While building and protecting proprietary technology is an activity all tech companies undertake, companies that succeed in trademarking multiple products also build valuable brands in the process. What many technology leaders don't realize is that their brands actually contribute to profits and with the right investment, can even increase them. Yet maximizing the value and benefit of brands requires knowing how and how much they're driving revenue and profits.

Over the years, the tech companies that have survived in competitive markets have become household names, with brand assets that contribute to their financial performance and valuation. These companies often have two types of valuable brands—their corporate brand name and their product brands—both contributing to performance and value in different ways at different times in the company's evolution. Tech entrepreneurs, managers, and investors gain valuable insight from a brand valuation that quantifies the financial contribution and impact on overall business valuation made by each type of brand asset.

Brand Valuation Basics
Brand assets can include names, symbols, signs, logos, domain names, designs, or any other feature that customers associate distinctly with your business or with your products. Brand value, according to the Marketing Accountability Standards Board, is a key measure of how much your marketing investments will contribute to financial performance.¹

A brand valuation exercise can identify the types of economic benefits brand assets provide for the company, such as creating a barrier for competitors to enter the market, achieving optimal pricing, increasing sales and profit margins, or producing income in the form of licensing agreements and market extensions. Also, brand valuation can help answer other strategic questions, including:

• Is our brand doing better than our competitor's brand? Why?
• What benefits might be achieved if we were to position the company's brand as socially responsible?
• Will our investment in branding activities yield a return? If so, how much?

There are three approaches to brand valuation: cost, market, and income. The cost approach measures the cost to replace previous investments and resulting brand awareness but does not address more strategic questions. The market approach reviews valuation indications from transactions involving similar assets but best serves as a benchmark rather than an indication of the financial contribution made by a company's own brands. The income approach quantifies the present value of future economic benefits received from ownership of a brand/business, addressing the key questions asked by many entrepreneurs, managers, and investors. A key component of the income approach is quantifying the portion of expected profits that will be contributed by each of the corporate brand and product brands.

The Link Between Brand Assets and Profitability
As the income approach to brand valuation will best address strategic questions for tech entrepreneurs, the key to an informative brand valuation exercise is to quantify the portion of future profits contributed specifically by corporate and product brands using profit apportionment, which is the process of calculating the portion of financial performance derived from the use of an asset. This profit apportionment exercise involves:

• Identifying the key assets and resources the company will use to design, develop, market, sell, and distribute its products and services. This step involves a review of operations and the balance sheet to identify what assets and resources exist and which will be relied upon, including all tangible and intangible assets, technology assets, trade secrets, and key relationships. This step alone often provides a useful understanding of the company's key assets.
• Forecasting future financial performance for each source of revenue. Most tech companies will develop a portfolio of products and services, each with different growth expectations and levels of financial performance (different margins and investment requirements). As each revenue source may rely on brand assets in different ways, the brand valuation exercise incorporates a forecast of financial performance at the product level. This step can provide a more detailed outlook for the company's future performance than business-level forecasting.
• Assessing and quantifying the contribution of the identified key assets to the performance of each revenue source. This step involves addressing a collection of questions developed to identify the relative contribution made by each asset to each revenue source. For brand valuation, the apportionment process determines the portion of financial performance derived from use of brands, with an emphasis on drivers of product demand, product marketing, comparable offerings, financial performance, and the contribution of other assets.

Unlike the cost and market valuation approaches, the income approach looks at the present value of future benefits and actually breaks out the profit that can be attributed to both types of the company's brand assets. In the tech industry, where corporate brands are often phased out after a company is acquired and product brands may have short lifespans, this approach is superior for its specificity and its ability to address key strategic questions.

After completing the profit apportionment exercise, the brand owner has collected a great deal of information about the company, its revenue sources, and brand contribution, including product line relative performance, website analytics, social media analysis, brand score, key asset identification and more. These analyses can prove as informative as the actual dollar amount valuation.

The Role of the Product Lifecycle
There are several factors unique to undertaking a brand valuation exercise for technology companies, and most of them involve the timing considerations inherent to the product lifecycle. Brand assets are mostly intangible assets. Intangible assets and the products that use them have lifespans, and while a company can expect perpetual growth, it cannot expect the same of its brand assets. Brands often contribute to financial performance differently throughout the product lifecycle and many brands will be phased out over time.
The corporate brand may outlive product brands and other intangibles such as patents and intellectual properties (IP). So, in conducting profit apportionment for brand valuation, it's important to consider the relationship between the product and the overall business, and how brand assets interact with other IP and proprietary resources, as well as understand how product performance will grow, peak, and decline. Developing a reasonable outlook for product lifecycles and the duration of brand use will factor greatly in the apportionment exercise and the valuation calculations.

Contribution of IP Over Time

Consider the common example of companies with multiple product brands. Some product brands incorporate the corporate brand (e.g., Apple Watch and Apple TV) while other products do not (e.g., iPad and iPhone). Customers, stakeholders, and business partners recognize the company name, while many product brands change and evolve over time. Each of the corporate and product brands contribute to product-level financial performance, but some products benefit from the contribution made by an additional association with the corporate brand. Brand use will evolve over time, and a brand valuation needs to consider how and when the brand assets will contribute to financial performance.

A brand valuation provides information to evaluate many strategic decisions. For many tech companies, their brands will be a value driver for many years, but brand investments need to complement technology development, innovation, and product creation. A brand valuation study can help identify the brand assets driving revenue as well as forecast when value will peak, as well as the relative contribution of technology and brand IP, helping tech company managers achieve economic benefits from all the IP in their portfolios.

Author Bio
Brian Buss provides intellectual property valuations for clients in a wide range of industries. Brian graduated from Claremont McKenna College and earned an MBA from San Diego State University. Brian is a Chartered Financial Analyst (CFA) and Certified Patent Valuation Analyst (CPVA). Prior to launching the intellectual property firm Nevium, Brian worked at San Diego-based consulting firms, a technology start-up, Westpac Institutional Bank, and the Financial Advisory Services group of Deloitte & Touche in both New Zealand and San Francisco.

1 Marketing Accountability Standards Board (www.themasb.org), Brand Investment & Valuation (BIV) What is Known and More, August 2013.

By Jason Sytsma, Chapter Communications Chair

On Monday, April 29, 2019, Shuttleworth & Ingersoll, PLC and the University of Iowa Research Foundation sponsored a meeting of the Iowa Chapter of the Licensing Executive Society and hosted Shawn Fox and Alex Brandon of Sikich, LLC to discuss Intellectual Property Valuation and Royalty Audits. The experts led a discussion, Q&A, and case studies highlighting the purposes, standards, and methodologies of valuing IP, as well as practical considerations for structuring licensing agreements and auditing royalty payments. Twenty-three people attended the event, located at Shuttleworth & Ingersoll’s Coralville, Iowa office. 

LES Iowa Chapter leaders and speakers.

LES Montreal and the IP-Forum—Quebec (FORPIQ 2019)

By Martin Couillard, Advisor at the Research and Knowledge Transfer Office of HEC Montréal

On May 1, 2019, the LES Montreal chapter was a proud supporter of FORPIQ (International Intellectual Property Forum—Quebec), where more than 150 people were registered. FORPIQ is a non-profit organization whose purpose is to increase the level of knowledge of innovative Canadian companies and their advisers with respect to IP assets. Therefore, FORPIQ is “THE rendezvous” of the innovation and intellectual property community.

This year, the theme of this 10th edition of FORPIQ was: “Navigating in an era where open innovation and intellectual property intertwine” (https://www.forpiq.com/). We have explored how IP and open innovation can go hand in hand to help businesses and research collaboration.

The event opened with very interesting insights from our honorary president Carl Blanchet—Director of Innovation at Cascades, who talked about centralized innovation function and interaction of different business units, R&D and innovation committee at Cascades.
Then, high level speakers from different horizons, including experts from Tangible IP, CCM Hockey, INO, Hydro-Québec, FBI, Arche Innovation, and many more came to share their knowledge with the audience and propose best practices on several topics like freedom to operate, Co-IP, trade secrets, IP in data/software, R&D funding and management of an IP portfolio.

Worth mentioning, is an inspiring keynote presentation given by Nitiana Mann, Supervisory Special Agent at the Federal Bureau of Investigation (FBI), on how to safeguard trade secrets for companies and startups alike.

During the afternoon, the participants could participate in four different interactive workshops:

• This session started with a panel on IP in data/software, where the brand new Montreal Data Licence Montreal Data License and its License Generator was presented for the first time in public. This license generator (available at montrealdatalicense.com) is a user-friendly tool for clearer language in data licensing in AI and ML.
  
• Programs for fuelling innovation were presented, with NSERC’s first public presentation of their new Alliance program, Mitacs Canada, Innovation Canada, Prompt Innov, along with Quebec Innove.
  
• In a sprint design workshop, we propelled ourselves into 2040 with a Re-innovate workshop (https://re-innovate.ca/) on the role of the future of the Canadian Space Agency and on the issues related to the exploitation of satellite data by SMEs.
  
• Monetizing IP in a business context for financing and acquisition was another topic.

Before the cocktail, we had the pleasure of attending the closing conference given by Noah Redler, founder and CEO of Arche Innovation, where we revisited the past, learn about the current situation and discover the future of IP.

This conference explored the recent evolution of IP and the manner in which the startup culture, and the rise of open innovation, may transform IP in the era of the digital economy. This has also set the stage for the next edition of FORPIQ, in which the LES Montreal chapter will actively participate once again. We look forward to seeing you in Montreal soon.

Quotes from the day:
“Intellectual property in Canada is more of a recreational sport compared to in the United States, where it is a contact sport.”
— Louis Carbonneau of Tangible IP
“Better to speak of litigation risk reduction than referring to ‘freedom to operate.’ ”      
— Pierre Cantin, CCM Hockey
“Your mobile phone is likely covered by at least one battery-related patent owned by Hydro-Quebec.”
— Karim Zhagib, Director General, Center of Excellence, ETSE, Hydro-Québec
“IP strategy is about securing the market (not about patents or other specific forms of protection), and presents a barrier to entry to competitors at specific points in the value chain.”
— Antoine Bellemare, Fonds Innov-Export

Attendees at the IP-Forum in Quebec.

LES Toronto World IP Day Event

By Phil Goldbach, Past Chapter Chair

The Toronto LES Chapter annually hosts an engaging and lively celebration of World IP Day. As Toronto continues to draw attention from global technology companies for its expertise in AI and therapeutics, the chapter uses the World IP Day event to remind its community that technology patents are only one type of IP.

In keeping with tradition, this year’s event held on April 25 featured invited speakers, Jacqueline Vong and Nicole Schneiderjohn, co-founders of Playology International, a leading strategic consultancy focusing on international licensing and merchandising of kids’ media products. They spoke about their first-hand experiences bringing successful children’s entertainment brands to market in China and North America. They also addressed the growth of content adopters in Asia and the content generators looking to engage in the Canadian market. Doing business in China with its huge market potential came up. The global market dynamics for media distribution channels are changing rapidly. Both culture and children as influencers play a key role. Paul Jones, whose firm helps North American companies do business in China said, “Since China has the largest population of any country in the world, it’s good to have a discussion of the improvement in IP protection and enforcement as part of a World IP Day event.”

Among the 35 or so people in attendance was a diverse group of professionals from law firms, innovative companies, academia and government. Indeed, the crowd was highly engaged throughout the talk, which was followed by a lively Q&A session. Jacqueline Vong and Nicole Schneiderjohn commented, “It was an honor to celebrate World IP day with LES and all the IP experts in attendance. We were happy that we had an engaged audience and could share our collective experience in children’s entertainment, kids content, China and even a Baby Shark sing-a-long.”

The World IP Day social has quickly become one of the cornerstone events in LES Toronto’s annual calendar. According to Toronto Chapter Chair, Karen Temple, “bringing together business and legal for a practical discussion of how businesses monetize IP is always valuable.”

As is typical for the Toronto chapter’s social events, the event went well past its scheduled end time. LES Toronto’s leadership team are already looking forward to celebrating World IP Day 2020.

LES Toronto leaders and organizers: Karen Temple (left), Ekaterina Logunov, Phil Goldbach, Robert Tremblay and Thanh Vuong.

LES Silicon Valley Chapter
Annual Conference—5G & IP—Are You Ready?

By Martha Casey

On April 17th, the Silicon Valley Chapter celebrated its 19th successful year with an all-day annual conference, “5G & IP—Are You Ready?” Speakers and panelists representing various companies and academia including Qualcomm, Ericsson, IP Checkups, Nokia, Samsung, and representative venture capitalists, created an educational and informative program on all aspects of the long-awaited technology.  Culminating the conference, Tom Klitgaard, former SVP/General Counsel, SEGA of America and Tandem Computers, provided a Chinese perspective with his presentation, “5G and Huawei: Business & National Security Issues.” Hosted by Oracle at its world headquarters in Redwood City, almost 100 attendees were engaged until the very end of the conference. With 10 meetings a year, the SV Chapter attracts attendees from several states in addition to California’s Silicon Valley.

The conference program addressed:

• What is 5G and why does it matter?
  
• Who are the 5G players in semiconductors, handsets, IoT, and other affected markets?
  
• What are the key new enterprises and consumer-facing applications that 5G enables?
  
• What does the 5G patent landscape look like?
  
• What are the licensing and other partnering models for 5G, and what are their business and IP implications? 

Sponsors included: Allied Security Trust (lunch sponsor), Dolcera, Finjan Holdings, Inc., IP Checkups, Inc., IP Value Management, Inc., and iRunway/UnitedLex.

Panelists and attendees at the Silicon Valley Chapter Annual Conference.

LES Colorado Chapter

Anastasia Martin-Wegryn (left), Arthur Nutter, Tim Bullock, Adam Gianola, Nicoletta Kennedy, Sara Bradford, Carrie Hafeman, and not pictured, Solange Nutter.

LES Colorado hosted this group for a lively discussion led by Nicoletta Kennedy titled “Tips on Trade Secret Protection” for licensors and licensees. Held on June 5 in Denver at the offices of Kilpatrick Townsend & Stockton LLP, Anastasia Martin-Wegryn (co-chair) organized the event. Art Nutter (co-chair) commented, “It’s great to see the Colorado chapter gaining traction again. Thanks to all the recent attendees. Spread the word!”

Two relatively new LES members—Arpi Siyahian and David J. Powsner—are co-chairing the program committee for the 2019 annual meeting coming up this October in Phoenix. The meeting is expected to attract at least 600—all there to learn, network, and enjoy the beautiful Desert Ridge Resort and Spa.

By Meredith Holmes

Arpi Siyahian, Ph.D. joined LES five years ago. Since 2014, she has been technology manager of the chemistry/biochemistry/chemical engineering portfolios at NUtech Ventures, the IP and technology commercialization unit of the University of Nebraska-Lincoln (UNL). Of Armenian descent and raised in Iraq, Dr. Siyahian moved with her family to California when she was 14. While doing postdoctoral work on congenital heart disease at Stanford University School of Medicine, she began to consider a career in tech transfer. Dr. Siyahian also completed the Stanford Ignite program at the Stanford Graduate School of Business. She moved to Lincoln to work at NUtech, with her husband who works at UNL.

