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1 PATENTS AND THEIR EFFECT ON COMPANY VALUATION Prepared for Silicon Flatirons Telecommunications Program February 25, 2002 by Michael A. DeSanctis, Esq.

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Presentation on theme: "1 PATENTS AND THEIR EFFECT ON COMPANY VALUATION Prepared for Silicon Flatirons Telecommunications Program February 25, 2002 by Michael A. DeSanctis, Esq."— Presentation transcript:

1 1 PATENTS AND THEIR EFFECT ON COMPANY VALUATION Prepared for Silicon Flatirons Telecommunications Program February 25, 2002 by Michael A. DeSanctis, Esq. Blakely Sokoloff Taylor & Zafman LLP 8055 E. Tufts Ave., Suite 1300 Denver, CO (303)

2 2 Engineer’s Dictionary When an engineer says…He/She really means… Developed after years of intensive researchIt was discovered by accident. Preliminary operational tests are inconclusiveIt blew up. Modifications are underway to correct certain problemsIt blew up again. Test results were extremely gratifyingIt works, and are we surprised! Major technological breakthroughBack to the drawing board. Extensive effort is being applied on a fresh approachWe just hired three new guys; to the problemwe'll let them kick it around for a while. The entire concept will have to be alteredThe only guy who understood the project quit.

3 3 Exemplary Patent Events in the DVR Space * Patent Event: 1/20/00 - GemStar sued TiVo for patent infringement Result: 44% drop in TiVo’s stock price within ten days Patent Event: 5/24/01 - TiVo announced receipt of “key” DVR patent Result: TiVo stock soared 127% in the following two days SONICblue stock sunk 11.7% in the following week Patent Event: 12/3/01 - SONICblue announced receipt of “key” DVR patent Result: SONICblue stock rose over 72% in four days TiVo stock dropped over 14% in the next three days * Inspired by an article in Intellectual Property Today™ authored by Craig P. Opperman: “Do Patents Really Make a Difference To Stock Price? (TiVo stock’s patent-induced roller coaster ride)” February, 2002; Vol. 9, No. 2

4 4 Exemplary Patent Events in the DVR Space (cont.) Patent Events: 12/11/01 – TiVo announced issuance of two more important patents 12/11/01 – SONICblue was thought to be in talks with TiVo to license SONICblue patent Result: TiVo stock rose over 17% that trading day SONICblue stock rose 8% that trading day Patent Event: 12/12/01 – SONICblue announced its intention to sue TiVo Result: SONICblue stock dropped 11% in two days TiVo stock dropped over 15% in five days

5 5 TiVo Stock’s Response to the GemStar Litigation

6 6 TiVo Stock’s Response to Announcement of Issuance of its US Patent No. 6,233, %

7 7 SONICblue Stock’s Response to Announcement of Issuance of TiVo’s US Patent No. 6,233, %

8 8 SONICblue Stock’s Response to Announcement of Issuance of its US Patent No. 6,324, %

9 9 TiVo Stock’s Response to Announcement of Issuance of SONICblue’s US Patent No. 6,324, %

10 10 TiVo Stock’s Response to Announcement of Issuance of its US Patent Nos. 6,327,418 and 6,310,886 and Market’s Perception regarding Potential Licensing +17%

11 11 SONICblue Stock’s Response to Announcement of Issuance of TiVo’s ‘418 and ‘886 Patents and Market’s Perception regarding Potential Licensing +8%

12 12 TiVo Stock’s Response to Announcement by SONICblue of its Intention to Sue TiVo for Patent Infringement -15%

13 13 SONICblue Stock’s Response to Announcement of its Intention to Sue TiVo for Patent Infringement -11%

14 14 Patents as Strategic Assets and Competitive Weapons (justification for building a portfolio) By way of cross-licensing, patents may provide access to needed technologies and protect design freedom of the R&D team. Patents may serve as a deterrent against litigation. Patents are a corporate asset considered during corporate valuation and may help position a company for venture capital financing. Patents may be used offensively to strengthen a company’s competitive advantage or to generate revenues. The Market values patents and responds to patent events. The Market values patents and responds to patent events.

15 15 Concluding Thoughts and Practical Advice Don’t try this at home without legal counsel – securities law issues More mature companies are less susceptible to this patent roller coaster The sheer numbers make individual patents less significant Intel has over 5,000 issued US patents Microsoft has close to 2,000 issued US patents Cross-licensing or royalty arrangements already in place Established track record More data for the Market to digest on a daily basis Make informed decisions about the various IP protection mechanisms Many “sophisticated” companies can no longer protect important business methods because they incorrectly assumed they were not patentable Patents are not a substitute for sales, revenues, profits, etc. Design products/services for the end user not for patentability

16 16 Concluding Thoughts and Practical Advice (cont.) Preserve international patent rights by: Filing patent application(s) before any unconstrained use or disclosure of the invention occurs; Putting Non-Disclosure Agreements (NDAs) in place; and Making use of Patent Cooperation Treaty (PCT) applications to defer costs. Establish procedures for pre-publication review of papers, marketing materials, product documentation, etc. Encourage timely submission of invention disclosures. Develop and implement a patent strategy early – don’t wait for the next round of financing. File on key features that provide a competitive advantage and that will be detectable if incorporated into the products/services of competitors. Submit a variety of claim types and include claims of broad, intermediate, and narrow scope.


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