Jeremy Mekdhansarn 10 May 2010 IEOR 190G Chapter Summary

Chapter 24: Patents on Wall Street Chapter 25: Creating Tomorrow Chapter Summaries

Chapter 24: Patents on Wall Street

The Role of Investment Bankers Strategic Advice Explores corporate strategy, M&A opportunities, and financing options Negotiation Represents client in discussions between potential partnerships or acquisitions Due Diligence Performs research on subject’s industry and operations in order to provide qualitative value Valuation Performs pro-forma analyses to provide quantitative value Deal Structuring Helps structure balance of payment method to optimize capital structure

Why Some Bankers Undervalue IP Circumvention Many bankers maintain the idea that all patents can be avoided in at least the short-term, making value difficult to calculate Lack of Experience Many bankers lack the experience and knowledge of patent law to effectively pitch their worth Abstraction and Priorities CEOs themselves often have a hard time seeing the value in patents, leaving patents low on their list of priorities

IP as a Corporate Asset and Strategic Weapon As firms create new inventions, patents are an offensive and defensive play Moore’s law has caused companies to create new inventions at an unprecedented rate Increase in M&A activity has allowed companies to see the importance of acquiring patents Competition Pace of Innovation Market Dynamics Three key factors are driving the importance of IP to CEOs

General Electric’s Aggressive Patent Strategy Whirlpool and Inglis Nintendo Created high costs for Nintendo to continue using patents Despite technically losing the case, GE still hindered Nintendo’s operations, thereby succeeding Fought case for three years Appealed case numerous times Ultimately lost, but demonstrated it was willing to defend IP aggressively against competitors Aggressive patent strategies can help companies maximize revenue and remain competitiv e

IP and the Role of the Strategic Advisor Determining Value and Maximizing Cash Flows Understanding the True Nature of Patent Provide Insight for Clients Advisors help determine the profit potential of patents and can help companies explore cash flow alternatives (selling, licensing, etc.). They can also help determine the maximum or minimum purchasing price that is fair. By understanding patents in different industries, advisors can help clients by explaining whether competitors have filed to defend the company or act aggressively in the market. This can significantly alter a company’s strategy. This allows strategic advisors to provide better advice for the clients they serve. For many industries, where patents play a large role, neglecting to see the importance of patents can be costly for companies.

IP Value Categories Augmentin g These assets provide new business opportunities for companies that are looking to create new revenue streams. This allows companies to grow and diversify their businesses. Enabling/Fa cilitating This category involves assets that are not absolutely essential to a company’s business to operate, but are still important and help the company. They not cripple other companies to the point of monopolization. Getting/Mu st Have These assets are absolutely critical to an organization. They give the company a competitive advantage, protect, and allow it to thrive in the market. Key example is Coca-cola’s secret ingredient. Not Relevant/Ca sh Value These are assets that a company finds unrelated to its core offering or is not looking to monetize off of. It may be looking to sell or license the patent’s use. Defensive These patents help protect companies from other companies that might file law suits in order to “freeze the market.”

Valuing Patents for Clients The chart indicates qualitative reasons for the price variation of a Norwegian grammar scanner

Cost Benefit Analysis of Various Options Chart performs an analysis of possible dollar outcomes for infringement and purchasing a license

Chapter 25: Creating Tomorrow

Patents and Corporate Strategy Offensive Strategy Defensive Strategy Growth Opportunities Patents Allows firm to gain market share Creates cash flow alternatives such as selling and licensing Allows firm to gain market share Creates cash flow alternatives such as selling and licensing Allows firm to protect operations against competitors Allows firm to deplete competitor cash flows over litigation Allows firm to protect operations against competitors Allows firm to deplete competitor cash flows over litigation Allows firm to freely experiment with new products and ideas

International Investors and Patent Policies The largest companies in the world operate in multiple countries, where different patent laws exist. Each of these companies make numerous acquisitions each year. International investors are constantly looking for companies that can yield the highest return for their investment. Gaining patents internationally makes these companies attractive in the eyes of larger companies and investors

Experts and Intermediaries Company A Company B Company C  Many companies collect patents and create portfolios without true understanding of their value or usefulness  Due to high profile cases including TiVo vs. Dish/Echostar and GE vs. Whirlpool, companies are now beginning to understand their importance  Those with expert knowledge of patent law and intermediaries that can help manage the process will be increasingly valuable  Many companies collect patents and create portfolios without true understanding of their value or usefulness  Due to high profile cases including TiVo vs. Dish/Echostar and GE vs. Whirlpool, companies are now beginning to understand their importance  Those with expert knowledge of patent law and intermediaries that can help manage the process will be increasingly valuable

Countries that Foster Innovation Chart illustrates the percentage of research (papers and citations)

Patents and Corporate Valuations Chart illustrates the percentage of patents for yearly sales. As revenue influences key multiples for valuation, patents play an important role

Positioning and Partnerships Chart illustrates the positioning strategy that firms choose base off their relative patent phases