1 Selling Your Technology: How to Target Licensees and Create Demand for Your Technology Derek J. Nuhn, B.Sc.E.E Senior Vice President and Chief Operating Officer Semiconductor Insights June

2 Objective Objective Traditional Tech Transfer emphasized hot, new technologies Mature patents and technologies are actually more valuable than untried, untested technologies –Faster payback –Shorter licensing cycle –Broader interest –More strategic applications to licensees Best Practices and Techniques of the most successful technology licensing companies

3 Outline Outline Licensing Industry Trends Why your portfolio is likely more valuable than you think Licensing Best Practices How to find your best patents, how to find the best licensees

4 Our Perspective 1.We are not lawyers Industry and Business Intelligence and Technical Opinion on Patent issues 2. Semiconductor Insights works from a technical perspective to help our clients develop patents, organize their portfolios and prove infringement Largest and oldest firm in this industry – Started in 1989, currently at 120 scientists, engineers, physicists, all with IP experience 3. Our clients are typically electronics and semiconductor firms, $100M – $60B in revenues, and their representing law firms Majority are US, Japan and European based

5 Industry Trends The Philosophy of IP is changing - Patents are not only to facilitate product development, but are also a fundamental business asset themselves Licensing IP is an industry in and of itself –IBM generates $1.3B annually –Texas Instruments generates $800M annually –IP department is becoming a profit center, rather than a cost –Emergence of “Troll” Licensing organizations IP is one of the single largest opportunities for companies to increase strategic business value –Access 3 rd party technology, gain negotiating power –Create barrier to entry for competitors –Influence and direct technology/market directions

6 Industry Trends “IP is the most underutilized, unrecognized asset in technology businesses today” – Ron Epstein, IPotential IP represents a significant business risk –Over 2 Million effective patents today –Patents filed increased from 175K in 1992 to 334K in 2002 The rush to monetize IP is on –Royalties increased from $500M to $100B in the 90’s –Number of suits doubled from 1992 to 2002 –Litigation cost has increased from $1M to $3M/patent “…top performers…do at least one intellectual property deal a month and earn licensing revenues of more that $10,000 annually for each active patent…most companies average less than $1,000” - McKinsey Quarterly

7 Industry Trends Cellphone Industry estimates a minimum of patents apply to each design Laptop 10,000-15,000 patents apply

8 Key Message The Message to Industry is: –Intellectual Property is the key asset or holding of your investment in product development and R&D Time to Patent is the new paradigm, not Time to Market –Companies need IP to function in the industry, to facilitate strategic objectives and for defense, not just for technology development This dramatically broadens the market for licensors

9 How Licensing is done today Licensing of the Past –Defensive in Nature –Used to suppress competition Old School Patent Licensing –“Our pile of patents is bigger than your pile” This will be ignored Blue Sky Technology Licensing –“Isn’t this technology interesting – no, it isn’t in a product yet, but in a few years, with tens of millions of investment $, a predictable technology cycle and a stable economy….” No ROI in 3 years, no interest from VC community

10 How Licensing is done today Licensing Trends There are 2-3 times the number of companies trying to license IP as 3 years ago Large corporations generally ignore first notice without “evidence of use” Difficult for smaller organizations or companies new to licensing to be noticed unless you have an extensive background and reputation in licensing Shotgun approach does not work, you need rifle shots

11 How Licensing is done today Today’s licensing model 1.Define Licensing Strategy –Aligning Licensing to Business Strategy 2.Review the Patent Portfolio –Careful selection and filtering of portfolio for value - supportable, implemented technology 3.Select and Target Licensees –Based on industry trends, portfolio strengths, litigation and licensing activity 4.Develop Evidence of Infringement –Produce a comprehensive package of evidence, demonstrate value 5.Negotiations –Typically 1 to 3% of product revenues 5% of the time, prepare to litigate

12 Assemble the Team Step One – Form Licensing Team and Develop Strategy Business Expertise – understands market dynamics, relationships, direction Technology/IP Expertise – identifies the value of your technology, evaluates portfolio IP Transaction Expertise – knows how to structure a licensing agreement, royalty precedents IP Legal Expertise – knows the legal system, can litigate if negotiations fail