Always ready to conquer new areas of knowledge, Dr. Siyahian is currently working on a film project with a UNL faculty member. She said, “I’ve spent my entire career in the life sciences space, thus the world of IP licensing in the film space is new and exciting for me.” Colleagues at NUtech encouraged her to join LES and to attend the annual meeting to learn about the IP field. “I attended my first LES meeting in 2014 and keep coming back to network and learn more. I love how collegial and welcoming LES members are, and I’m very thankful for the relationships that I’ve built over the years,” she said.

Dr. Siyahian is enthusiastic about the speakers and panelists she is helping to line up for the annual meeting. “We have particularly outstanding keynote speakers—Makan Delrahim, Assistant Attorney General, Antitrust Division of the U.S. Department of Justice; Shaloo Garg, Managing Director, Microsoft for Startups and a Champion of Innovation at UN Women; and Vin Cerf, one of the fathers of the internet and Chief Evangelist at Google. We have a great set of Spotlight Plenary panels designed for cross-sector appeal, and of course, many excellent workshops of interest to licensing and IP professionals,” she said.

Spending time with her two-year-old daughter and going to law school part-time claim most of Dr. Siyahian’s time outside work, but she enjoys baking and gardening, and has always loved books and literature. She reads widely in Armenian, Arabic, and English.

David J. Powsner is a partner the IP department of the Boston law firm, Nutter, McClennen & Fish. He is sought after for his extensive knowledge of IP law, grasp of technology, and practical understanding of patent, copyright, trade secret, trademark, and licensing issues. Powsner has a B.S. in physics from MIT and a J.D. from Case Western Reserve University School of Law. He has represented many companies and a dizzying array of products: laser eye surgery control systems, lotteries and gaming, machine vision, industrial cleaning services, and geophysical prospecting, to name a few. Powsner coaches start-ups and is active with Boston-area angel investor groups. He also founded the MIT Enterprise Forum’s Software Entrepreneurship SIG.

David Powsner has been an LES member for just three years, but has been very active in several areas. He is involved in the Computing and Cloud Services Subcommittee of LES’s High Tech Sector and helps plan webinars and organize panel sessions on artificial intelligence and the law and on fund-raising for startups.

He is pleased with the progress being made on planning the annual meeting. “It’s shaping up to be another content-rich (and fun!) program,” he says. Powsner and several others are working with Ian DiBernardo and Eleanor Nelson to nail down keynote speakers and to finalize panels. He says, “One thing that we hope members find helpful is the organization of this year’s program along content tracks, some of which have catchy names, like ‘Long Arm of the Law’ for sessions that focus on legal issues; ‘Let Me Count the Ways,’ for those on valuation and ‘Outside Your Wheelhouse,’ for sessions intended to help members expand their overall knowledge base in the licensing realm. These are just a few some examples, of the more than 30 sessions we have planned.”

Powsner’s greatest current interest, outside of work and family, is a podcast he produces called “Failure—the Podcast.” He describes it as “…a series of light, but substantive discussions on the topic of failure and lessons that can be learned from it. The premise of the podcast is that guests who have failed and who can reflect on it are likely to tell more informative stories.” He co-hosts the podcast with a consultant from JD Power, and a prominent Boston-area angel investor. Most guests—though not all—are drawn from entrepreneurial and investing communities. The podcast is on the web (https://failure-thepodcast.com) and in iTunes (https://fail.mobi/itunes).

Leisure activities are not Powsner’s strong suit. He observes, “I wish I could say I relax by climbing mountains, surfing, or saving rain forests, but I don’t do any of those things. When I’m not at work, I’m either with my family or stuck in Boston traffic listening to other peoples’ podcasts.”

The Licensing Executives Society is known as a premier force in the IP, licensing and intellectual capital community and this year’s Annual Meeting is delivering on its reputation for providing quality programming, high-level networking and gathering a diverse group of thought leaders in the industry. Each day of the event, hosted at the picturesque JW Marriott Desert Ridge Resort & Spa in Phoenix, includes an address from an industry influencer.

The first powerful plenary will take place on Monday, October 21st when Assistant Attorney General Makan Delrahim will leverage his vast experiences in antitrust, legal policy, and intellectual property to discuss the importance of competition in business, foreign commerce and the current efforts of the Department of Justice Antitrust Division. His time as the Deputy Assistant to the President and Deputy White House Counsel, as well as service on the Attorney General’s task force on Intellectual Property give him a unique perspective on how the evolving global economy will continue to influence the management of intellectual capital and ongoing legislation. Attendees of varying industry experience and sectors can gain valuable insight from understanding our government’s involvement in the Intellectual Capital community. The theme of the intersection of innovation and legislation will be continued throughout the meeting.

The innovation of startups is the focus and charge of Shaloo Garg, Managing Director, Microsoft for Startups. This “Champion of Innovation” understands the importance of intellectual capital, especially as it relates to the commercialization of revenue for start-up businesses across the industry spectrum. Her experience at Fortune 500 technology companies like Oracle and Microsoft informs her with the insight on how startups, and those who support them, can leverage their intellectual assets to realize the revenue opportunities they have before them. Ms. Garg’s work with Microsoft and UN Women, creating virtual innovation labs for digital literacy initiatives, impacts a wide range of constituents, from the young girls in developing countries who are the direct beneficiaries of the labs, to the corporate and community entities that contribute to the overall evolution of technology across the world. Ms. Garg will share her experiences in a captivating keynote at the Tuesday luncheon, October 22nd.

Some might say that the Annual Meeting closing plenary saves the best for last as a “Father of the Internet” addresses LES. Wednesday morning, Vice President and Chief Internet Evangelist for Google, Vinton Cerf will share his vast knowledge of being a pioneer of innovation, and the importance of harnessing intellectual property to change the landscape of communications and information technology. Widely respected and honored for his ground-breaking work to bring our world closer through the founding and development of the Internet, Mr. Cerf has received presidential honors (U.S. National Medal of Technology from President Bill Clinton and Presidential Medal of Freedom from President George W. Bush), Industry and Educational Awards (Stanford Engineering School “Hero”; ACM Turing Award aka “Nobel Prize of Computer Science”; Lifetime Webby Award; and Lifetime Achievement Award—Oxford Internet Institute), as well as several domestic and international honorary doctorate degrees. The final morning of the Annual Meeting promises to be enlightening and informative when this “Most Intriguing Person” (People Magazine, 1994), and technology pioneer takes the stage.

The caliber of these speakers is just the tip of the iceberg of the quality of educational programming in store for you when you attend this year’s LES Annual Meeting. The diverse tracks, topics, and speakers will likely provide a new level of appreciation for intellectual capital management and some new contacts to leverage in building your professional network. Your registration today ensures you don’t miss the ultimate opportunity to connect with and be inspired by IP, licensing and the intellectual capital community.

This is your opportunity to nominate a licensing deal for the Deal of Distinction Award. Consider the criteria below and submit your information:

1. The Award may be granted to a representative from each party of the selected deal wherein the transaction was announced in the past year and had a significant licensing component.
   
2. Wherein further at least one party to the selected deal is an organization based in territories of LES (U.S. or Canada).
   
3. All types of licensing and technology transfer subject matter will be considered, and the selection criteria will include:
   • Creative solution to the business issues,
   • Novel structure for terms, and/or,
   • A deal that is seen as a “seismic event” and signals a major change for the art of licensing in your Industry Sector.
     (Other qualifications, such as LES membership, will be vetted by the DDA Awards Subcommittee.)

The award will be presented at the LES 2019 Annual Meeting in Phoenix, October 20-23. 

For a list of past Deal of Distinction award winners, please visit LES Deals of Distinction.

Contact sectors@les.org with questions or to learn more about nominating a deal.

Results of the 2018 Global Life Sciences (LSS) Royalty Rates and Deal Terms survey—the sixth edition for this sector—debuted on May 9, 2019. A collaboration of LES and LESI, the survey was global in scope and looked at royalty rates and deal terms conducted in the last four years. Data collection occurred between August and October, 2018. The survey targeted LES and LESI Life Sciences Sector members in biotechnology, pharmaceuticals, diagnostics, and drug delivery.

A webinar on the survey report was moderated by Dana Matzen, Chair-Elect of the LES Life Sciences Sector. The presenters—all members of the survey core committee—were Beth Gildea, co-chairperson, of GE Healthcare; Arpi Siyahian, survey instrument sub-committee, of NUtech Ventures; and Sean Sheridan, promotion/recruitment sub-committee and analysis sub-committee, of Charles River Associates. Vault Consulting, a survey research firm near Washington, D.C., helped committee members with the survey.

Profile of Responses

Beth Gildea opened the survey webinar with an overview of the data and participants. Of 178 deals submitted, 101 were complete and qualified for analysis, see chart for Organization Type. Survey respondents represented 10 of the 31 LESI societies. While the size of organizations reporting deals varied greatly, the majority were organizations with annual pharmaceutical sales of zero to $100 million.

There was a marked change from 2016 in the global distribution of respondents. In the 2016 survey, 87 percent of respondents were from LES, and 13 percent from LESI. However, in 2018, 60 percent of survey respondents were from LESI, while 40 percent were from LES.

• new chemical entity (32 percent);
• platform (24 percent);
• drug delivery (8 percent); and
• other (19 percent).

Royalty Rate and Deal Terms

Arpi Siyahian’s presentation followed with an analysis of royalties, see chart on Page 3 for Royalty Structure. Among tiered deals, the most common was a three-tiered structure. Most deals in both flat (48) and tiered (19) categories were based on net sales.

Comparing data from past surveys revealed a notable increase in royalty rates for assets that have reached the proof of concept (POC) stage. Between 2009 and 2018, the average fixed royalty rate for the earliest stage products was about 5 percent, while for products that had passed POC, it was 13.3 percent. The 2018 survey shows that early-stage assets in infectious diseases had the highest royalty rates, with a range of 2 to 10 percent, a median of 5 percent, and an average of 5.3 percent. While 75 percent of the deals in the 2018 survey had royalty rates of less than 4 percent, when this figure is compared to deal data in previous surveys, no trend of increasing or decreasing royalty rates can be seen. Looking at combined survey data, the higher the peak sales potential, the greater the share of deals with a tiered royalty structure. Combined survey data also show that royalties increase as products mature through the pre-clinical, pre-POC, and post-POC stages.

Approaches to Valuation

Sean Sheridan made the final presentation, discussing valuation methods. Of the 101 surveys analyzed, 55 provided financial information, and 55 percent were financially modelled. That is, respondents answered “yes” to the question, “As part of the deal process, did you (or someone at your company) financially model the deal?” The 2018 survey shows a change in awareness of financial modeling of deal value. The percentage of “Yes” answers were greater than in 2016, 2014, and 2009, while “Not applicable/don’t know” responses decreased. While some valuation methods (IRR, multiples, and EFR) have not always been included as options on the survey, data from 2009 to 2018 show that use of all types of valuation methods, except comparables, decreased. Valuation methods can be found in the chart below. These statistics represent a dramatic change from the 2016 survey: a 127 percent increase in the use of comparable valuation, and a 59 percent decrease in the use of NPV. 

There were some differences in how organizations valued the potential of financing components. Among both academic and biotech and pharmaceutical organizations upfront payments and development milestones were most prevalent. For compound deals, upfront payments were the most frequent. Valuation of deal terms also differed by company size: Deals between large companies (more than $500 million in sales) involve more frequent and higher upfront payments.

The full report of the 2018 Global Life Sciences Royalty Rates and Deal Terms survey is available to LES members at www.lesusacanada.org/page/royaltyrates.

By Jessie Hennion

Q&A with David J. Kappos
Partner, Cravath, Swaine & Moore, and Former Director of the USPTO

LES: You delivered the keynote titled “Behavioral Issues in Licensing of SEPs and other IP—Defining Acceptable and Best Practices through Voluntary Standards.” In a few short sentences, describe the presentation’s focus.
Kappos: This presentation tried to do something that I haven’t seen done before. I explored the behavioral issues involved in negotiating IP licenses, including licenses for standard-essential patents (SEPs). Issues included hold-out by licensees, hold-up by licensors, global royalties, provision of infringement proof-packages and timeliness of responses, among others. The idea was to synthesize practices that we are aware of that could be characterized as acceptable practices or, in some cases, even best practices, that licensors and licensees of SEPs can employ to reach an agreement. These best practices could be the beginning of a framework that can guide participants on all sides of IP licensing transactions. It’s something I believe is sorely needed.

LES: Can you provide some examples of such acceptable or best practices, for both the licensor and licensee?
Kappos: Of course. An acceptable practice or a best practice as a licensor would be a requirement for the licensor to identify, early in the negotiations, the standard that’s implicated, its patents that are involved, and what about the licensee’s activity has informed the patent holder that the licensee is implementing the standard and even the patent. Another best practice for the licensor might be to include in its licensing approach a document that explains how one or more of its patent claims reads on the standard that it believes the prospective licensee is implementing.

A requirement placed on the licensee would be that once it has received that information, the licensee would be required to respond with any counter-arguments that it has, such as that it is not implementing the standard or not implementing a particular part of the standard. Or, the licensee could respond that the patent is invalid and provide the basis for that assertion. If the basis is that the invention is not novel or that it is anticipated or obvious given the prior art, then the prior art should be identified, along with how the prior art invalidates the claims and which claims those are. The licensee could also believe that none of these apply. The response by the licensee should be provided within a reasonable period of time, generally three months or less.

LES: What are the advantages of defining these acceptable or best practices in advance? And the opposite question: what happens if you don’t?
Kappos: I’ll start with the second question. If you don’t define acceptable practices in advance, you get the world as we know it, which is a world in which agreement can’t be reached, resulting in excessive litigation and disputes that wind up having to get resolved by many courts worldwide. We’re living in a pretty unpleasant place in this regard.
But if we make significant improvements, we will get standards set more quickly; we will get products in the marketplace more efficiently; and we will get innovators who are paid for their innovations and can go on to create further innovation. So there are upsides for the implementers, upsides for the innovators and upsides especially for consumers.

LES: What are some of the main challenges or opportunities related to this topic?
Kappos: Within the scope of this topic, the biggest opportunity going on right now is the opportunity to avoid the patent wars that we’ve experienced, which have had the unfortunate effect of casting aspersions on the value of the intellectual property and the importance of innovation. Avoiding those patent wars is also the biggest challenge because they have become so prevalent.

LES: What did you look forward to the most at the event?
Kappos: I enjoyed learning from the other speakers, and actually hearing the other panel discussions and talks. This community is a very unique place in the world where people have extremely well-informed views about commercial outcomes and advancing technology into the marketplace.

Q&A with Bill Elkington
LES Past-President and Chair

LES: You gave LES opening remarks titled “Introduction to Standards in Intellectual Capital Management” with John Cabeca, Director, Silicon Valley USPTO. In a few short sentences, what were attendees expected to learn?
Elkington: We explored the importance of standards in intellectual capital management and the diversity of areas in which the standards approach may provide value in managing intellectual capital assets. As with quality management standards, intellectual capital management standards will help reduce the cost and uncertainty of achieving beneficial outcomes. Delegates learned what LES is doing in the field, what progress LES is making and who the thought leaders are in this important new area. They also learned how to get involved at a couple of different levels, working with a diverse group of professionals who are determined to provide valuable tools for improving how intellectual capital is managed across the innovation ecosystem.

