LES COMMUNITY CONVERSATIONS
NOVEMBER 27, 2012
NANOTECHNLOGY COMMITTEE
HIGH TECH SECTOR WEBINAR:
The Path to Creating, Managing and Extracting Value
from IP in Nanotechnology
WEBINAR OUTLINE

Opening
◦ Erin Murphy, Manager – Chapter Relations, LES

Speaker Introductions
◦ Luca Escoffier (Moderator), CEO, Usque ad Sidera, LLC

Speaker Presentations
◦
◦
◦
◦
Sarah Rouse, Corporate IP Counsel, Onyx Pharmaceuticals
Ken Epstein, Principal, NewCap Partners, Inc.
Lance Criscuolo, President, Zyvex Technologies
Efrat Kasznik, President, Foresight Valuation Group;
Chair, Nanotech Committee, High Tech Sector, LES

Audience Q&A
2
IP Landscape for Nanotechnology
Based Inventions

Sarah Rouse Janosik, Ph.D., J.D.
◦ Corporate IP Counsel, Onyx Pharmaceuticals
◦ Registered Patent Attorney
 [email protected]
3
Speaker Presentation: Sarah Rouse Janosik, Ph.D., J.D.
Corporate IP Counsel, Onyx Pharmaceuticals
1.
IP landscape for nanotechnology-based inventions
2.
How is the patenting of nanotechnology inventions different
from other fields?
3.
What are the major implications of the introduction of the
AIA for nanotechnology applicants?
4.
What is the best way to perform a nanotechnology due
diligence assessment to structure for investment?
4
Nanotechnology

Nanotechnology is at the forefront of technology innovation
across multiple disciplines, with the common scheme being
scale.

“Nanophase” is a special state of subdivision implying that
particles or atomic clusters have average dimensions smaller
than approximately 100 nm (100x10-9 m).
Cascade Blue/SiO2 Nanoparticle
5
Nanotechnology

Nanophase materials frequently exhibit unique properties not
observed in their larger bulk phase counterparts such as
enhanced magnetic properties, increased structural activity,
altered electrical or optical activity, or altered chemical or
biological activity.

Nanotechnology-based inventions are currently being used in
biomedicine, electronics, information technology, environment
and sanitation applications, energy production, lithography, data
storage, optics, aerospace applications and molecular robotic
manufacturing, among other areas.
The global market for nanotechnology-based products
is projected to be US $2.41 trillion by 2015.*
*Nanotechnology: A Global Strategic Business Report, Global Industry Analysts, Inc., October 2010.
6
IP Landscape for Nanotechnology-Based
Inventions

Broad overlapping patent rights granted to nanotechnology-based
inventions have resulted in a “patent thicket”.

A “patent thicket” is a situation where unreasonable breadth of patent
claims of issued patents increases the potential for patent litigation and
makes commercialization difficult or impossible for a new entrant in a
particular business sector.
– Carbon nanotubes
– Dendrimers
– Quantum Dots

Many practitioners fear that the patent thicket will hamper research and
innovation in nanotechnology.
7
Maneuvering through the Nanotechnology
Patent Thicket

Cross-licensing
– Parties license patent rights among themselves with promise not to
sue one another
– Viable strategy for late-comers looking to enter saturated
nanotechnology field

Patent Pooling
-
Parties assemble overlapping patent rights into single agreement,
with each party taking exclusive or non-exclusive rights to a
particular field of use covered by the combined patents
-
Risk that parties will overvalue own contributions, thereby
foreclosing participation by new parties
8
How is the Patenting of Nanotechnology
Inventions Different from Other Fields?

As many nanotechnology inventions already exist at the macroscale,
certain claims to nanotechnology inventions could be deemed
anticipated by their larger-scale counterparts.
-

When drafting the claims of a nanotechnology patent application,
the improvement offered by the invention should be emphasized
A mere decrease in size to the nanoscale may be deemed as obvious.
-
Where the invention is not merely a reduction in size, but rather a
solution of a new problem, the claims should focus on the solution
9
How is the Patenting of Nanotechnology
Inventions Different from Other Fields?

Use of overly-broad or unspecific terminology in nanotechnology
applications may result in the rejection of claims for lack of written
description or enablement.
-
When possible, well-known terms of art should be used to describe
the invention
-
Ambiguous or unclear terms should be clearly defined and
consistently used in the specification
-
Characterization techniques (e.g., atomic force microscopy (AFM),
powder X-Ray diffraction (PXRD), scanning electron microscopy
(SEM), particle size analyzers, zeta potential measurements) and
sample preparation should also be clearly described in the
specification
10
What are the Major Implications of the
Introduction of the AIA for Nanotech Applicants?

