports business strategy  At a minimum, the portfolio: -Covers key products/services -Creates barriers to entry -Provides ammunition against competitors

14 Defensive Patent Portfolio Management Strategy 14  Strengthening Patent Protection: -Strategically file for patents in key markets -Refine claim language Make it easy to determine infringement -Fill in gaps in claim coverage Layer protection (e.g., genus, species claims) Review claims with inventors and consider design around possibilities Consider alternative claim-drafting strategies -Consider in-licensing/acquisition of additional IP

15 Offensive Patent Portfolio Management Strategy 15  An understanding of competitive landscape is key -Continuous monitoring efforts -FTO, validity opinions  Blocking competition -New patent filings (anticipate competition) -Old patent filings/new claims (mining existing disclosures)  Complementing the portfolio of a potential acquirer -May held differentiate you from your competitors during acquisition -May help equalize valuation leverage if the potential acquirer holds relevant IP

16 Nanotechnology Commercialization: Industry & Investment Opportunities Ken Epstein ◦ Principal, NewCap Partners, Inc.  16

17 17 Speaker Presentation: Ken Epstein, Principal, NewCap Partners, Inc. 1. What is your experience in developing nanotech products in a large company, like Dow? 2. What is the real potential of the nanotech industry? 3. Is nanotechnology an industry or just another technology? 4. How do investors see this promising field?

18 Nanotechnology Commercial History Background R&D (and even commercial products) from sub 100 nm materials has been going on in both industry and research laboratories since the 1980’s even before it had a name (“Nanotechnology” around 2000) Some successful early nanoparticle commercialization products in the 1980’s and 1990’s include:  A mixture of micro and nano metal catalysts to produce new generation of plastics (resulted in large IP legal battle between Exxon and Dow on the catalyst technologies scope, freedom to operate, and application coverage).  Polymer systems including nanoparticles (<10%) for structural applications (e.g. General Motors used on extended step for handicap vans)  Nanoparticles added to cement to allow extended life to move long distances and pour cement in large cities (Tokyo was one of first cities to use). 11/27/2012Ken Epstein, Principal NewCap Partners18

19 Early Dow Chemical Nanotech Product I have been in Nanotechnology since 1986 when I worked as a venture manager at the Dow Chemical Company- -(Dow group referred to this area as its sub-sub micron particles, solutions or products) First successful commercial Dow nano-product was a sub 100 nanometer 100% tungsten carbide tool (normally use metal like Nickel or Cobalt as binder-WC/Ni or WC/Co) with applications including:  High pressure highly abrasive resistant water jet cutting tools for aerospace (composites)  Replacement of diamond coated metal tools for high speed automated cutting tools  Early color HP inkjet nozzles because some inks are very abrasive IP Coverage-Global:  Patents and trade secrets on manufacturing process (high pressure, very short time-<60 seconds))  Patents and trade secrets covered use of multiple materials (metals, ceramics, combinations)  Patents and trade secrets covered multiple applications  LOST GLOBAL COVERAGE ON ONE KEY PATENT APPLICATION DUE TO SENIOR SCIENTIST PRESENTING DATA AT TECHNOLOGY MEETING 3 DAYS BEFORE OFFICIAL PATENT APPLICATION WAS FILED. ALL PARTS BUSINESS WAS SOLD TO KENNAMETAL IN 1996-KENNAMETAL STILL USING THIS TECHNOLOGY TO MAKE PARTS FOR SPECIALTY TOOLS MARKETS. 11/27/2012Ken Epstein, Principal NewCap Partners19

20 Is Nanotechnology an Industry or a Technology? Nanotech really describes a broad scope of technologies that can service a wide array of different markets and applications so I would say that Nanotechnology is a platform technology Nanotechnology is still a relatively new platform for technology and solution development for markets and industries Typically, it takes more than 20 years to really establish technology in commercial applications Zyvex is an example of a successful small nanotech company that developed applications using nanotechnology to push the commercialization of nanotech solutions. 11/27/2012Ken Epstein, Principal NewCap Partners20