LES: Technologists and IP professionals face many challenges and opportunities today. What one challenge do you hear about the most? What one opportunity?
Elkington: The challenge that I hear about most often is the lack of understanding throughout most operating companies concerning best practices in intellectual capital management. A high percentage of people in IP-centric operating companies put an appreciable effort into managing intellectual capital as part of their work responsibilities, but there is often little awareness of how to perform this work well. Often, people in operating companies have difficulty identifying intellectual capital and the value of the company’s intellectual capital, once it is identified. Without this basic capability, it is hard for senior operating company leadership to have confidence that its most important asset class is being managed well. The opportunity here is to help educate enterprises on how to manage their intellectual capital better, so that better financial outcomes are more likely.

LES: What did you enjoy the most about the event?
Elkington: I got together with old friends, with whom I’ve been working on LES standards over the past few years, and got to make new friends who are interested in joining in the LES standards work. There is much important work to do, and so far, the friendships that I’ve developed in the context of the effort have made a real difference. It’s exciting to engage in a ground-breaking project like LES standards with thought leaders who genuinely care about the vision, the innovation ecosystem, and one another.

Q&A with Sanjay Prasad
Prasad IP, PC

LES: You moderated the panel titled “IP Management for Startups.” In a few short sentences, what was the focus of your presentation?
Prasad: IP is critical to startups, as it is one of the few assets that a startup will have. Yet, obtaining patent protection can be expensive for a startup, particularly early on when funds are scarce, and the cost of capital is very high. The goal was to provide answers to questions such as “What are various strategies that startups can use to protect their IP?” “What are the consequences of not obtaining early protection on the key IP?” “How is IP viewed by venture capitalists and angel investors?” The discussion benefited from the panelists’ broad range of expertise.

LES: Technologists and IP professionals face many challenges and opportunities today. What one challenge do you hear about the most? What one opportunity?
Prasad: Certainly a major challenge is prioritizing what needs to be done -- best practices for a startup for generating and managing its intellectual property, and carefully prioritizing it all because, of course, funds can be scarce in a startup. Often we get the question “What are the consequences of not doing it early and not doing it right?” Or if they have limited funds, understanding what a startup’s principals should do first, given that patent protection requires expenditures. Or, they may ask “What are the different options for paying for the work early on?” If they’re inexperienced, the number-one question generally is, “What should I do about IP protection?” If they’re experienced, the question generally is round funding it.

The opportunity comes if you do it right: there is a tremendous amount of value to the business with respect to attracting capital, attracting talent and marketing the business, and also just in the ease that it gives you in interacting with others, because once you have the patent application, it is easier to talk to people. Otherwise you’re always worried about people taking your IP. I do nondisclosure agreements and such regularly, and having the patent application done just makes it a lot easier.

LES: Can you give me an example of what startups typically look to manage with respect to IP? Is it their business process idea?
Prasad: Well, it will vary depending on the industry, but it will be their technology. Whatever technology they’ve developed, how do they protect that? Then it will be the business name, and the product name or the slogans, filing for trademark protection for those. Then there is the confidential information, the “secret sauce” type of material, which is their trade secrets.

LES: What were you looking forward to at the event? You’ve got all these great panelists. What did they bring to the table?
Prasad: We had a really good discussion around best practices for IP in startups. We had a diverse set of panelists, with two people who work regularly in venture capital—working with startups, helping them with funding, and the early stages of advising them. We had a patent attorney who works a lot in the tech industry (as do I), and a general corporate lawyer, who brings the corporate law experience. We had an expert who has spent her career doing technology licensing, how companies actually transfer their technology in and out. One venture capitalist works a lot in the life sciences, the other is very active in LES in Silicon Valley. You couldn’t have a better set of experts.
Sanjay Prasad’s panel included:

• Jeff Bartholomew, Attorney, Robinson Waters & O’Dorisio
  
• Katharine Ku, Chief Licensing Advisor, Wilson Sonsini, Goodrich & Rosati
  
• Nola Masterson, Managing Director, Science Futures, Inc.
  
• Soody Tronson, Founding Managing Counsel, STLG Intellectual Property Law Firm; Founder & CEO, Presque
  
• Larry Udell, Founder/Chairman, Silicon Valley Chapter, LES

Q&A with Ron Laurie
Executive Chairman, InventionShare

LES: You moderated the panel titled “Intangible Assets in the Boardroom.” In a few short sentences, what was the focus of the panel presentation?
Laurie: Corporate directors are legally responsible for protecting, and optimally for maximizing, shareholder value, which increasingly involves appropriate oversight of a company’s intangible assets, including its intellectual property. However, except in rare cases (e.g., patent licensing firms), a significant language barrier exists between a company’s in-house and external IP advisors on the one hand, and its board, and the shareholders they represent, on the other. This communication gap is created by the fact that intellectual property professionals typically don’t know how to express the value of a company’s IP holdings in terms that are meaningful to investors and financial analysts, who are laser-focused on financial performance metrics such as EBIDTA (Earnings Before Interest, Depreciation, Taxes, and Amortization), Free Cash Flow, Earnings per Share, etc.

This language disconnect has become increasingly troubling as intangible assets represent a larger and larger percentage of overall corporate value in the digital economy. Many of today’s disruptive business models no longer depend on tangible assets, e.g., Uber doesn’t own automobiles and Airbnb doesn’t own hotel rooms or apartments.  And even in the case of product companies as opposed to service providers, a 2017, WIPO (World Intellectual Property Organization) report concluded that intangible assets add twice as much value to products as tangible capital, across 19 identified global value chains.

LES: Technologists and IP professionals face many challenges and opportunities today. What one challenge do you hear about the most? What one opportunity?
Laurie: For me, as a director in a public company, the biggest challenge is overcoming, or at least reducing, the communication gap between IP professionals and investors, which results from the fact that traditional accounting systems (like GAAP and IFRS) are not set up to reflect the true value of intangibles. I believe that the IP professionals should be responsible for closing this communication gap by learning how to express IP value in terms that are more meaningful to the financial community, and to investors in particular, but this is by no means an easy task.

The LES IA in the Boardroom standard is an important first step in that direction.
Ron Laurie’s panel included:

• Edgar Baum, Founder and CEO, Avasta Incorporated
  
• Phil Hartstein, President and CEO, Finjan Holdings Inc.
  
• Paul Roberts, Vice President of Commercialization, GE Ventures

Q&A with Matteo Sabattini
Director IP Policy, Ericsson Inc.

LES: You moderated the panel titled “Innovation, Interoperability and Efficiency through Standards.” In a few short sentences, what were attendees expected to learn?
Sabattini: I had the privilege to moderate a stellar panel of experts that led us through a journey around technical standards and FRAND (Fair, Reasonable and Non-Discriminatory): How has the licensing of standardized technologies evolved historically? Given that different verticals are relying more and more on technical standards, and entire industries are being disrupted and transformed by technology, what are the challenges and opportunities for stakeholders in this time of technology convergence?

The panel benefited from a broad range of expertise, including the views of regulators. The conversation about what is the right balance between government intervention and self-regulation in the FRAND domain has never been so highly visible and debated: Can the industry get together, as the LES FRAND Licensing Standard Committee is currently doing, to enhance the efficiency of licensing on FRAND terms through standardized processes?

LES: Technologists and IP professionals face many challenges and opportunities today. What one challenge do you hear about the most? What one opportunity?
Sabattini: Technological convergence is changing industries and society. The Internet of Things is creating a living network of interconnected persons and things, and 5G is poised to impact society in ways we cannot even fully anticipate. Financial institutions are transform ing themselves into technology companies. Artificial Intelligence will pose ethical and existential challenges we need to tackle today. Federal agencies and governments around the world rely more and more on technical standards, not only as regulators but as users.

Many industries impacted by this transformation are not necessarily familiar with licensing on FRAND terms, and both technology developers and technology users face the challenge of learning more about different business models. This transformation represents a great opportunity for LES and LES Standards: How can we help the ecosystem? How can business process standards created by practitioners for practitioners help close that knowledge gap?

LES: What were you looking forward to the most at the event?
Sabattini: As the co-chair of the FRAND Licensing Standards Committee, I got to hear from the panel what we could do to make their licensing practices easier and more efficient. I also appreciated getting suggestions on ways to enhance discussions within the Committee itself, especially around thorny issues. Lastly, I got to hear from participants—both in the panel I moderated as well as all other panels—about how a business process standard can help with the practical aspects of IP management.

Matteo Sabattini’s panel included:

• Christian Hannon, Patent Attorney, USPTO Office of Policy and International Affairs
  
• Bowman J. Heiden, Center for Intellectual Property
  
• Luke McLeroy, Vice President of Business Development, Avanci
  
• Rob Yost, Intellectual Property Counsel, Visa

Start-ups panel moderated by Sanjay Prasad.

RESTON, VIRGINIA—June 5, 2019—The Licensing Executives Society (U.S.A. and Canada), Inc. commends Senators Tillis and Coons, and Representatives Collins, Johnson, and Stivers, in their proposed language for a bill to reform Section 101 of the Patent Act. This is sensible reform that will improve our patent system and further encourage innovation.

This draft legislation is an important step forward in restoring certainty to our patent system. The innovative American spirit has been supported and encouraged by a patent system designed and implemented to reward inventors by affording them an exclusive right to their inventions. A system that affords predictable and reliable legal protections to a vast array of products and processes improves the human condition, encourages the devotion of time and talent to their creation, and attracts investment in new industries and businesses.

Recently, the law of patent eligibility has been altered by judicial decisions confusing distinct legal principles of what constitutes the act of invention with what field of endeavor should be eligible for protection. Throughout much of its history, the U.S. patent system used patent eligibility as a crude filter merely to ensure that patent protection was properly limited by the Constitutional mandate to promote the progress of useful arts. As such, useful inventions were the touchstone of patent eligibility. Other sections of the law dealt with the merits of the particular claimed invention. The confusion of those distinct legal principles caused our patent system to suffer from increased uncertainty and diminished reliance, and our economy suffered from a corresponding reduction in investment.

Judicial decisions are necessarily ad hoc, born of specific facts giving rise to peculiar disputes. Precedent is a poor vehicle for policy. Congress is right to resume its rightful role in setting our nation’s patent policy by reiterating and restoring the traditional notion of patent eligibility as a broad and inclusive concept. In so doing, and in giving it the force and effect of law, Congress would further encourage innovation in wide-ranging and diverse fields of endeavor thereby bringing new products and processes into being for the benefit of all of humanity.

The Certified Licensing Professionals (CLP) will launch a revised exam content outline after completing an extensive project, called a job analysis, to define the relevant knowledge, skills, and abilities (or “competencies”) of licensing professionals.

A professional certification exam, like the CLP, is dynamic and evolves over time as the profession does. It is considered best practice for professional certification programs, to conduct periodic job analysis studies to ensure the exam content is relevant to the current professional practice.

“Subject matter experts that represent the diverse spectrum of our field collaborated on this project to ensure broad perspectives,” Tanya Moore, President and Chair of the CLP Board of Governors, said. “The changes to the CLP exam content allow CLP, as an organization, to stay relevant with changing practice and better meet the needs of a diverse audience.”

The job analysis completed in 2018 showed the need to adjust the exam outline to reduce redundancy, better reflect current practice, and improve the overall organization of the content. The CLP Board carefully reviewed the results of the analysis, not only to update the exam content, but to support strategic decisions regarding the current and future needs of professionals working in the areas of licensing, technology transfer, and commercialization.

The revised exam content outline contains five domains, or categories, versus eight domains on the original exam. The changes focus on re-organizing the existing content and weighting of subject importance rather than adding new content.

A new exam form reflecting the changes will launch for the October 2019 window. The bank of questions that make up the exam has been updated and expanded to conform to the revised content outline.

Keep in mind these tips when planning for the CLP exam.

• The CLP exam is offered during two, month-long windows in April and October. 
• The exam is given throughout the testing windows. In October, candidates can take the exam throughout the month on a day and time that works best for them.
• CLP partners with Scantron will offer the exam around the world. Most major cities have multiple sites to take the exam. Note: Our previous supplier, Castle was acquired by Scantron.
• Candidates have access to a 50-question practice test, which is available by request from the CLP website.

For more information on the CLP, visit www.licensingcertification.org.

By Bob Held, President & Chair of the Board, LES (U.S.A. and Canada)

No other organization in the world offers the type of data that LES does via our royalty rate and deal terms surveys. The LES High Tech Sector Royalty Rates & Deal Terms Survey is our third, comprehensive report on the dynamics of the licensing market across a wide range of sectors from Aerospace, Computing, and Communications to Electronics, Medical, and more. Because we have the unique ability to analyze and compare the transaction-level data from three reports going back to 2008, we are able to look at deal dynamics and trends in a unique way. For example, the report identifies elusive changes in industry-specific deals and trends. With regards to royalty rate averages ranging from 2008 to 2017, the survey paints an almost sinusoidal wave. In 2008, royalty rate averages were around 5 percent. In 2010, they jumped as high as 7 percent. Then, in 2013, rates dropped down to 4 percent, then climbed back up in 2014 to 6.5 percent, and then back down to 4.5 percent in 2017. The deal flow in those years followed a similar pattern. Through the survey data, we can correlate the dips to the 2011 America Invents Act (AIA), as well as court rulings that have taken a toll on our industry, such as Alice v. CLS Bank. LES is also seeing that patents are taking a smaller role in licensing, and non-patent assets are playing a larger role. The validity of a patent has always been questionable, but these days it is even more so because of changes in law and judicial proceedings.

The LES report found the highest royalty rates in the area of aerospace and transportation, a steady trend across all three surveys. In aerospace and transportation, the royalty rate was 9.29 percent in 2017, followed by 6.5 percent in software, and 6.4 percent in medical, health, and biotechnology. Having spent eight and a half years in the aerospace and transportation industry within my own career, I understand the dynamics of intellectual property (IP) licensing in that domain. Aerospace and transportation command a higher rate because the development cycle in military and aerospace applications can take years. By the time they are allowed to be licensed to another party in the commercial sector, these technologies are fully-tested and developed many times over. They also come with complete technical data packages, software, trade secrets, and maybe even patents. It’s because of these reasons that once aerospace companies decide to license or sell these technologies, they can demand a higher royalty rate.

NPEs Changing Role

The role of non-practicing entities (NPEs) has gone down significantly due to many factors, including negative portrayal within the media. When the LES High Tech Sector team surveyed market sentiment towards NPEs for the report, the results reveal that the role of NPEs has been deteriorating. In fact, two-thirds of the non-NPE respondents in our most recent report stated that they would not use NPE services. Many factors, including the AIA’s IPR provisions and the lack of injunctive relief, are making patent litigation more difficult and as a result, we’re seeing many NPEs go out of business.

Granted, there were bad actors in that realm, but there were also true licensing entities that had the wherewithal to help individual inventors and small companies protect their patents and their technologies from infringers.

The highly anticipated 2018 LES Global Life Sciences Royalty Rates and Deal Terms Survey is also available. Visit: https://www.lesusacanada.org/members/group_content_view.asp?group=160356&id=559828

LES Remains at the Forefront of IP Licensing and Best Practices

LES is in a unique position as we’re the only community of IP professionals that brings together operating company executives, consultants, university tech transfer executives, lawyers, supply chain managers, contractors, and students to address this evolving field. Today, nearly 80 percent of a company’s value comes from its intellectual capital in all its forms (IP, Human capital, etc.). Yet, within companies, very little is understood about what intellectual capital is and the best practices needed to create, manage, and protect it.