America Invents Act (“AIA”) went into effect September 16, 2012

Overhaul of US patent system


-
Patent prosecution
-
Patent litigation
-
USPTO post-grant proceedings
Fundamental change in approach to inventorship
-
Transition from first inventor to invent to first inventor to file
-
Independent conception of invention by a first filer can result in an
awarded patent regardless of whether another invented first
US approach to inventorship now homogeneous with rest of the world
11
AIA: Transition from First to Invent to First to File
Patent System

Applicable to patent applications with an effective filing date of March
16, 2013 or later

Pressure to file first must be balanced with enablement requirements
-
Specification of patent application must describe how to make and
use the invention in such full, clear, concise and exact terms to
enable a person skilled in the technology to carry out the invention
without undue experimentation (the ”enablement requirement”)
-
Enablement is determined as of the filing date of the patent
-
Nanotechnology commercialization significantly lags development:
nontechnology-based inventions often exist on "paper" and have
not been fully realized in a laboratory setting
12
What is the Best Way to Perform a Nanotech Due
Diligence Assessment to Structure for Investment?

Patents = key business assets
-
Weak patent position can prevent financing
-
Weak patent position can prevent acquisition
-
Weak patent position can have negative impact on valuation

A robust patent portfolio is based upon and supports business strategy

At a minimum, the portfolio:
-
Covers key products/services
-
Creates barriers to entry
-
Provides ammunition against competitors
13
Defensive Patent Portfolio Management Strategy

Strengthening Patent Protection:
-
Strategically file for patents in key markets
-
Refine claim language
•
-
-
Make it easy to determine infringement
Fill in gaps in claim coverage
•
Layer protection (e.g., genus, species claims)
•
Review claims with inventors and consider design around
possibilities
•
Consider alternative claim-drafting strategies
Consider in-licensing/acquisition of additional IP
14
Offensive Patent Portfolio Management Strategy



An understanding of competitive landscape is key
-
Continuous monitoring efforts
-
FTO, validity opinions
Blocking competition
-
New patent filings (anticipate competition)
-
Old patent filings/new claims (mining existing disclosures)
Complementing the portfolio of a potential acquirer
-
May held differentiate you from your competitors during acquisition
-
May help equalize valuation leverage if the potential acquirer holds
relevant IP
15
Nanotechnology Commercialization:
Industry & Investment Opportunities

Ken Epstein
◦ Principal, NewCap Partners, Inc.
 [email protected]
16
Speaker Presentation: Ken Epstein, Principal,
NewCap Partners, Inc.
1.
What is your experience in developing nanotech
products in a large company, like Dow?
2.
What is the real potential of the nanotech industry?
3.
Is nanotechnology an industry or just another
technology?
4.
How do investors see this promising field?
17
Nanotechnology Commercial History Background


R&D (and even commercial products) from sub 100 nm
materials has been going on in both industry and research
laboratories since the 1980’s even before it had a name
(“Nanotechnology” around 2000)
Some successful early nanoparticle commercialization
products in the 1980’s and 1990’s include:
 A mixture of micro and nano metal catalysts to produce new generation of
plastics (resulted in large IP legal battle between Exxon and Dow on the
catalyst technologies scope, freedom to operate, and application coverage).
 Polymer systems including nanoparticles (<10%) for structural applications (e.g.
General Motors used on extended step for handicap vans)
 Nanoparticles added to cement to allow extended life to move long distances
and pour cement in large cities (Tokyo was one of first cities to use).
11/27/2012
Ken Epstein, Principal NewCap Partners
18
Early Dow Chemical Nanotech Product

I have been in Nanotechnology since 1986 when I worked as a venture manager at the Dow
Chemical Company--(Dow group referred to this area as its sub-sub micron particles, solutions or products)

First successful commercial Dow nano-product was a sub 100 nanometer 100% tungsten
carbide tool (normally use metal like Nickel or Cobalt as binder-WC/Ni or WC/Co) with
applications including:
 High pressure highly abrasive resistant water jet cutting tools for aerospace (composites)
 Replacement of diamond coated metal tools for high speed automated cutting tools
 Early color HP inkjet nozzles because some inks are very abrasive

IP Coverage-Global:
 Patents and trade secrets on manufacturing process (high pressure, very short time-<60
seconds))
 Patents and trade secrets covered use of multiple materials (metals, ceramics, combinations)
 Patents and trade secrets covered multiple applications
 LOST GLOBAL COVERAGE ON ONE KEY PATENT APPLICATION DUE TO SENIOR
SCIENTIST PRESENTING DATA AT TECHNOLOGY MEETING 3 DAYS BEFORE OFFICIAL
PATENT APPLICATION WAS FILED.