21 Nanotechnology IP Issues There have been billions of dollars spent over last 10 years in nanotech R&D and initial commercialization Nanotech IP area is quite crowded globally with more than 10 governments and a large number of global public companies (e.g. IBM, BASF, Dow, DuPont, Sumitomo, Toray, Defense & aerospace companies, etc.) funding, working on, and filing patents in addition to all the nanotech start-ups The number of nanotech patents globally (e.g. China, Japan, Europe) has increased significantly as these governments fund nanotech institutes for commercialization and scale-up applications The major IP issue for commercialization is “freedom to operate”-slows down commercialization and is an investment obstacle.  Particularly sensitive for IP that does not have global patent protection for applications 11/27/2012Ken Epstein, Principal NewCap Partners21

22 Nanotechnology IP Issues Nanotech IP global strategy becomes one of key components of commercialization strategy if company wants to be successful As most of the audience knows, IP Strategy includes not only patents, but also trade secrets, publishing to protect application use, and trademarks and copyrights.  Unfortunately, most of the people working at the nanotech companies, government labs, and even large corporations, do not understand how to maximize their total IP strategy to help commercialize products Other panelists more qualified than I will address issues and ways to strengthen Nanotech IP strategy. 11/27/2012Ken Epstein, Principal NewCap Partners22

23 Investment Opportunities/Issues for Nanotechnology Investors are more interested in what the nanotechnology will do to help them make money (financial investors) or what it will do to extend use of existing company (strategic investors) system or product that they are selling rather than the technology and IP (hard for technology people to appreciate) Nanotechnology is presently at a stage that it is still a tool or platform for making products or systems work better. The next generation of nanotech breakthroughs will bring disruptive solutions to some market segments. Nanotechnology solutions have been slower to be adopted in most applications in that there is usually new capital needed by customer to introduce the nano-solution either to improve the system or replace a component or subsystem The quickest success for Nano-solutions has been where the product or solution can be dropped into the existing system with minimum capital expenditure or change in system.  There is an IP opportunity for development of nanotech solutions to be able to fit into existing systems with minimum capital expenditures. 11/27/2012Ken Epstein, Principal NewCap Partners23

24 Valuation/Investment Climate for Nanotechnology Investment climate for nanotech companies has been difficult in the last few years  There are still many nanotech companies with technologies still looking for markets  Both corporate and financial investors have changed their appetite for nanotech investments—now looking for solutions or components (e.g. battery) to scale-up and commercialize rather than platform of materials or technologies IP covering applications, products, and solutions rather than just materials and processes to make nano products has become more important to investors in the nanotech space- Freedom to Operate Nanotech groups now should seek investors or corporate partners that understand the market space/potential cost and efficiency benefits where the nanotech solution can be used so that the IP and technology value can be maximized. 11/27/2012Ken Epstein, Principal NewCap Partners24

25 Bringing Nanotech Products to Market: Opportunities & Hurdles Lance Criscuolo ◦ President, Zyvex Technologies  25

26 26 Speaker Presentation: Lance Criscuolo, President, Zyvex Technologies 1. What is the key to your success in commercializing nanotechnology? How is the process different from a large company, like Dow? 2. Why has nanotechnology seem to take so long to materialize in the commercial world, where is it today and what is expected in the future? 3. How difficult is it to have an international business involved in nanotech products and how difficult is to be in compliance with national and international regulations?

27 ‣ What helps our success? ‣ Our willingness to move down the value chain Technology Intermediates End Products ‣ How are we different from Dow or Coning? ‣ We don’t have the resources (time) to wait for technology to be adopted 27 Success and Differentiation Customer Value Line + IP value also increases as you move down the value chain

28 ‣ Why does adoption take so long? ‣ It is the nature of the business Products drive growth ‣ Factors that drive adoption ‣ Supply chain validation ‣ Product adoption cycles ‣ Perception, Hype, and Regulatory ‣ Value 28 Success and Differentiation Growth/ Adoption Graphene

29 Connection to IP ‣ Our position is that IP is significantly more valuable when directly connected to a product IP Value Value Position TechnologyIntermediates End Product 29 IP Connection

30 ‣ How do regulations affect adoption? ‣ Regulations are potential product/industry killers ‣ When you introduce Nano – it gets tougher ‣ Regulations can also be driven by perception ‣ Degree of difficulty goes up significantly when you are dealing with a foreign country 30 Regulatory Climate

31 IP Valuation in Nanotechnology: Challenges and Methodologies Efrat Kasznik ◦ Chair –Nanotechnology Committee, LES High Tech Sector ◦ President, Foresight Valuation Group, LLC ◦ Lecturer, Stanford Graduate School of Business  31

32 Speaker Presentation: Efrat Kasznik, President, Foresight Valuation Group LLC What is your approach to the valuation of IP in an emerging field, like nanotechnology? 2. Is nanotechnology different from other emerging fields? 3. What is the difference between valuation and evaluation of a technology? Would it be more appropriate to perform an evaluation of nanotech IP rather than a quantitative valuation? 4. What role does IP valuation play in supporting technology transfer in the nanotechnology field?