To address this and other issues, LES has created a new forum entitled “The Leading Edge Series” of one-day meetings. These new forums provide professionals the ability to connect and engage with the leaders in the field via deep-dives into hot topics. For example, our first forum in the Leading Edge Series took place at the Silicon Valley USPTO in May. The sessions explored some of the biggest challenges technologists and IP professionals face today and revealed best practices around standards in licensing and intellectual capital management. Dave Kappos, one of the world’s most prominent intellectual property attorneys and the former Under Secretary of Commerce and Director of the USPTO, spoke on behavioral issues in licensing of SEPs and IP and how to define acceptable and best practices through voluntary standards.

LES is at the forefront of educating the world on the latest trends and best practices driving all sorts of IP and intellectual capital management matters. We see some positive changes occurring in the industry and hope the momentum continues. Throughout the year, we continually inform members about the latest trends and share best practices. To support the best interests of the IP and intellectual capital management industry, LES regularly publishes public policy statements on best practices as they relate to important issues. LES is growing, we’re getting stronger and we are continually taking steps to meet the needs of our community.

I want to welcome Dr. Mark Shelley, Of Counsel for Womble Bond Dickinson, as the Senior Vice President of Education for The Licensing Executives Society. Mark brings a level of expertise and energy that will help to continue the momentum that LES Education has been generating. We are thankful for his generous offer to accept this position, and we are lucky to have his voice added to the conversation.

LES Education started 2019 with a remarkable custom course for Sanofi Genzyme in January. It was a well-received two-day course hosted by Sanofi at their Cambridge, MA office. There was a lot of hard work and hours put in by the instructors to ensure that the course was a success. Many thanks to Brian O’Shaughnessy, Jennifer Gottwald, Joe Miotke, Kevin McElroy, Gauri Prakash-Canjels, Paul Stewart, Krista Holt, Michele Riley, and Jeff Whittle. Without them the course would not have been possible. Thank you all!

LES was also well represented at the AUTM Annual Meeting in Austin, Texas at the JW Marriott in May. To kick off the meeting, LES offered our CLP Review course. To say that the attendees enjoyed the course would be an understatement. The response leaving the room was that many were nervous about the exam prior to the day-long course, but were now excited to take the CLP Exam. That is a compliment to the team of instructors who put on such an amazing course: Bob Held, Krista Holt, and Matthew McNeill. Thanks also need to be given to Eleanor Nelson who helped coordinate the event with JW Marriott and was on-site providing support for the instructors in Austin. Again, thanks to all involved that made our CLP Review Course so successful.

After AUTM, we had LES University West in Vancouver. Over the course of four days, from March 25–28, we offered three classes. On Monday, March 25, Norton Rose, Fulbright LLP, hosted our one day IP Basics Review course. LES is very thankful to Richard Johnson for all the work he did and for providing such a beautiful facility for presenting the one-day IP Basics course. For the next few days, the University of British Columbia hosted our three-day Business Development course at the Robson Square campus, as well as the IP Valuation course on March 28. A special thanks to Katja Mjos and Eleanor Nelson. Without their hard work and dedication those two courses wouldn’t have been as well attended. But it is our instructors who deserve the most thanks and the greatest credit. Karen Temple and Pat Gattari did an amazing job teaching the IP Basics course. And thanks to Bob Held, Gina Lupino, Mark Shelley, Jonathon Hance, Paul Stewart, Carolyn Tomberlin, and Sean Sheridan for teaching the Business Development and IP Valuation courses, which went off without an hitch. Our attendees were engaged and involved all three days.

May saw LES in Atlanta, partnering with AT&T, to offer our one-day IP Basics Review course customized to their corporate needs. A very special thanks needs to be given to Stephen Kabakoff, Scott Frank, and Cathy Lemons for all the work they did to help get this course off the ground. AT&T hosted LES and did so much to make the course a huge success. But this course wouldn’t have been possible without Matthew McNeill and Mike Gross, our amazing instructors. Those two put in hours of work to revise the material and conferenced with one another for weeks to bounce around ideas.

The remainder of 2019 should be as equally successful! In July, LES will be in Montreal, working with Young Members Congress and LES International, to present our two-day Negotiation Skills course. Thanks to Stacey Dunn, the course will be held at ROBIC LLP. This is an ideal location, because it is only blocks away from the YMC Conference.  We are fortunate to have Chuck Neuenschwander and Jennifer Gottwald joining us as instructors for this course.

In September, LES will be in Washington, D.C. Brian O’Shaughnessy has graciously offered to host our course offerings at the Dinsmore Shohl building in the heart of our nation’s capital. LES will offer two courses: a half-day Ethics course and a one-day CLP Review course.

At the LES Annual Meeting in Phoenix, in October, we are planning to both start and end our conference with add-on courses. The array of courses will include: Business Development for Life Sciences, Negotiation Skills, IP Business Basics, CLP Review, Ethics, and a one-day Valuation course.

And this is only a small sample of what we have going on. We are working with many of our local chapters to put on additional education courses. Keep an eye on the Viewpoints Education page to see all the current offerings and dates.

Lastly I want to thank the members of the Education Committee and the instructors who have worked so tirelessly to make sure LES Education serves the needs of our members and the Society. To Matthew McNeill, Paul Stewart, Karen Temple, Louise Levien, Mark Shelley, Carolyn Tomberlin, Sam Mercer, and Mark Solomon, my words of appreciation and gratitude will never be enough to thank you for all that you have done and continue to do. Without our instructors and the sacrifices they make, none of this would be possible. We are truly in their debt.

If you have questions regarding Education, please don’t hesitate to email me. If there is a particular course you are interested in you can contact me at any time. I am always here to help and listen to our members.

By Renee McMullen

Members of LES attending the LES Annual Meeting in Boston were addressed by Harvard University's Eli Goldston Professor of Business Administration and Author Deepak Malhotra on the topic of negotiations. Having participated in deals across many industries and for various purposes, Professor Malhotra has a breadth of experience in the practice of negotiating agreements.

Using several stories from a presidential election, to the NFL and the Cuban Missile crisis, Malhotra shared his thoughts on the mindset and approach to negotiating in all types of situations. He began by iterating that negotiations are about human interaction, and as such the process involves engaging people. The objective is to "engage people in such a way as to reach a better understanding and better agreements, whether or not that agreement can be written down on a piece of paper." The process of such understanding stems from what Malhotra discussed as a needed mindset of negotiators, a learning mindset.

The professor asserted that one must go into a negotiation with the objective to understand and learn as much as you can about all the parties involved. The knowledge should also include who influences, or will be influenced by, the negotiation. There are four aspects of the people to consider: interests, constraints, alternatives, and perspectives. Questions to ask related to the interests of those "across the table" include: What do they care about; Why are they here; How are their interests changing over time; and Why is the deal taking place now versus 6 months ago? The constraints reflect the level of flexibility of those in the negotiation and what is a "deal-breaker" for them. Alternatives center around "What happens to them if there is no deal?," "Are their alternatives strengthening or weakening as time passes?," and "Who else are they talking to?" Their perspective speaks to their mindset, is this a "big deal" for them or not? It also addresses whether they are coming to the negotiation in anger and considering the other party in the deal an opponent or partner. Perspective also notes whether those with whom you are negotiating are thinking strategically or transactionally. Mr. Malhotra stated that by keeping these four considerations in mind "you can hopefully structure a deal that works for you and solves your problem but hopefully respects the needs and the interests of the other party as well." As a negotiator, you therefore cannot be too much in your own head as you approach the negotiation.

While considering your mindset, you also have to think through other aspects of the negotiation, such as the consequences of not reaching a deal. Malhotra suggested that "your greatest source of leverage is your ability to create value for other people." He iterated that by thinking through carefully what the consequences of not reaching a deal are, one can eliminate being consumed by that circumstance and instead focus on what the other party might experience if you walk away. This shifts the emphasis to the value you bring to the table. In addition to your value as a negotiator, one should ponder "writing the other party's victory speech" and thinking through how this person will say yes to what is being proposed and how they will communicate that to their audience (or constituents). Malhotra cautions that negotiators shouldn't "make people choose between what is smart and what makes them look good."

The luncheon keynote concluded with a few additional aspects on the mindset of being a negotiator, one in particular called the "Curse of Knowledge," which asserts that once we know something, we lose the capacity to understand what it must be like not to know it. Professor Malhotra used this concept to highlight the fact that negotiators "must not only prepare your arguments, but also prepare your audience for those arguments." Negotiators must ask: What does the audience need to have experienced, know, lived through, accepted, etc. as a basic premise before they are even open to the merits of the argument that is being shared? Final comments surrounded the changing nature of the negotiation variables, reminding attendees that what is not negotiable today may be tomorrow. Because of this, negotiators should make negotiating the process before negotiating substance a habit. He said that "Process is everything that gets us from where we are today to closing the deal."

Book Review

By Annemarie Mieke, Edited by Tanya Moore

Negotiating The Impossible

Author: Deepak Malhotra
Publisher: Berrett-Koehler Publishers;
Reprint edition (June 19, 2018)
Language: English
ISBN-10: 1523095482
ISBN-13: 978-1523095483

Negotiating the Impossible—How to break deadlocks and resolve ugly conflicts (without money or muscle) is a compelling read. The author, Dr. Deepak Malhotra, the Harvard Business School professor and negotiation advisor, takes a big picture approach, selecting and comparing historical and modern examples of difficult or seemingly impossible situations to illustrate his three core principles of negotiation. These principles of Framing, Process and Empathy, come from a central premise, stated early on in the book, that "However simple or complex the issues, however well-intentioned or malicious the parties, however familiar or unprecedented the challenges, the question we are always trying to answer in negotiation is this: How might we engage with other human beings in a way that leads to better understandings and agreements?"

Malhotra takes the long view of negotiation, treating it more like a navigation, or finding one's way on a journey than a means to a single endpoint. In fact, he emphasizes, in several parts of the book, how different aspects of the negotiation continue after the agreement; for example, the importance of each party to frame the deal as a win for their side.

The notional awareness of this perspective and principles are most useful to beginners and non-practitioners. In addition, the themes may be a bit repetitive for experienced negotiators, who are aware of the need to avoid tightening knotty situations (deadlocks and ugly conflicts) and who use many of the approaches described in this book. However, we submit that the context and the stories that demonstrate Malhotra's principles are worth a read for even the most seasoned professional. In addition to an aptly curated group of history lessons as examples, its a great reminder of the tools at our disposal, and the benefit of a long view of a deal.

LES Education started 2019 with a remarkable custom course for Sanofi Genzyme in January. It was a well-received 2 day course hosted by Sanofi at their Cambridge, MA office.  There was a lot of hard work and hours put in by the instructors to ensure that the course was a success. Many thanks go out to Brian O'Shaughnessy, Jennifer Gottwald, Joe Miotke, Kevin McElroy, Gauri Prakash-Canjels, Paul Stewart, Krista Holt, Michele Riley, and Jeff Whittle because without them the course would not have been possible. Thank You All!

LES was also well represented at the February AUTM Annual Meeting in Austin, Texas. The meeting kicked off with a CLP Review Course. To say that the attendees enjoyed the course would be an understatement. The response leaving the room was that many were nervous about the exam prior to beginning of the day, but were now excited and enthusiastic to take the CLP Exam. That is a compliment to the team of instructors who put on such an amazing course: Bob Held, Krista Holt, and Matthew McNeill. Thanks also needs to be given to Eleanor Nelson who helped coordinate the event with J.W. Marriott and was on-site providing support for the instructors in Austin. Again, thanks to all involved that made our CLP Review Course so successful.

The rest of 2019 looks equally promising. We will be in Vancouver for LES University West from March 25-28 offering both our 1 day IP Basics and 3 day IP Licensing for Business Development courses. Thanks go to Richard Johnson and North Rose Fulbright for providing us a beautiful facility to present out IP Basics course. We are also extremely fortunate to work with The University of British Columbia to present our Business Development course. The efforts of Katja Mjos and Eleanor Nelson landed us at the Robson Square Campus of UBC in Downtown Vancouver. Hopefully this partnership with UBC is the first of many to come.

On July 10 & 11 LES will be in Montreal presenting our 2 day Negotiation Skills course. Thanks to Stacey Dunn, and the work that she has put in, the course will be held at ROBIC LLP.  This is an ideal location because it is only blocks away from the YMC Conference.

In September, we will be presenting LES University East in Washington, D.C. Brian O'Shaughnessy has graciously offered to host the event at the Dinsmore Shohl building in the heart of our nation's capitol. LES University East will offer three courses: 1 day IP Basics, 3 day IP Licensing for Business Development, and a 1 day CLP Review course. We are all very excited to be back in Washington, D.C. in the Fall.

At the LES Annual Meeting in Phoenix, AZ in October we are planning to both start and end our exciting conference. There will an array of courses including: Negotiation Skills, IP Business Basics, CLP Review and a 1 day Valuation course.

And this is only a small sample of what we have going on.  We are also working with our Local Chapters to put on Educational Courses; including Atlanta, RTP, Iowa and San Francisco. Keep an eye on the Education Page to see all the current offerings and dates.

Lastly I want to thank the Members of the Education Committee and the instructors who have worked so tirelessly to help make sure that LES Education is serving the needs of our Members and the Society.  They include: Matthew McNeill, Paul Stewart, Karen Temple, Louise Levien, Mark Shelley, and Carolyn Tomberlin. My words of appreciation and gratitude will never be enough to thank you for all that you have done, and continue to do. And to the many instructors, only a small few who have been mentioned in this letter, Thank You! 

If you have questions regarding Education please don't hesitate to contact me. Whatever it may be I am always here to help and listen to our members.

Sincerely,  Mark Keagle, Director of Education, e-mail: mkeagle@les.org

Extensive Catalog of Webinars Available on LES Website

Watch, listen, and learn at your convenience.

LES sector and committee webinars (with audio and slides) are just a click away.

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Entrepreneurs and investors alike in a Spotlight Plenary say that might not always be the best choice.

Which comes first, the business or the fundraising?

If you—or your clients—are like many entrepreneurs, you may be putting the chicken before the egg, according to a panel of entrepreneurs and investors speaking at the 2018 LES Annual Meeting in Boston.

"The premise for this is that most of you are not involved in fundraising either on the investor side, nor are you involved on the company side, but that almost all of you have friends or colleagues that are," said David Powsner, a partner and patent lawyer in the IP and emerging companies practice at Nutter McClennen & Fish in Boston, who moderated the session. "When this is over, I'm hoping that when you all are confronted by your colleagues [who say] 'hey, I'm thinking of starting a business, I'm going to raise some money first,' that you'll have a better sense of whether that is the right order. Maybe you should be starting the business first and raising money second."

Raising Money

Powsner set the session up as a discussion between two entrepreneurs and two investors. Although most of the four panelists had spent time on both sides of the entrepreneur-investor equation, each would answer his questions from his assigned perspective. Powsner's first question—why raise money?—required some basic background from the entrepreneurs on the panel.

Boston-based entrepreneur and investor Sanay Manandhar, who set up the first ISP in Nepal in the late 1990s, is more recently known for founding software IoT company Aerva, a horizontal play in software which allows users to manage digital content on any screen in the world using a browser.

The margins the business earned, and the fact that it required very little capital to get off the ground, put Manandhar in an uncommon position when it comes to startups: Aerva was generating cash from the beginning.

"My view is to think of capital as fuel, and to think of the company building a really fancy red car that goes fast, and think of the market as the highway." said Manandhar.

But from the year 2000 through the great recession of 2008, it was a very rocky road, he said. "If you have a rocky road in front of you, no matter how much gas—capital—you put in your car, it doesn't really go very fast. Raising capital is almost always about speed."