ALL PARTS BUSINESS WAS SOLD TO KENNAMETAL IN 1996-KENNAMETAL STILL USING THIS
TECHNOLOGY TO MAKE PARTS FOR SPECIALTY TOOLS MARKETS.
11/27/2012
Ken Epstein, Principal NewCap Partners
19
Is Nanotechnology an Industry or a Technology?




Nanotech really describes a broad scope of
technologies that can service a wide array of different
markets and applications so I would say that
Nanotechnology is a platform technology
Nanotechnology is still a relatively new platform for
technology and solution development for markets and
industries
Typically, it takes more than 20 years to really establish
technology in commercial applications
Zyvex is an example of a successful small nanotech
company that developed applications using
nanotechnology to push the commercialization of
nanotech solutions.
11/27/2012
Ken Epstein, Principal NewCap Partners
20
Nanotechnology IP Issues
There have been billions of dollars spent over last 10 years in
nanotech R&D and initial commercialization
 Nanotech IP area is quite crowded globally with more than
10 governments and a large number of global public
companies (e.g. IBM, BASF, Dow, DuPont, Sumitomo, Toray,
Defense & aerospace companies, etc.) funding, working on,
and filing patents in addition to all the nanotech start-ups
 The number of nanotech patents globally (e.g. China, Japan,
Europe) has increased significantly as these governments fund
nanotech institutes for commercialization and scale-up
applications
 The major IP issue for commercialization is “freedom to
operate”-slows down commercialization and is an
investment obstacle.

 Particularly sensitive for IP that does not have global patent
protection for applications
11/27/2012
Ken Epstein, Principal NewCap Partners
21
Nanotechnology IP Issues


Nanotech IP global strategy becomes one of key
components of commercialization strategy if company
wants to be successful
As most of the audience knows, IP Strategy includes not
only patents, but also trade secrets, publishing to
protect application use, and trademarks and copyrights.
 Unfortunately, most of the people working at the nanotech
companies, government labs, and even large corporations, do not
understand how to maximize their total IP strategy to help
commercialize products

Other panelists more qualified than I will address issues
and ways to strengthen Nanotech IP strategy.
11/27/2012
Ken Epstein, Principal NewCap Partners
22
Investment Opportunities/Issues for Nanotechnology




Investors are more interested in what the nanotechnology will do
to help them make money (financial investors) or what it will do to
extend use of existing company (strategic investors) system or
product that they are selling rather than the technology and IP
(hard for technology people to appreciate)
Nanotechnology is presently at a stage that it is still a tool or
platform for making products or systems work better. The next
generation of nanotech breakthroughs will bring disruptive
solutions to some market segments.
Nanotechnology solutions have been slower to be adopted in most
applications in that there is usually new capital needed by customer
to introduce the nano-solution either to improve the system or
replace a component or subsystem
The quickest success for Nano-solutions has been where the
product or solution can be dropped into the existing system with
minimum capital expenditure or change in system.
 There is an IP opportunity for development of nanotech solutions to be
able to fit into existing systems with minimum capital expenditures.
11/27/2012
Ken Epstein, Principal NewCap Partners
23
Valuation/Investment Climate for Nanotechnology

Investment climate for nanotech companies has been difficult
in the last few years
 There are still many nanotech companies with technologies still
looking for markets
 Both corporate and financial investors have changed their appetite
for nanotech investments—now looking for solutions or
components (e.g. battery) to scale-up and commercialize rather
than platform of materials or technologies
IP covering applications, products, and solutions rather than
just materials and processes to make nano products has
become more important to investors in the nanotech spaceFreedom to Operate
 Nanotech groups now should seek investors or corporate
partners that understand the market space/potential cost
and efficiency benefits where the nanotech solution can be
used so that the IP and technology value can be maximized.

11/27/2012
Ken Epstein, Principal NewCap Partners
24
Bringing Nanotech Products to
Market: Opportunities & Hurdles