13 Find your assets Step Two – Perform a Thorough Review of your Portfolio –Look for substance, not flash –Older, solid technology patents are much more valuable than new ones –Look for technologies already in use –Look for parallel applications – Sony Playstation example –Huge advantage from a licensees perspective Little incremental investment needed Can be used strategically against competitors, today Justification and ROI for licensee is both a business opportunity and elimination of a potential threat

14 Find your assets …roughly in order of ease of evaluation versus go/no go Common Metrics 1.Core Business/Strategic 2.Previously Licensed 3.Commercial Merit 4.Use in Industry 5.Patent Life Span 6.Strength of Invention 7.Ability to Support Claims 8.Probability of Prior Art 9.Claim Construction Patent Mining System

15 Find your assets - 25% Divest, donate or abandon 0-5% Key patents, high value, enforceable 75% Protect existing business, defensive Typical Portfolio Analysis and Breakdown

16 Mining Patent Portfolios - The key to mining patent portfolios is to get a range of inputs from a diversity of experienced professionals There is no software, no criteria related to citations, # of claims, # of pages, length of patent, brevity of patent, etc. that proves a good patent, but these can be good indicators of where to look. The best practice is to engage professionals who have reviewed a large number of patents, have a broad and active view of the industry, are well versed in the technology and have extensive involvement in licensing campaigns in that technology. There is no substitute for experience. The Critical Element…

17 Find your clients Step Three – Identify and Target Licensees –Target the major players –Research and consider the non-obvious Look for licensing activity – most of which is not disclosed Look for convergence – digital cameras/cellphones Look for strategic customers of major players – can be used to negotiate better supply agreements – hypothetical ATI/Nokia example Look for new entrants –Overview the Patent Landscape of the technology Target 10+ companies to approach, 5-7 to present, 3-4 minimum to bid Be open – let all companies know your timeframe, agenda

18 Profit Center Cost Control Defensive Integrated The IP Value Hierarchy Visionary Copyright © 2003 ICMG All Rights Reserved Accumulate patents “after the fact”, “just in case” Filter new IP for value, cull existing IP Organize, sort IP to find value, start proactive licensing Align IP with Business Strategy, manage IP as an asset, monitor competition Examine technology Trends, IP trends, patent strategically – use the system Courtesy: “Edison in The Boardroom” By Suzanne S. Harrison Julie Davis

19 Sell your technology Step Four – Demonstrate Evidence of Infringement and Develop the Licensing package Build your client an irrefutable business case Put a strong marketing package together to approach the target 1.Emphasize ROI – VC’s look for 3X return in 3 years 2.List potential applications – parallel applications 3.List specific companies of interest – use the carrot and the stick 4.Show Due Diligence on prior art and validity issues 5.Show likely target products and associated revenues 6.Include evidence of infringement

20 What is “Evidence of Infringement”? Independent, 3 rd party evidence of current use of technology in the industry What is NOT Evidence: Datasheet information Marketing information Technical papers Conference presentations

21 You’ve got to take it apart and look at it…. …and when you do, you find the “smoking gun”…

22 Reverse Engineering From actual samples of device – Reconstructed Circuit Diagrams, System Architecture diagrams Device Physical Layout Information No theory, no surmising, no assumptions – actual evidence in real world use –

23 Means for applying a first two-valued binary signal to... A second two-valued binary signal... Use of Reverse Engineering... Reverse Engineering Portfolio Management and Patent Evaluation Licensing Target Assessment Technical Analysis and Patent Infringement Licensing and Litigation Support USP 4,344,005 discloses:  means for applying a first two-valued binary signal to…  a second two-valued binary signal...