But while raising capital in the tech world may be about speed, sometimes it's more about getting off the ground, said Edward Ahn, chief technology and strategy officer at Anika Therapeutics, a Boston-based medical technology company that focuses on pain management, tissue regeneration and wound healing.

"My experience is completely opposite to Sanjay's. In the world of med tech, health care and biotech, you can't go fast. We need capital to get started," Ahn said.

"The fundamental issue we deal with is that the time from idea to commercialization can be anywhere from three years to 12 years, so investors have to wait a long time to see real commercialization. A lot of things that we're talking about, at least early on, is speculation, so when we look at capital, capital is not about fuel, it's about decreasing risk so I can actually get more money to go to the next stage."

Ahn explained that in the med tech business, capital raising is all about meeting milestones. At a particular valuation and level of risk, the company can only raise so much money to get to the next milestone, which must in turn be sufficient to get to the next point.

Ahn used a baseball analogy to describe what he is up against as a med tech fundraiser: "For us, from the entrepreneur to the investor perspective, we always have to go for home runs. There are no singles or doubles or triples. If we're going to raise money, we have to do something that will be really, really valued by society, and to do something society will pay for."

Angels and VCs

Much of the morning's discussion focused on the differences between venture capitalists and angel investors, and what each category of investor is looking for. VCs and angels are largely differentiated by the source of the money they intend to invest, with VCs generally using money pooled from investment companies, large corporations and pension funds, but generally not any of their own funds. Angels, on the other hand, use their own money to invest in businesses. In the U.S., angels are accredited investors who must have a minimum net worth of $1 million and an annual income of at least $200,000. Many angel investors are friends and family of small business owners, and came to invest in the companies through that relationship.

Further, the often pre-existing relationships between angel investors and their investments mean that angels tend to invest early on in the life cycle of a business, even to get the business off the ground. Angels often choose businesses they are personally interested in, and usually take more risks than venture capitalists. VCs, on the other hand, seek established businesses, which will reduce the risk of their investment.

Angels usually invest much smaller amounts of money than VCs. The U.S. Small Business Administration says that the average VC deal is worth  $11.7 million, while the average angel investment is  $330,000, though a typical angel investment could be for as little as  $10,000.

Wan Li Zhu, an early stage venture capitalist and partner at Fairhaven Capital in Boston, said that the difference between the two was largely a question of scale. "There has been so much capital come into the venture asset class in the past few years, venture capital funds in the range of $200 to $400 million are considered small these days. There are some West Coast funds that are north of  $1 billion. And to move the needle on a fund like that, you've got to return $50 to $100 million to the fund, and the fund's ownership at those deals at exit is 10 to 20 percent. So now you do the math on that, and you're looking for companies that can potentially generate exit values north of $200 to $500 million."

Ziad Moukheiber, an entrepreneur who runs the angel investment group Boston Harbor Angels and serves as the managing partner of the EQX Fund, an evergreen angel investment fund, said that overall, the total investments of angels and VCs are both in the range of $23 billion a year, but that there are far fewer venture capitalists than there are angels, which explains the smaller average investment of angel investors.

Beware of Competing Interests

The entrepreneurs and investors on the panel both said that entrepreneurs need to be vigilant in protecting their interests.

"What I would say to the entrepreneurs is while the investors may come telling you your interests are aligned, please be forewarned that your interests are so misaligned it's not even funny," said Manandhar. "Investors only care about the three-letter acronym called IRR, internal rate of return. You care about bringing an idea to market, dominating the world, making life better, but because the interests are misaligned, you, as an entrepreneur need to start thinking about what gets the investors going. And what gets them going is the IRR."

Entrepreneurs will know in advance—if they read the shareholder agreement and term sheet, at least—that venture capitalist investors are going to get a liquidation preference and have a pretty good idea what kind of muscle the VCs can exert on the board.

"[They may say] they're nice guys who wouldn't do something like that, but it's all there. A lot of entrepreneurs are really naïve that it's not going to happen, but it happened to me," he said.

What it comes down to for entrepreneurs is a balancing act of which difficulty the entrepreneur wants to live with. "There's a difficulty with getting a high valuation in return, and there's a difficulty with all these shareholder rights. You have to pick your poison and be realistic about what you think your return will actually be and optimize toward that. When you get really greedy, bad things happen."

Speaking as an investor, Zhu advised entrepreneurs to do their due diligence on investors. "Investors do a lot of due diligence on your company and the business model. You should do your due diligence on the investor.

What Investors Want

Powsner next posed the question of what investors want—besides return on investment and some ownership percentage.

"We're early so we look at the entrepreneur," said Moukheiber. "Who is that person? That's number one. Number two is the traction. What have they done? I believe a company can do a lot with very little money, so what have you done up to now? And then, we look at where you're going, and that's the whole discussion of multiples and valuation."

The discussion eventually came around to the project's underlying intellectual property, particularly the patents the entrepreneurs hold. It quickly became evident that the importance of the quality of the intellectual property differs greatly depending upon the project is.

Zhu said that he cannot think of a tech investment he's been involved in where the investment group didn't invest because the IP wasn't strong enough. "In some sectors, it's more important, like artificial intelligence or autonomous driving, or if there's a hardware component, but broadly speaking, the IP is much less in important in tech than in, say, life sciences," he said.

"Most CEOs are not able to scale effectively," he said. "Hopefully the founding CEO will understand that at some point they may take a different role in the company, but we typically try to keep the team together, to keep that founder spirit that exists. The advocate, the evangelist is very important to the company."

"I always tell entrepreneurs to be cognizant about what raising outside capital means," he said. "I see a lot of entrepreneurs celebrating and throwing a party and getting the champagne out when they raise capital, but that is not success. That is the start of a very long process that hopefully will end in success. Raising your round is not success."

Money In The Middle

Following on a session about raising capital at the LESI Annual Meeting in San Diego, entrepreneurs and investors met in Boston at the 2018 LES Annual Meeting to discuss venture capitalists and angel investors from the "East Coast perspective." Although much of the session revolved around more general concepts for entrepreneurs and investors, it did include a brief look at how the investment system works differently between the U.S. East Coast and the U.S. West Coast–and how it might just be better to look between the coasts.

"West Coast valuations are absolutely crazy," said Ziad Moukheiber, an entrepreneur who runs the angel investment group Boston Harbor Angels and serves as the managing partner of the EQX Fund, an evergreen angel investment fund. "On the East Coast, they're up there, too. But there's amazing value in the middle, and that is where I personally spend a lot of time looking for deals."

Moukheiber described to the audience how he recently had a good exit in Ann Arbor, Michigan, in the upper midwest; and how he is currently looking at a company in Oklahoma and another one where the scientist is based in San Antonio, Texas; and how he is also looking at an opportunity in Calgary, Canada.

"In the middle, they come to us with weird concepts like, they already have revenue," he joked. "Companies on the coasts come and want millions. They do have an idea, but they don't have revenue. Some of the companies in the middle of the country are more realistic, the entrepreneurs are more humble and they're fantastic to work with because they are starting businesses, rather than raising money as a startup. They have solid businesses that can survive a recession. They're not chasing fundraising."

By Meredith Holmes

Dr. Michele Gunness is Senior Technology Development Manager in the Office of Technology Transfer and Business Development at Oregon Health and Science University in Portland, Oregon. She is responsible for technology licensing in orthopedics and surgery, patient care and hospital, and hearing and speech. Dr. Gunness has been with Oregon Health and Science University (OHSU)—the state's only academic health center—for more than 17 years.

As a member of the technology development and licensing team, she evaluates new invention disclosures, identifies commercial opportunities, and negotiates license agreements. She has served the office in a variety of roles—negotiating industry research agreements, federal and post-licensing compliance, royalty distributions, out-licensing technologies, and nurturing relationships with university creators and inventors. "My job is never boring," Dr. Gunness declares. "My portfolio includes a wide range of technologies, since we serve not only the academic side of the university, but also OHSU's more than 16,000 employees!"

Before joining the Office of Technology Transfer and Business Development, Dr. Gunness was an assistant professor of at the University of Connecticut Health Center, a research scientist at the VA Portland Health Care system, and assistant professor in the Department of Pathology at OHSU. She earned an undergraduate degree in anthropology from Franklin Pierce University in Rindge, New Hampshire and a Ph.D. in biobehavioral sciences with a focus on biological anthropology from the University of Connecticut. While working on her Ph.D., she received a National Research Service Award Postdoctoral Fellowship for research in endocrinology and metabolic bone disease, especially osteoporosis, at the University of Connecticut Health Center.

An LES member since 2006, Dr. Gunness says, "My involvement in a leadership role with LES goes back to my time as Chapter Chair of the Oregon/SW Washington Chapter around 2008."  She earned her Certified Licensing Professional (CLP) certification from LES in November 2014. She is currently co-chair (with Adrian Cyhan) of the Industry-University-Government Interface (IUGI) committee, a position that makes the most of her long and varied professional experience. Her top priority for the coming year is increasing membership recruitment and retention. Her long-term vision for IUGI is to leverage the collective expertise of its members for positive interactions with other sectors of LES. Dr. Gunness is also a member of the 2019 LES Annual Meeting planning committee, which is focused on creating networking events (both virtual and actual) for Annual Meeting participants. Dr. Gunness' professional involvement is not confined to LES; she is also a member of the Association of University Technology Managers and the Oregon Bioscience Association.

Reflecting on the distinct perspective that a university-based licensing professional brings to the table, Dr. Gunness says, "A person coming from a technology transfer office, whether it be academic or government, offers an alternative viewpoint when it comes to licensing terms and language: it is not the same as business to business interactions. For instance, there may be restrictions due to state or federal law or internal policies that may not be easily negotiated and should be clearly articulated at the outset." As her LES projects around membership, networking, and engagement attest, Dr. Gunness is committed to working across disciplines and economic sectors. She adds, "Communicating these differences can be a challenge but also an opportunity to convey our perspective and to understand the opposite position. University technology transfer professionals also offer insights into new and exciting, but very early, innovations, access to researchers, and opportunities to network and forge relationships."

Dr. Gunness' great leisure-time passion is outdoor activities—especially skiing. She says, "When I first moved to Oregon and discovered there was summer skiing, I thought I was in heaven! It took a few years to get the idea of summer skiing out of my system and move on to other things. I live very close to Mt. Hood and all that it has to offer. I count myself very fortunate to live in such a beautiful part of the United States with outdoor activities so close by."

When she's not skiing with friends or members of her ski club, Dr. Gunness enjoys golfing and hiking. Occasionally she stays inside and sews, reads, or entertains her cat.

Enter Women in Licensing (WIL), an LES Committee with a mission to accelerate the advancement of women in the technology and licensing professions. The Committee, chaired by Soody Tronson, recently organized two programs at the LES 2018 Annual Meeting in Boston. Both were well received, open to all genders, and key to promoting the group's mission through networking, mentoring, education, and best practices.

At an Annual Breakfast in Boston, Women in Licensing partnered with the American Association of University Women (AAUW) to host a facilitated discussion on salary negotiations.  The national initiative, "Work Smart: How to Negotiate Your Compensation," was presented by Alex Howley, Program Manager at AAUW.

The following day, LES-WIL held its second mixer and guided networking event highlighting issues surrounding compensation with discussions centered in smaller groups for maximum impact.

As part of the LES-WIL  Annual Breakfast, Chair Soody Tronson presented insights into the Committee's initiatives and principles in which she invited all breakfast attendees to consider their role in LES-WIL by graphically displaying "YOU" surrounded by committee leadership. Soody continued by sharing the Committee's framework to organize, drive action, and add value.

Soody's first rallying point was the 70:20:10 Rule, which translates to doing more (not training more) by identifying, securing, and leading the right assignments (70%); connecting with others for feedback, observation, role models, mentors, coaches, and sponsors (20%); and self-study obtained through courses and training (10%). Other internal and external rallying points include the following guidelines: remain relevant and enhance expertise; seize opportunities; and, secure visibility and credit.

What are the key areas of opportunity that LES-WIL has identified for impact? The Committee sees six significant streams:

• Hearing from trailblazers on identifying the right internal assignments; securing and leading those opportunities; getting the credit and using it to advance your career.
• Fostering exchanges between the more experienced and less experienced members.
• Taking on a more active role with organizations requiring licensing as a business tool and involving LES membership.
• Focused networking programs.
• Promoting and recognizing members' impact on other members' career development.
• Curating industry-focused programs to advance and sharpen high-value executive skill sets based on our seniority, sector, experience, and profession for the new market economy.
• Do not re-invent the wheel, and please do not go for the lowest hanging fruit that has already been picked multiple times. Be gallant and push towards new limits.

These opportunities translate into a strong future for Women in Licensing within the LES circle and externally. Success depends on women mutually promoting, endorsing, and securing speaking engagements at LES events, as well as outside LES. Success will also be driven by programs and tools for particular segments of membership based on individual skills, sectors, and experience. As an interactive group, LES-WIL will help women navigate gender roadblocks as well as identify, secure, and lead right assignments.

Soody's presentation was a rallying cry for a continual two-way exchange that will add value for members and all women in licensing, now encouraged to: participate, volunteer, reach out, provide input, provide substantive programs, be visible, and lend their shoulder!

The Women in Licensing Committee is currently looking for LES members to step into leadership roles. If you are interested in serving as the new Chair or as a member of the committee, please contact Susan Houchins at membership@les.org.

Thanks largely to the tireless efforts of Larry Udell, chapter chair, and Martha Casey, event coordinator, the LES Silicon Valley Chapter's annual "IP Year in Review" was a resounding success. Eighty-seven people attended the panel discussion and networking lunch, on Wednesday, December 12 at the Crowne Plaza Hotel in Palo Alto. Rouse International sponsored the gathering, a festive occasion to review the year's key decisions affecting licensing law and practice and to enjoy the company of friends and colleagues.

Serving as moderator was Suzanne Harrison, of Percipience LLC. The panelists were Joe Yang, of PatentEsque Law Group, LLP; Kent Richardson, of Richardson Olivier; Jeremiah Chan, Director and Associate General Counsel, Head of Patents, Facebook; John Cabeca, of the USPTO, Silicon Valley; and Chris Bailey, of Rouse International.  

Pleasantly surprised by the excellent turnout, SV Chapter Chair Larry Udell commented, "The event was well attended—and only two weeks before Christmas! All the comments rated the panel as 'terrific.'" The SV chapter is already planning events for 2019, which will be its 19th year. On the horizon is a one-day meeting on May 14, it features the new Leading Edge Series at the Silicon Valley USPTO office. For more information visit: www.lesusacanada.org/page/leadingedge

LES NYC End-Of-Year Celebration!

By T. Alexander Puutio, LES NYC Chapter Chair

LES members and leadership gathered at Fox Rothschild's 101 Park offices on December 13 to wrap up 2018. They celebrated with seasonal catering, general merriment and delightful conversations. The night was an overall success with many members taking part that had not otherwise spent time with LES during the year. Several new volunteers offered to help set up new events in 2019 and they look forward to arranging the next event in February 2019. Thanks goes out to former Chapter Chair Janet MacLeod who hosted us for the event.