33 General IP Valuation Methods MethodDescriptionAdvantagesDisadvantagesWhen Used Market Based on market transactions involving comparable intangibles Market driven, reflects market prices (supply and demand equilibrium) Comparable transactions are not always available Most desirable, but rarely used (lack of market data) Income Based on future economic utility generated by the intangible (royalties or incremental profits) Straight forward approach, based on observable industry norms (royalty rates) Input factors may be hard to estimate: Future projections, Royalty rates, Market penetration Most Commonly used Cost Based on estimation of the cost to replicate/reproduce the intangible Easy to calculate – based on known factors (time and materials, hourly rates, overhead) No measure of utility or market demand When neither Market nor Income methods are applicable

34 IP Valuation in Emerging Markets Litigation Very HighDamages Award Mergers & Acquisitions Very High Financial Reporting Inter-company transfers Very HighTransfer Pricing (Tax) Spin-Off HighInvestors’ due diligence In-Kind Contributions HighJoint Venture Sell/Buy IP MediumMonetization Licensing /Cross Licensing MediumNegotiation Support R&D Investments MediumInternal Decision/Planning Portfolio Management MediumInternal Decision/Planning Market Assessments MediumInternal Decision/Planning Initial Estimate LowThreshold analysis Emerging Developed Event Scrutiny LevelPurpose of Valuation

35 How is Nanotechnology Different? 35 ◦ Nanotechnology is similar to other emerging fields:  The main challenge is valuing basic research and tech transfer from university to industry ◦ There is no easy way to model cash flows when products are years away  Many speculative assumptions need to be made on future events. ◦ Nanotech differentiator - its interdisciplinary nature  Applications in multiple industries  Understanding where in supply chain revenues are realized is critical to modeling cash flows

36 The Difference Between Valuation and Evaluation of a Technology 36 ◦ An “evaluation” involves a non-quantitative assessment of factors :  Specific to the technology: development, market, regulatory  Specific to the IP: quality of patents  Evaluation is a preliminary phase to commercialization or monetization strategy formation ◦ A “valuation” involves the assignment of a precise dollar value to an IP portfolio  Required in situations involving financial reporting, tax reporting, litigation and other compliance reporting

37 When is it More Appropriate to Perform an Evaluation vs. a Valuation? 37 ◦ It depends on the circumstances of the transaction:  Patent sales - rely primarily on evaluation of the patents and some heuristic (non-formal) valuation  Financial reporting – requires valuation of the fair value of the IP, with no evaluation preceding the analysis ◦ Often we combine a quantitative assessment (the valuation) with a qualitative assessment (the evaluation) when analyzing nanotechnology IP ◦ Valuing Nanotechnology IP may be challenging as the regulatory and market uncertainties make predictions very difficult

38 Role of IP Valuation in Nanotechnology Tech Transfer : A Case Study TECHNOLOGY Information PRODUCT & SERVICES Information MARKET Information FINANCIAL Information Applications: packaging Products : Plastic bottle Unit sales: Bottles Selling Price: $0.06 /bottle Markets: US Unit Sales: 2 bill. bottles Growth Rates: 15% Market Penetration: 5% Royalty rates: 3%, 10 years Discount rates: 15% This analysis is related to the valuation of nano-composite material technology (patents and know-how) for tax purposes by a large US chemical company We applied the relief from royalty method, one of the most common methods for valuing royalty-bearing intangibles This analysis is related to the valuation of nano-composite material technology (patents and know-how) for tax purposes by a large US chemical company We applied the relief from royalty method, one of the most common methods for valuing royalty-bearing intangibles

39 Conclusions Audience Q&A Thank you! 39


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