24 In Closing… Summary IP is an absolute necessary element of technology businesses today Don’t dismiss your mature patents – potentially more valuable Licensing mature technology patents to Canadian companies gives them great benefits for generating licensing revenues and for strategic negotiations Use reverse engineering to get noticed, accelerate negotiation process and remove risk from licensing

25 Outline For a copy of today’s presentation, Derek J. Nuhn Senior Vice President and Chief Operating Officer Semiconductor Insights Ottawa, Ontario (613)

26 Some of our IP clients Texas Instruments secured a licensing royalty settlement of $US800 Million "Reverse engineering provides the ‘ammunition’ … the technical investigation and documentation provided by SI lets us focus on the target.“ – Motorola “SI is integral to both our defensive and assertive licensing efforts” - Intel Agere verified patent infringement by and subsequently licensed a key competitor Mosaid has been so successful in licensing its patents that licensing is now 60% of their total revenues Average 75 Licensing campaigns / year 300+ Licensing Target Assessments completed Investigate new parts each month Average 75 Licensing campaigns / year 300+ Licensing Target Assessments completed Investigate new parts each month

27 Appendix Appendix Sources of Technical evidence – pros and cons Analytical Techniques applied to semiconductors Examples of Evidence of Infringement

28 Where to Look Sources of Technical Evidence – 4 primary providers Technical Laboratory Service Companies –(Charles) Evans Analytical, Accurel, Materials Analytic –Excellent technical services, cost effective –Watch for: lots of data, no interpretation vis-à-vis patents, missing analytical techniques Clients internal technical support groups –Internal engineering resources, failure analysis labs –Detailed knowledge of design issues –Watch for: narrow view of industry, inexperienced or technical claims interpretation

29 Where to REALLY look… Sources of Technical Evidence continued… Industry Experts –Senior technical people, now consulting –Academic professors, researchers –Great credentials for litigation –Watch for: visibility into “What Is Used in the Real World” Technical IP Analysis Firms –Technical IP interpretation and management of IP –Reverse engineering and analysis expressly for patent claims investigation –Broad view of technology, experienced in what is used where –Extensive knowledge of what can be supported, and what is practical to support

30 Structural Analysis Tools Used: Scanning Electron Microscopy (SEM) Transmission Electron Microscopy (TEM) Scanning Capacitance Microscopy (SCM) Energy Dispersive X-Ray (EDS) Wavelength Dispersive X-Ray (WDX) X-Ray Diffractometry (XRD) Electron Energy Loss Spectroscopy (EELS) Fourier Transform Infrared Spectroscopy (FTIR) Secondary Ion Mass Spectroscopy (SIMS) Spreading Resistance Profile (SRP) Auger Electron Spectroscopy (AES) and much much more Dissection of the package and die to determine Construction methods, Materials composition, Structural design techniques

31 Functional Testing Monitoring of select key signals, both internal and external to determine algorithms used... Techniques Used: Focused Ion Beam (FIB) Voltage Contrast E-Beam Fluorescent Microthermal Imaging Infra-red Optical Microscopy Test Equipment Measurement Microprobing

32 Circuit Extraction Extraction of device circuitry - whole or partial Generation of hierarchical schematics and block diagrams - Viewlogic or Cadence formats - facilitates simulation and net listing System or board level teardown analysis

33 Circuit Extraction From actual samples of device – Reconstructed Circuit Diagrams, System Architecture diagrams Device Physical Layout Information No theory, no surmising, no assumptions – actual evidence in real world use – no arguments

34 Means for applying a first two-valued binary signal to... A second two-valued binary signal... Use of Reverse Engineering... Evidence of Infringement Example Portfolio Management and Patent Evaluation Licensing Target Assessment Technical Analysis and Patent Infringement Licensing and Litigation Support USP 4,344,005 discloses:  means for applying a first two-valued binary signal to…  a second two-valued binary signal...

35 first insulated gate field effect transistor... second insulated gate field effect transistor... Use of Reverse Engineering... Evidence of Infringement Example Portfolio Management and Patent Evaluation Licensing Target Assessment Technical Analysis and Patent Infringement Licensing and Litigation Support USP 4,199,733 discloses:  first insulated gate field effect transistor…  second insulated gate field effect transistor