LES Chicago Holiday Networking Luncheon

By Mark Hankins, LES Chicago Chapter Chair

LES Chicago Chapter held their annual Holiday Networking event at Maggiano's in downtown Chicago where 20 attendees enjoyed their famous Italian food. This year in addition to networking, the attendees were asked to assist the Chicago Chapter Leadership team by sharing their preferences and ideas for Chapter events. All the attendees introduced themselves to the group and discussed what they were most looking for from LES generally and the Chicago Chapter in particular.  

The Leadership team was able to get some great feedback on the type of events that the Chapter would like to see—educational and social both with opportunities for members to network. Best times to hold meetings and suggestions for new meeting locations were also discussed. LES Chicago has a unique challenge in that we have two membership hubs; downtown (attorneys, valuation firms, accounting, etc.) and the North Shore (diagnostics, hospital supplies, pharmaceuticals etc.), so having new locations to meet is important to our Chapter.  Finally, a number of specific events: licensing in the movies, trademarks, and artificial intelligence were discussed.

LES Washington D.C. Chapter Event

By Raymond Van Dyke, Greater Washington, D.C. and Virginia Chapter Chair

The Greater Washington, D.C. Chapter of LES held a Symposium on Patenting in 2019 on January 23, 2019.  Chapter Chair Ray Van Dyke was pleased to have as a key speaker Laura A. Peter, the new Deputy Under Secretary of Commerce for Intellectual Property and Deputy Director of the United States Patent & Trademark Office.  Ms. Peter spoke at length about the initiatives within the USPTO to increase certainty when dealing with patents—whether during prosecution, litigation, post grant or licensing. She spoke about the USPTO's new Guidelines on Subject Matter Eligibility, Post Grant Procedure now using the Phillips standard of review, new tools for use in prosecuting patents, and tales of current entrepreneurs and innovators.

Ray Van Dyke, the moderator for the event, also spoke on the above Guidelines on Subject Matter Eligibility and recent Guidelines on Section 112, along with the historical treatment of software-type innovations. In general, the view is that Directors Iancu and Peter are making significant improvement to the patent process and system, undoing the damage inflicted over the past decade or so. As per Ray, an inflection point has occurred and the patent system is on an upswing.

LES President Bob Held gave a summary of LES initiatives, and discussed the advantages of LES in various technological and economic sectors where LES offers a unique perspective with its Standards Initiative.

Silicon Valley tech guru Sanjay Prasad and Washington State deal wizard Everardo Ruiz gave presentations on the current state of startups and valuations, where patents figure prominently. Indeed, 84% of the assets of most startups are intangible in nature, e.g., patents and other intellectual properties.

Prof. Ken Porter, a Director of Technology Commercialization at the University of Maryland spoke about his experiences. Ken is currently on the Board of Directors for AUTM.

After a lively catered reception, the LES (Liquor Enjoyment Society) continued with a presentation by Ray Van Dyke on the importance of technology, innovation and patents through history, illustrating numerous important inventors, such as Morse, Bell, Edison, Tesla, the Wright Brothers, Steve Jobs, and more, with tales about their exploits. 

LES Montreal Hosts Wine Event

By Martin Couillard, LES Montreal Chapter Co-Chair

On December 5, 2018, the LES Montreal Chapter organized, together with the Montreal chapters of Women In Bio and the Canadian Healthcare Licensing Association, its traditional Holiday cocktail event. This event was generously sponsored by Fasken and held in its downtown Montreal office. We had more than 100 participants that had the chance to discover wines from Spain and Germany from barbuVINS who also sponsored the event.

The LES Montreal Chapter is already planning major events in 2019. Importantly, for a second year in a row, the LES Montreal Chapter and the LES Quebec City Chapter will be proud supporters of the "Symposium on Licensing in Artificial Intelligence and Data Sciences" (www.licensingai.com).

The first edition held at the Queen Elizabeth Hotel in Montreal on May 17, 2018, attracted more than 450 participants. This event was also co-organized by HEC Montréal, Polytechnique Montréal, Université de Montréal, Univalor and IVADO.

This symposium aimed to promote IP licensing in artificial intelligence and data sciences. The participants learned about best strategies for data sharing, IP protection, licensing and collaboration (open source, patents, data licensing, copyright, trade secrets). Worth mentioning, presentations on licensing strategies and approaches used at different universities were given, including an inspiring keynote given by Daniel Dardani from the MIT Technology Licensing Office.

Building on this success, a second edition will be organized on May 1, 2019. The goal will now be to promote the sharing of knowledge and of best practices pertaining to IP and open innovation. In other words, we will explore how IP and open innovation can go hand in hand to help businesses and research collaboration.
Therefore, to enrich reflection, this second edition of the Symposium will be co-organized with the International Forum of Intellectual Property Québec (FORPIQ), on the following theme: "Navigating in an era where open innovation and intellectual property intertwine." Visit www.forpiq.com and www.licensingai.com.

Survey Participation
The 2017 survey, which builds on highly successful surveys completed in 2011 and 2014, was conducted nationally by the LES High Technology Sector. "Our membership's participation was outstanding, and the survey team's analysis was rigorous and insightful," said Ian DiBernardo, Chair of the LES High Tech Sector. "The team drew practical conclusions from the 2017 data, for example, regarding the effect of exclusivity on rates. The team also looked beyond the 2017 data, utilizing the 2011 and 2014 surveys to identify trends."

A total of 155 completed surveys were incorporated into the final High Tech Survey Report. The 2017 survey covered the major fields within the High Tech Sector (HTS), including aerospace, software, clean technology, communications, medical devices, semiconductors, consumer products and electronics, and computers. We also attempted to drill-down into the software category more substantially than in the past to try and measure any statistics relating to the effects on the licensing industry from the June 2014 Supreme Court decision in the Alice vs. CLS Bank case.

The following are some of the highlights gleaned from the 155 distinct deals reported. Some were expected, and there were also a number of surprises.

• Slightly more than two thirds of the deals had an academic or governmental licensor.
  
• Of the respondents, 88 percent were licensors. Of those licensors 35 percent entered into the deal for purely monetary gain, 28 percent for strategic purposes, 10 percent as part of an assertion strategy, and 11 percent for Standards Essential Patent (SEP) licensing. Not surprising, most deals were done with a goal of monetary gain combined with creating/maintaining a strategic relationship. Surprisingly, 35 percent of responding licensors entered into the deal to support a new product, compared to 22 percent in the 2014 survey.
  
• The split between exclusive and non-exclusive deals was almost 50/50, with 48 percent reporting exclusive grants and 45 percent non-exclusive.

Methodology & Data Collection
Bob Held notes that, "Extreme care was taken in maintaining the confidentiality of survey respondents. No one on the survey team, or at LES, had access to the identity of the survey respondents. All data provided by Vault was clear of confidential data and cannot, in any way, be tied back to any individual respondents," he says.

Dynamics of the Licensing Market
Jack Lu does a deep dive into a 10-year journey across the three surveys in Chapter 5 of the report. He notes a few trends:

• Royalty pricing is different across different technology fields, IP types and technology development stages.
• Events such as AIA/IPR and the Alice Ruling have significantly and structurally transformed the licensing market.
• As a result of the Alice Ruling, the technologies in healthcare fields started to obtain royalty premiums.
• It seems that the market-specific factors such as AIA/IPR and the Alice Ruling have transformed the licensing market mainly through the intervention on or interference with deal-specific variables.

LES would like to thank the Survey Committee who contributed hundreds of volunteers hours. They are: Joseph Daniele, Bob Held, Jack Lu, Lewis Stark and Manta Zhang.
For more on this or other LES Royalty Rates and Deal Terms surveys and reports, visit http://www.lesusacanada.org/royaltyrates.

View Chart here

The Licensing Executives Society (U.S.A. and Canada), Inc. has submitted comments in support of the USPTO's 2019 Revised Subject Matter Eligibility Guidance. The comments were included in a letter (see below) sent to Undersecretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office, Andre Iancu. LES states that the Revised Guidance is a more practical and repeatable approach to patent eligibility assessment, and is entirely consistent with prevailing precedent and traditional approaches.
On January 7, 2019, the U.S. Patent and Trademark Office ("USPTO") published a Federal Register Notice of its Revised Patent Subject Matter Eligibility Guidance ("Guidance"), and requested public comment. The Guidance became immediately effective as to all applications, and all patents resulting from applications, filed before, on, or after January 7, 2019.

Among other things, the Notice cited recent Supreme Court precedent relating to patent eligibility, and acknowledged that the existing framework for assessing eligibility has proven difficult to implement in a consistent manner, and has produced uncertainty. This uncertainty has made it difficult for inventors, businesses and other stakeholders to predict what constitutes patent eligible subject matter, and to plan and invest accordingly. The USPTO's Notice further observed that courts are not immune to that uncertainty, and that even our most patent savvy court, the U.S. Court of Appeals for the Federal Circuit, has repeatedly lamented the lack of clarity in this area of law. To address those concerns, the USPTO has revised its patent eligibility guidance. 

In its letter of support, LES stated that the revised Guidance is an appropriate and practical response to the prevailing uncertainty. According to LES President and Chair of the Board, Bob Held, "This Revised Guidance is an important step forward in securing valuable property rights for American inventors, and will do a great deal to encourage innovation, stimulate economic activity, and serve our public interest." LES further noted that the Guidance honors the tradition of a broad and inclusive interpretation of patent eligible subject matter while staying true to the prevailing body of precedent, as a whole. Nonetheless, it is the Society's view that the patchwork of recent Supreme Court precedent, no matter how dutifully applied, is not a proper vehicle for setting national intellectual property policy, especially in the knowledge-based economy of the modern era. Thus, LES urges Congress to take up the call arising throughout the innovation economy to provide a more potent and policy-oriented approach in the form of legislation.

LES wishes to acknowledge the contributions of the LES Section 101 ad hoc Committee in compiling comments and preparing the Society's response to the request for comments.

March 7, 2019

The Honorable Andrei Iancu
Under Secretary of Commerce for Intellectual Property and
Director of the United States Patent and Trademark Office
U.S. Patent and Trademark Office
600 Dulany Street
Alexandria, VA 22314

Via email: Eligibility2019@uspto.gov

Re: Licensing Executives Society (U.S.A. and Canada), Inc. Comment re "2019 Revised Patent Subject Matter Eligibility Guidance," Federal Register, Volume 84, No. 4 (Jan. 7, 2019), Docket No. PTO-P-2018-0053

Dear Under Secretary Iancu:

The Licensing Executives Society (U.S.A. and Canada), Inc. ("LES") appreciates the opportunity to comment on the U.S. Patent and Trademark Office ("USPTO") 2019 Revised Patent Subject Matter Eligibility Guidance. LES strongly supports the proposed change as one that will bring the USPTO patent examination and appeal process into greater alignment with judicial precedent as a whole, restore the traditional practice of a broad interpretation of patent eligible subject matter, and increase predictability, efficiency, and reliability in the U.S. patent system. Further, by bringing greater predictability and reliability to the U.S. patent system, this change will re-invigorate innovation in America, and enhance corresponding investment and economic activity.

LES is a non-partisan, non-profit, volunteer-driven professional society devoted to speeding innovation to market. For over 50 years, LES has been the only professional society devoted exclusively to promoting innovation and the public well-being through the licensing of intellectual property. We represent all industries, from high technology to pharma and biotech. Our 2,500 members are inventors, entrepreneurs, small businesses, business executives, accountants, and lawyers. We represent licensors as well as licensees. In short, we represent all sides in all quadrants of the innovation economy. We are a member society of the Licensing Executives Society International (LESI), a global community of over 8,000 senior licensing professionals committed to predictable, reliable, and durable intellectual property rights.

LES strongly supports your implementation of the 2019 Revised Patent Subject Matter Eligibility Guidance. Further, LES strongly urges the USPTO to implement appropriate training for its personnel to ensure that the Guidance is properly and consistently applied throughout the USPTO, especially by patent examiners and PTAB judges.
The Guidance will improve and expedite the work of the USPTO by restoring an approach to patent examination that is consistent with traditional notions of patent subject matter eligibility. The Guidance more properly respects the discrete statutory provisions of utility, novelty, and non-obviousness, while nonetheless acknowledging that there might be certain specified exceptions under 35 U.S.C. 101.

This Guidance will go a long way toward restoring predictability and enhancing certainty in the U.S. patent system; and this, in turn, will enhance innovation, business creation, and economic activity. Moreover, this Guidance will ensure a level playing field; and in so doing, will foster a diverse marketplace for all, from sole inventors to large multi-national corporations.

LES is of the view that legislative action will nonetheless be necessary to fully achieve these objectives, and to restore the U.S. patent system to its proper place of preeminence. Such legislative action will ideally clarify that a broad, inclusive, and clear definition of patent eligible subject matter will best serve our national interest, stimulate our economy, and serve society as a whole. We encourage you to work with your colleagues in Congress toward that end.

Recent precedent, especially the triad of Alice, Mayo, and Myriad, has thrust the law of patent eligible subject matter into profound uncertainty. Lower court judges have complained that a patent policy driven by Supreme Court precedent has left them with a difficult task. E.g., Interval Licensing LLC v. AOL, Inc., 896 F.3d 1335, 1354 (Fed. Cir. 2018)(Plager, J., concurring in part, dissenting in part, and noting in a section entitled "The Emperor Has No Clothes" that "There is almost universal criticism among commentators and academicians that the 'abstract idea' idea has created havoc in the patent law. The testimonials in the blogs and elsewhere to the current mess regarding our § 101 jurisprudence have been legion. There has even been a call for abolishing § 101 by the former head of the Patent and Trademark Office."); and Berkheimer v. HP, Inc., 890 F.3d 1369 (Fed. Cir. 2018)(Lourie, J., concurring in denial of petition for rehearing) ("However, I believe the law needs clarification by higher authority, perhaps by Congress, to work its way out of what so many in the innovation field consider are § 101 problems. Individual cases, whether heard by this court or the Supreme Court, are imperfect vehicles for enunciating broad principles because they are limited to the facts presented. Section 101 issues certainly require attention beyond the power of this court."); see also David O. Taylor, "Amending Patent Eligibility", UCDL Rev. 2016, Vol. 50:2149 (2017) (noting widespread uncertainty in law of patent eligibility attributable to recent precedent).

With the associated increased risk and uncertainty, investment in innovation in the U.S. will likely decline and move overseas where it is perceived that patent eligibility standards are more clear. Although the scope of this effect is uncertain, it can be expected to diminish American innovation. Meanwhile, in Europe and China innovators are receiving patents for inventions that U.S. judges are finding ineligible. If left unchecked, these trends will have an unfortunate effect on American innovation and our economy. See Madigan, Kevin and Mossoff, Adam, "Turning Gold to Lead: How Patent Eligibility Doctrine Is Undermining U.S. Leadership in Innovation" (April 13, 2017). George Mason Law Review, vol. 24, 2017, pp. 939-960; George Mason Law & Economics Research Paper No. 17-16. Available at SSRN: https://ssrn.com/abstract=2943431.   

The 2019 Revised Guidance answers the call for greater clarity, certainty, and adherence to traditional notions of patent eligible subject matter in a practical and prudent manner that better ensures society will reap the full benefit of our patent system, and we fully support its full implementation.

LES appreciates your careful consideration of these comments. We commend the USPTO's efforts to revisit and refine its patent examination procedures to comport with traditional principles of patent eligibility. We encourage you to call on us for any assistance you think we might lend. Our community is eager to work with you in your efforts to improve the U.S. patent system for the benefit of society as a whole.

Very best regards,
Brian O'Shaughnessy

LES President and Chair Bob Held and Immediate Past-President and Past-Chair Bill Elkington talked with Managing Intellectual Property Reporter Ellie Mertens recently on the LES initiative to develop standards that tackle tough topics from FRAND (Fair, Reasonable, And Non-Discriminatory) licensing to patent valuation and management of trade secrets and proprietary information in the supply chain. The questions and answers below were pulled from a transcript of the full interview before editing and publication. Read the full Managing Intellectual Property article titled "New LES Standards Offer Certainty This Year."

Q: Managing Intellectual Property: "In your mind, why is it important that an organization of intellectual capital and intellectual property professionals like LES develop standards to create certainty in the space, among its other networking and educational activities?"

A: Elkington: "There's a lot of chaos and asymmetry in the understanding of intellectual capital. Gaining a clear understanding is critical to the economy. It's important to realize that 80 percent of the equity value of a publicly traded company today is in its intellectual capital. So the future of such a company depends on the safeguarding of its intellectual capital. Formalizing best practices through industry-created standards is necessary because legislative solutions don't always help people navigate the intellectual capital universe."

A: Held: "Governments often mandate the use of voluntary standards before creating their own standards. The resulting unintended consequence of this approach is that the industry may not have fully thought through what best practices would make the most sense for them. The LES standards initiative has created a forum to achieve industry consensus in this area. LES' future efforts also include weighing in on Section 101 amendments via the LES Public Policy Committee, and involving the FTC in its standards program. For instance, the FTC v. Qualcomm case is a great example of where standards would help the industry. If the FTC leveraged LES standards, there would be a clearer path for both parties. Hundreds of court cases go before judges every year on the infringement of IP. Our LES Standards initiative aims to make great strides in leveraging the industry's professionals to put together business process standards that both industry and judges can leverage."

Q: Managing Intellectual Property: "What work is currently underway by the LES Standards Committees?"

A: Held: "The FRAND Standards Committee is developing best practices for the FRAND standard-essential patents (SEPs) licensing process. Right now, the definition of FRAND is heavily disputed, and many methodologies for calculating FRAND rates exist. However, SEPs will be critical to scaling the multi-billion dollar Internet-of-Things (IoT) industry, because they support technical interoperability. In exchange for being widely adopted, the LES standard will create a flexible and yet standardized framework for licensing SEPs on FRAND terms."

A: Elkington:  "The LES Standards IP Valuation Committee aims to make IP valuation more predictable, which would be beneficial to parties on every side of the issue. There are so many variables involved and accepted ways to measure IP that vastly different values can be justified using different methodologies. When principles of valuation are dramatically different, you're likely to come up with dramatically different results. A standard should get everyone on the same page, so you're not coming to the table with grossly misaligned concepts."

By Meredith Holmes

Bob O'Donnell of TECHnalysis Research, gave a presentation via webinar entitled, "Artificial Intelligence and Machine Learning: AI in the Enterprise: A Look at Real-World Usage." O'Donnell covered highlights of a study he conducted to determine the nature and extent of AI usage among U.S.-based businesses. Data were gathered from an online survey of 504 medium-sized and large companies that are building or using AI applications. The initial sample was 3,700 companies in all types of businesses.

A top expert in technology market research, Bob O'Donnell is president and chief analyst of TECHnalysis, a technology market research and consulting firm he founded.  He writes a biweekly column for the Tech section of USAToday and appears regularly on TV. O'Donnell's book, Personal Computer Secrets, helps both nerds and novices get the most out of their PC. For fun, he plays trombone and writes songs for his band, "The Headliners."

AI in the Enterprise

O'Donnell began by saying, "The goal of this study is to understand not what's theoretically possible, but what businesses are actually doing." Of the 3,700 companies in the initial sample, about 1 in 5 is currently using AI. Of that group more than half (50 percent) report being in full deployment. More large businesses (61 percent) than medium-sized businesses (50 percent) are in full AI deployment. In addition, 72 percent of companies that considered themselves "early adopters" are in full AI deployment. Neither of these findings is surprising, O'Donnell pointed out, since AI is an advanced technology that sophisticated companies with fairly deep pockets are more likely to adopt.

Fifty percent of companies not using AI cited cost as the reason. Other reasons given included  "Lack of in-house expertise" (30 percent), "Don't know enough" (28 percent), and "Don't see the value" (10 percent). Three responses O'Donnell considered significant were "Negative impact on personnel" (23 percent) and "Negative impact on company operation" (18 percent), and "Negative impact on society." He called these "AI fear issues" and said, "Those of you involved in this industry need to know these fears and concerns are real."

Applications

Most companies are using AI for security – especially data security (71 percent), rather than for more futuristic applications, such as robotics and computer vision. Security applications include network security (69 percent), business intelligence (66 percent), and device security (63 percent). "Applications for things like malware detection and network filtering are very straightforward, 'back-office' applications that are critical to the operation of the organization, and deliver real value." said O'Donnell.

Industries Using AI

Tech companies (27 percent), dominate the businesses using AI. Manufacturing (13 percent) was second, and professional, scientific, and tech services (10 percent), third. No utility, real estate, or agriculture businesses in the survey reported using AI. Use of AI in hospitality, construction, and mining (all 1 percent) was also low. The study revealed a gulf between tech companies, who are in a position to understand and finance AI, and most other industries.

Inferencing and Training

Seventy-three percent of companies surveyed build their own AI models and train them. That is, they input data and train the model to recognize patterns in the data and to make distinctions between, for example, a person and a parked car. The resulting algorithms then enable inferencing, or leveraging the ability of the model to make these distinctions on demand. Of interest to licensing professionals is the question of who owns the algorithms.

Goals and Challenges

Asked to rank their top five goals for AI, the majority of companies put "improving efficiency" first; "speeding up and automating tasks," second; and "increasing security," third. Complexity and cost were cited as the top challenges in implementing AI. Another significant obstacle is "uncertainty about AI's impact." However, despite technical challenges, high implementation costs, and uncertainty about AI's impact, O'Donnell concluded, there is great excitement about AI and its applicability in an almost unlimited number of business operations.

Questions and Answers

O'Donnell answered some questions from live audience members:

Q. How are companies handling licensing issues? Who owns the AI model if you're an AI supplier, and what about use of the developed model if you're a service provider?

A. A lot of the early work on AI was done by academics who tend to share results, and a lot is still open-source. But some companies are developing AI models, and AI "stores"—where algorithms are available and on display. I think we'll see a combination of approaches to the IP question. There will be value in developing algorithms that have the "secret sauce"—ability to do specific operations—on multiple databases.

Q. Your study covered AI in the U.S., but what about the rest of the world? Especially China?

A. There is tremendous technical expertise in China, and AI-related research and implementation are progressing rapidly. They also have access to a huge amount of data, like face-tracking data from security cameras. The U.S. has privacy concerns that limit access to this kind of data. There is concern that AI could be politicized, due to different views about use of and access to data. I am concerned that the technology could get regionalized—that is, that worldwide, there will be inconsistent standards and operating systems—that a separate AI subculture could develop in China.

Slides and audio of Bob O'Donnell's January 16 webinar presentation are available on the LES website.

Go to  https://www.lesusacanada.org/page/WebinarRecordings

For information about an expanded 178-slide version of the presentation, contact Bob O'Donnell:

Email—bob@technalysisresearch.com
Twitter—@bobodtech
LinkedIn—Bob O'Donnnell
on the web—www.technalysisresearch.com

By John Paul, Brian Kacedon, Cecilia Sanabria, and Andrew Renison

Edited by John Paul, Brian Kacedon, Cecilia Sanabria, and Clara Jimenez
 
Abstract: A Delaware court refused to consider expert opinions on a reasonable royalty for patent infringement that relied on licenses that were not economically comparable, did not provide a basis for comparison to the facts of the case, and were based on a bargaining theory that was not tied to the facts of the case.

Background

Bayer accused Baxalta and Nektar Therapeutics of infringing a patent directed to a factor VIII protein used to treat hemophilia A, a congenital bleeding disorder caused by a deficient or defective factor VIII protein.

Each party contended that the other’s expert opinion on reasonable royalties was unreliable and should not be considered by the court in determining the appropriate reasonable royalty to be awarded for patent infringement. The plaintiff argued the defendants’ damages expert opinions (1) improperly relied on the technical expert’s non-infringement and invalidity analysis, (2) lacked economic foundation and arbitrarily apportioned damages, and (3) failed to show the licenses relied on were technologically or economically comparable to a license that would result from a hypothetical negotiation between the parties. The defendants, on the other hand, argued the plaintiff’s damages expert impermissibly relied on a “rule of thumb” bargaining theory and failed to apportion damages.

The Bayer Decision
The court analyzed each of the motions to exclude expert testimony relating to the appropriate reasonable royalty to be awarded for patent infringement, and ultimately excluded certain portions of the proposed testimony.

Plaintiff’s Motion to Exclude Reasonable Royalty Testimony
The plaintiff argued that a patent must be presumed to be valid and infringed at the time of a hypothetical negotiation between the parties to determine a reasonable royalty, and that the opinions of defendants’ damages expert were inconsistent with that presumption. The court disagreed finding that the expert’s opinion that the patent-in-suit makes only small improvements over the prior art is not inconsistent with the presumption of validity. Validity does not define a patent’s economic value—a valid patent might offer little economic value over existing inventions. Thus, the expert properly relied on a technical expert’s invalidity opinions to determine the patent’s economic value. As to the assumption of infringement, the court excluded parts of the defendants’ damages expert opinion that were inconsistent with the court’s claim construction.
The plaintiff next argued that the apportionment calculation the defendants’ damages expert presented in determining a reasonable royalty lacked economic foundation because royalties must be apportioned between infringing and non-infringing features of the accused product. The court disagreed and found the expert properly apportioned damages based on the value of the accused product that could be attributable to the patent and the percentage of the accused products that would infringe the patented claims. The court further explained that the plaintiff’s arguments regarding the expert’s apportionment methods went to the weight and credibility of the expert’s opinion, so the plaintiff’s argument could be properly addressed in cross-examination.

Lastly, the plaintiff argued the defendants’ damages expert failed to show how the licenses relied on in forming his opinions were technically and economically comparable to a license resulting from a hypothetical negotiation between the parties. The court found that the damages expert provided enough evidence showing the licenses were technically comparable, and questions of degree could be addressed through cross-examination. As to whether the licenses were economically comparable, the plaintiff argued the license resulting from a hypothetical negotiation between the parties would be a non-exclusive, running royalty license between competitors. In contrast, of the four licenses relied upon by the expert, only one was non-exclusive, two were between competitors, and none used a running royalty. The court was most persuaded by the plaintiff’s argument that the defendants’ expert improperly used lump-sum licenses to support a running royalty hypothetical license without some basis for comparison. The court rejected the defendants’ proposition that a lump-sum license may easily support a running royalty license, but not vice versa, explaining that such licenses rely on different considerations and have fundamental differences that would be relevant to the economic comparison. Finding that the defendants’ expert did not reconcile these features with the hypothetical license, the court excluded his comparable license opinion from being considered in determining a reasonable royalty.

Defendants’ Motion to Exclude Reasonable Royalty Testimony
The court next addressed the defendants’ argument that the plaintiff’s damages expert impermissibly relied on a bargaining theory—the Nash Bargaining Solution—and failed to tie his analysis to the facts of the case. This theory proposes a 50/50 split of the incremental profits associated with use of the patented technology where two parties bargain under a certain set of premises. The proponent of the theory must tie the case facts to the set of premises, because the theory proves the profit-split only based on those premises. Otherwise, the theory is unsupported by adequate facts and reasoning and is an inadmissible “rule of thumb.”

The court analyzed the plaintiff’s expert opinions to determine whether they were sufficiently tied to the case facts. First, the damages expert conducted substantial analysis to determine end points of the bargaining range for the hypothetical negotiation. From there, the damages expert derived a royalty rate at the mid-point of that range based on the assumption that the parties had equal bargaining power. Next, the damages expert relied on a document concerning defendants’ efforts to develop and commercialize the accused product to support the Nash theory. But the court found the record did not show the document was an agreement concerning the accused product, much less an agreement sufficiently comparable to the hypothetical license. Regardless of the damages expert’s use of a royalty range, the court ultimately found that he did not tie the Nash premises to the facts of the case and excluded the damages expert’s opinion.

Regarding apportionment, the expert compared profits from the accused product to profits from an older generation product since the expert considered the two products nearly identical aside from the infringing features. The defendants argued that both products included non-infringing features that require further apportionment. The court disagreed, finding the apportionment analysis of the plaintiff’s damages expert sufficiently reliable and related to the facts of the case, so it did not exclude those opinions.

Strategy and Conclusion
Courts may carefully evaluate the opinions of damages experts before deciding whether to take them into account in determining a reasonable royalty for patent infringement, considering the methodologies used and how the facts of the case apply to those methodologies. They may analyze whether licenses supporting expert opinions are technically and economically comparable to the license that would result in a hypothetical negotiation between the parties, the basis used by the experts for comparison, and whether the experts adequately tie their analysis to the applicable facts of the case.

Further Information

The Baxter decision can be found here.

Editors and Authors

The editors and authors are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.

John Paul                        john.paul@finnegan.com
Brian Kacedon               brian.kacedon@finnegan.com
Cecilia Sanabria           cecilia.sanabria@finnegan.com
Clara Jimenez                 clara.jimenez@finnegan.com
Andrew Renison            andrew.renison@finnegan.com

This article is for informational purposes and does not constitute legal advice.
The views expressed do not necessarily reflect the views of LES or Finnegan.

By John Paul, Brian Kacedon, Safiya Aguilar Cecilia Sanabria and Clara Jimenez

Abstract: Licensees moved to stay a patent infringement lawsuit pending resolution of a dispute over the license’s covenant not to sue. The court granted the motion, concluding that a stay would not impose an undue burden on licensor and that resolving the covenant’s enforceability could reduce the issues and burden of litigation.

Background

This case stems from an agreement in which Laser Band granted Ward Kraft a license to make and sell certain patented products. The agreement included a mutual covenant not to sue and a forum selection clause which provided that “any action by any party to enforce any provision of this Agreement shall be brought exclusively in the United States District Court for the Eastern District of Missouri, Eastern Division.” While most terms of the agreement expired with the patent, certain provisions, including the covenant not to sue and the forum selection agreement survived expiration.

Zebra subsequently acquired Laser Band and sued Typenex Medical and Ward Kraft in Illinois for patent and trademark infringement, unfair competition and violation of the Illinois Uniform Deceptive Trade Practices Act. The complaint asserted 199 patent claims and 182 pages of infringement contentions.

In response, both Ward Kraft and Typenex asserted the covenant not to sue as an affirmative defense in the Illinois action.  In addition, Ward Kraft and Typenex filed their own lawsuit in Missouri for breach of contract and sought a declaratory judgment that all claims between the parties fell within the scope of the license agreement.  Ward Kraft also asked the Illinois court to stay the litigation filed by Zebra until the Missouri court decided Ward Kraft’s lawsuit.

Opposing the stay, Zebra argued that the covenant not to sue did not apply to the products at issue, and that even if it did, the covenant only applied to the original contacting party, Laser Band, and not Zebra.  Typenex and Ward Kraft on the other hand, argued that the products were subject to the covenant not to sue and that the forum selection clause in the agreement required the dispute to be decided by the court in the Eastern District of Missouri.

The Zebra Decision
In determining whether to stay the case, the court considered whether a stay would (1) unduly prejudice or disadvantage Zebra, (2) simplify the issues and streamline the case, and (3) reduce the burden of litigation on the parties and the Court.

Turning to the first inquiry, the Court determined that Zebra would not be unduly prejudiced by a decision to stay the case. First, it reasoned, the fact that a stay would delay litigation is insufficient to establish undue prejudice. Secondly, Zebra’s failure to pursue a preliminary injunction, enjoining defendants from producing and selling the alleged infringing products, undermined any argument that continued infringement would be unduly prejudicial. Thirdly, Zebra was aware of the alleged infringement for two years before filing suit. Finally, if Zebra prevailed, they would be able to collect damages for any infringement that occurred during the stay. Accordingly, granting the stay would not impose an undue burden on Zebra.

Turning to the second inquiry of whether the stay would simplify the issues and streamline the case, the court addressed Zebra’s argument that the court was permitted to rule on the applicability of the covenant not to sue, so long as it applied Missouri law. Citing the license agreement, Zebra argued that the forum selection clause and choice of law provision were distinct in that the forum selection clause applied to “any action by any party to enforce any provision of this Agreement” while the choice of law provision provided that the agreement “shall be construed, interpreted and applied” in accordance with Missouri law.  Since the covenant not to sue was raised as an affirmative defense, Zebra argued, resolving the issue would not equate to enforcing the license agreement; thus, the court was free to address the issue so long as it applied Missouri law.

The court was unpersuaded. Noting that Zebra did not argue that the forum selection clause was invalid, the court determined that the alleged distinctions between the forum selection clause and choice of law clause were insufficient and unsupported by any of the case law cited by Zebra. And by raising the covenant as an affirmative defense, the defendants were asking the court to enforce it against Zebra—a question to be resolved in the Eastern District of Missouri.  This argument aside, the court concluded that a stay was proper because if the court in the Eastern District of Missouri first determined whether the covenant not to sue applied, it would narrow the scope of the case, if not resolve it entirely. 

As to the final inquiry, the Court concluded that a stay would reduce the burden of litigation on the parties and the Court. Noting the breadth of Zebra’s infringement contentions, the court determined that the cost of litigation might be significantly reduced if the covenant not to sue applied. Such a reduction of cost would undoubtedly reduce the burden on all parties.

Accordingly, the court ordered a stay.

Strategy and Conclusion
Understanding the impact of clauses that can survive the termination of an agreement is important, as these will continue to affect the parties’ conduct.  Clauses addressing forum selection and choice of law, may not seem as important at the time of negotiation, however, these clauses can dramatically affect litigation. Courts may invoke their discretion to stay the case until questions related to agreement interpretation are resolved in a forum other than where the case is pending. Parties opposing a potential stay must be ready to provide evidence showing that a stay would result in undue prejudice, including arguments showing how monetary damages alone would be insufficient to cure the negative impact of such delay.

Editors and Authors

The editors and authors are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.

This article is for informational purposes and does not constitute legal advice.
The views expressed do not necessarily reflect the views of LES or Finnegan.

Panelists from left: Aaric Eisenstein, VP-Licensing Strategy, Personalized Media Communications; Lee Cheng, Chief Legal Officer, eForCity Corp.; Roman Buhler, National Director, Madison Coalition; and Moderator Jeff Bartholomew, Shareholder Robinson Waters & O'Dorisio, P.C.

Owners of intellectual property and their lawyers are on the front line of developing voluntary licensing standards, members of a panel discussion said at the LES 2018 Annual Meeting in Boston this month.

LES has established subcommittees to draft standards in eight different areas, including IP licensing, FRAND licensing, IP valuation and IP protection in the supply chain. At issue in the panel discussion was the work of the subcommittee on IP licensing, which LES has charged with developing a standard for parties' interactions in licensing intellectual property to enhance efficiency and trust and reduce the need for additional litigation and legislation and regulation in this field.

Much of the distrust sown in the field comes from the steady drumbeat of lawsuits from non-practicing entities in the United States; lawyers from each side shared their experiences with the licensing efforts of NPEs. Lee Cheng, chief legal officer at eForCity, a Los Angeles-based retailer of premium electronics accessories, said that his first experience with what he termed "abusive assertions" came as chief legal officer of internet computer and electronics retailer Newegg in 2005.

"I'm a corporate lawyer, and I spent the first half of my legal career assiduously trying to avoid the insides of courtrooms," Cheng said. "If I did my job right, my clients would never get sued and never go to court. So imagine to my great surprise when I got to Newegg and a bunch of patent claims started landing on my desk. I scratched my head and said to myself, 'Why are we getting sued? We don't make anything. We're an internet retailer.'"

That's when Cheng says he realized that patents could be granted for things like the online shopping carts, drop-down menus or search functionalities that are ubiquitous across e-commerce.

"And then, we started getting multiple claims asserting [essentially] the same functionality. We were told, at the time, that everyone's just writing checks [to make the claims go away]," he said. "In 2005, Amazon coughed up US$40 million for a license for a shopping cart patent. I thought it was absurd, but I kept being told that everyone's just paying."

Cheng says that as an internet retailer of electronics products, Newegg's profits margins were thin. "We just couldn't afford to pay serially that kind of money, so we developed a strategy to fight back against the abusive assertion of patents, and we were very successful."

Cheng says the company fought some 35 claims, taking about a dozen of them to court. "Along with a handful of other companies, I think we helped drive some parity in terms of licensing litigation," he said.

"We're all familiar with some of the worst types of abuses and abusers. These are folks who send out thousands of demand letters to mom-and-pop stores and to coffee shops and whatnot," Cheng said. "And they would just ask for a couple thousand dollars or they would threaten these small businesses with the cost of litigation. They were just trying to make the claims and to get licensing revenue based purely on the threat of litigation as opposed to any substantive merit to the patent or the assertion."

The success of NPEs came about largely because there was a lack of licensing standards, Cheng said. "The most important set of standards that needs to be shaped is around what constitutes reasonable royalties. There's a very strong need to decrease friction in licensing discussions with prospective licensors and asserters. Rational standards should drive returns for legitimate licensors and rights holders."

Moderator Jeff Bartholomew, a shareholder at Denver law firm Robinson Waters and O'Dorisio, noted that NPEs are not the only players "who act unreasonably and with some abuse."

Aaric Eisenstein, vice president of licensing strategy at Personalized Media Communications (PMC), a Houston-area inventor-owned patent licensing company, said that he largely agreed with Cheng, but emphasized that abuse goes both ways.

"I think Lee and I are in violent agreement on almost everything," he said. What I heard was a well-reasoned and cogent argument against abusive behavior. And that's really the nut of the whole thing. If I've got 50,000 demand letters that I'm sending out to momand- pop coffee shops, and I'm saying pay me $2,500 or I'm going to drag you into court, people are rightly upset about that," he said. "The scenario that I deal with, as the licensor of a patent portfolio, is the opposite end of that same spectrum."

Eisenstein works for a "mom-and-pop business" as well, he said. "Pop is John Harvey, with close to a hundred patents and 3,500 claims. They've been licensed to companies like Panasonic, Toshiba, Sony, Cisco, Scientific Atlanta, you name it. Real players, real amounts of money, over decades. These were folks who gave real consideration for the patents. John is the quintessential small American inventor [who has] patents on everything from digital rights management to decryption to digital tuning, software downloads, e-commerce, you name it. We've got all kinds of patents."

His frustrations about claims come from a different perspective than Cheng's, he says.

"We put together the patent portfolio, and mom-and-pop contact somebody they think is infringing the patents," Eisenstein says. "You can guess what happens. Deafening silence on the other end. Do you consider that to be abusive? Maybe not. But how about this: When we send out a package, it has information about the company, has our contact information, we've got claim charts for exemplary products, we've got a prosecution history that dates back to 1981. It's so heavy, you can barely lift the package. There's every bit of information you could possibly want to know about our patents, our company and why you should want to do a deal with us. And we get no response."

Eisenstein then recounted a meeting with a company's general counsel in which the lawyer told him that the only way he was able to allocate resources to responding to such a package was when he received a scheduling order from the court. Eisenstein says the general counsel was saying "sue me, please."

"If you can't have an initial conversation, then I would argue that's abusive behavior as well," Eisenstein said. "What I'd like to see, and what we're working on in the LES Standards Initiative, is the elimination of abusive behavior. It doesn't matter if you're a practicing entity, a non-practicing entity, a patent user, a patent owner. Get rid of abusive behavior. Try to get the gamesmanship out of things. We're not going to fix the fact that going to court is expensive, but we're trying to get an alternative method of resolving a patent issue, where good faith people can sit down and have a conversation about whether or not there is a valid patent, whether or not it's infringed and, if so, what it ought to be valued at and what payment ought to be made."

Bartholomew said that, in a nutshell, is the objective of the LES Licensing Standards Committee and the Licensing Standards Initiative in general. "There are now over 30 states that have enacted what we call bad faith demand letter legislation. They are not uniform in any sense. You always worry about patchwork legislation. People are trying to do business across state lines, and this just creates a mess."

Roman Buhler, national director of the Madison Coalition, a Washington-based organization which is seeking an amendment to the U.S. Constitution designed to curtail the ability of the federal government to make regulations without Congressional approval, said that the current political climate in Washington has made passing legislation in the states a more attractive option.

"It's very, very hard to get the majority of the House [of Representatives], 60 votes in the Senate and a presidential signature, so people tend to go after reform at the state level, and you get a patchwork," Buhler said.

"The question for the community that's interested in having enforceable and effective and reasonable patent laws is, how do you engage the federal government?" Buhler said. "The risk is that you get a law that is statements of intent without any detail. And then, the details end up getting worked out by regulatory agencies, and the current state of regulatory law is that there is no firm regulatory law. President A can issue a set of regulations which mean one thing. The next president comes along and issues a new set of regulations, and you have a completely different system. The end result of federal legislation without safeguards is a fluctuating patent environment, which isn't good for anybody, because you can't predict what your property rights are going to be in two or four or eight or 10 years. That is not optimum for investment."

"We think practitioners and the people in the business are motivated and capable of coming up with our own voluntary consensus standards that would apply to people who want to sign up to the standards for business conduct in the fields of intellectual property management," Bartholomew said. "That's what was behind the LES Standards Initiative. But what happens after we get a standard approved [by the American National Standards Institute]? How do we get industry players to adopt these standards, instead of leaving it to the status quo?"

Cheng said he believes industry will adopt the standards easily, once they're shown it will save them money and reduce their litigation costs by signing on.

Eisenstein hopes for the same kind of broad adoption of LES standards. "If somebody walks into court and says 'I sued Company A yesterday,' the judge is going to ask if he tried to work it out using the LES Standards. And if that somebody says no, the judge is going to say 'Quit clogging my courtroom, go talk to each other and, if you can't work it out, come back in six months. But first, try to work it out yourselves.' That's the level of adoption I'd really love to see."

Buhler suggested that inaction on the party of rights holders and lawyers could result in exactly the opposite of what they would like to see happen.

"If a consensus begins to emerge on particular standards, and if people perceive that if they don't do something voluntarily, some other kind of standard is going to be enforced, that is when, in my experience, people really get interested in signing on to voluntary standards."

Audience listens to the Licensing Standards panel discussion.

Read LES Viewpoints December 2018 Edition here

Brian Scarpelli	Matteo Sabattini

What is the importance of this committee?

Matteo Sabattini: "The FRAND Licensing Standards Committee will create an industrywide, consensus-based business process standard for businesses and professionals who engage in the practice of licensing standardessential patents (SEPs) on fair, reasonable and non-discriminatory (FRAND) terms." Brian Scarpelli: "By bringing together industry experts across various industries and practitioners who engage in the licensing of SEPs on FRAND terms, the committee can collaborate on industry practices for this important area of the innovation ecosystem and find ways to increase efficiency and reduce costs."

What is the importance of standards, in general?

Matteo Sabattini: "Open, consensus-based standards represent a vital part of the industrial ecosystem. Standards have been shown to lower barriers to entry, reduce costs, achieve broad interoperability, enhance collaboration and, ultimately, benefit society. Business process standards have been instrumental in creating common guidelines that are, in some cases, widely used and accepted. They have also helped businesses of all sizes achieve compliance through best practices."

Brian Scarpelli: "In developing a standard, the Committee's goal is to achieve consensus on efficient industry negotiation practices that promote licensing of SEPs in a way that benefits all stakeholders—whether they be licensors or licensees of SEPs, individual inventors or innovating businesses, internal practitioners or outside professionals."

Why is this important to you, either personally, professionally, or both?

Matteo Sabattini: "FRAND licensing is a fundamental and integral component of innovation that has guaranteed the success of the standardization process and has allowed many industrial ecosystems to thrive. Highly complex technical standards require significant, risky upfront investments. The success of technical standards involves vibrant participation from a diversity of stakeholders including technology developers and innovators, and broad market adoption of the standard on a global scale. FRAND licensing guarantees a fair return on investment for those who voluntarily contribute their technologies into a standard while providing implementers and users of the standard access to the necessary technology. The FRAND Standard, developed by practitioners for practitioners, will serve the needs of SEP licensees and licensors in a pragmatic way that benefits all stakeholders."

Brian Scarpelli: "FRAND licensing is essential to innovation in today's business world and future IoT-driven verticals, particularly for small business startups. By providing consensus guidance on the FRAND licensing process, all stakeholders can enjoy greater efficiency as they build and use standards to innovate."

What would you say to someone wanting to know more?

Matteo Sabattini: "Get involved now. Participation and discussion with peers from the industry is the best way to make sure the standard we are developing benefits from broad expertise across different verticals and different business models, achieves wide adoption and translates to practical value in the real world. FRAND licensing is not industry-specific, especially in an era of technology convergence. LES standards are tools for anyone involved in managing, transacting, licensing or generally dealing with IP matters, from the most seasoned licensing professional to those brand new to the practice. Participation provides a dual benefit to participating enterprises and the licensing community: while enhancing the quality and reach of the developed standards, participating members will be exposed to a range of different practices across, and know-how from, different verticals."

Brian Scarpelli: "Our goal is to have broad, open participation by a diverse group of participants to develop a standard that will achieve industry-wide recognition and adoption. We encourage all interested parties to join the LES Standards program and the committee so we can leverage the input of all stakeholders from across verticals and different business models, both those familiar with SEP licensing, as well as those that are new to the game."

About The LES FRAND Standard Committee Co-Chairs

The committee's co-chairs are LES Standards Program members Matteo Sabattini, director of IP policy at Ericsson, and Brian Scarpelli, senior global policy counsel at ACT|The App Association. Matteo is currently responsible for IP rights policy and advocacy and promotion at standard defining/ setting organizations (SDOs/SSOs), industry fora, trade associations, governmental agencies, etc. He has expertise in technology and IP-related matters, and his background combines business, policy and technical skills. Brian is responsible for legal and policy advocacy on a diversity of issues impacting small business software development and high tech companies, including standards, competition, and intellectual property.

Get Involved in the LES FRAND Standard Committee

To become a member of the LES Standards program and FRAND Licensing Standard Committee, visit https://www. lesusacanada.org/page/lesstandards. LES Standards members interested in joining the FRAND Licensing Standard Committee can register on the LES website here and take advantage of Committee activities and meetings. View the LES FRAND Standard Committee members here: www.lesusacanada.org/page/frandmembers

Read LES Viewpoints December 2018 Edition here