Lance Criscuolo
◦ President, Zyvex Technologies
 [email protected]
25
Speaker Presentation: Lance Criscuolo, President,
Zyvex Technologies
1.
What is the key to your success in commercializing
nanotechnology? How is the process different from a large
company, like Dow?
2.
Why has nanotechnology seem to take so long to materialize in
the commercial world, where is it today and what is expected in
the future?
3.
How difficult is it to have an international business involved in
nanotech products and how difficult is to be in compliance with
national and international regulations?
26
Success and Differentiation
‣
What helps our success?
‣ Our willingness to move down the value chain
Customer Value Line
Technology
Intermediates
+
End Products
IP value also increases as you move down the value chain
‣
How are we different from Dow or Coning?
‣ We don’t have the resources (time) to wait for technology to
be adopted
27
Success and Differentiation
‣ Why does adoption take so long?
‣ It is the nature of the business
Products drive growth
Growth/
Adoption
Graphene
‣
Factors that drive adoption
‣ Supply chain validation
‣ Product adoption cycles
‣ Perception, Hype, and Regulatory
‣ Value
28
‣ Our position is that IP is significantly more valuable when
directly connected to a product
Connection to IP
IP Connection
IP Value
Value Position
Technology
Intermediates
End Product
29
Regulatory Climate
‣ How do regulations affect adoption?
‣ Regulations are potential product/industry killers
‣ When you introduce Nano – it gets tougher
‣ Regulations can also be driven by perception
‣
Degree of difficulty goes up significantly when you are dealing
with a foreign country
30
IP Valuation in Nanotechnology:
Challenges and Methodologies

Efrat Kasznik
◦ Chair –Nanotechnology Committee, LES High Tech Sector
◦ President, Foresight Valuation Group, LLC
◦ Lecturer, Stanford Graduate School of Business
 [email protected]
31
Speaker Presentation: Efrat Kasznik,
President, Foresight Valuation Group LLC
1.
What is your approach to the valuation of IP in an emerging
field, like nanotechnology?
2.
Is nanotechnology different from other emerging fields?
3.
What is the difference between valuation and evaluation of a
technology? Would it be more appropriate to perform an
evaluation of nanotech IP rather than a quantitative
valuation?
4.
What role does IP valuation play in supporting technology
transfer in the nanotechnology field?
32
General IP Valuation Methods
Method
Description
Market
Based on market
transactions
involving
comparable
intangibles
Income
Cost
Advantages
Disadvantages
When Used
Market driven,
Comparable
Most desirable,
reflects market
transactions are but rarely used
prices (supply and
not always
(lack of market
demand
available
data)
equilibrium)
Input factors may
Based on future
Straight forward
be hard to
economic utility
approach, based estimate: Future
generated by the
Most Commonly
on observable
projections,
intangible (royalties
used
industry norms
Royalty rates,
or incremental
(royalty rates)
Market
profits)
penetration
Easy to calculate –
Based on estimation
When neither
based on known
No measure of
of the cost to
Market nor Income
factors (time and utility or market
replicate/reproduce
methods are
materials, hourly
demand
the intangible
applicable
rates, overhead)
IP Valuation in Emerging Markets
Event
Scrutiny Level
Purpose of Valuation
Litigation
Very High
Damages Award
Mergers & Acquisitions
Very High
Financial Reporting
Inter-company transfers
Very High
Transfer Pricing (Tax)
Spin-Off
High
Investors’ due diligence
In-Kind Contributions
High
Joint Venture
Sell/Buy IP
Medium
Monetization
Licensing /Cross Licensing
Medium
Negotiation Support
R&D Investments
Medium
Internal Decision/Planning
Portfolio Management
Medium
Internal Decision/Planning
Market Assessments
Medium
Internal Decision/Planning
Initial Estimate
Low
Threshold analysis
Developed
Emerging
How is Nanotechnology Different?
◦ Nanotechnology is similar to other emerging
fields:
 The main challenge is valuing basic research and tech transfer
from university to industry
◦ There is no easy way to model cash flows when
products are years away
 Many speculative assumptions need to be made on future
events.
◦ Nanotech differentiator - its interdisciplinary
nature
 Applications in multiple industries
 Understanding where in supply chain revenues are realized is
critical to modeling cash flows
35
The Difference Between Valuation and
Evaluation of a Technology
◦ An “evaluation” involves a non-quantitative
assessment of factors :
 Specific to the technology: development, market, regulatory
 Specific to the IP: quality of patents
 Evaluation is a preliminary phase to commercialization or
monetization strategy formation
◦ A “valuation” involves the assignment of a precise
dollar value to an IP portfolio
 Required in situations involving financial reporting, tax
reporting, litigation and other compliance reporting
36
When is it More Appropriate to Perform an
Evaluation vs. a Valuation?
◦ It depends on the circumstances of the transaction:
 Patent sales - rely primarily on evaluation of the patents and
some heuristic (non-formal) valuation
 Financial reporting – requires valuation of the fair value of
the IP, with no evaluation preceding the analysis
◦ Often we combine a quantitative assessment (the
valuation) with a qualitative assessment (the
evaluation) when analyzing nanotechnology IP
◦ Valuing Nanotechnology IP may be challenging as the
regulatory and market uncertainties make predictions
very difficult
37
Role of IP Valuation in Nanotechnology Tech
Transfer : A Case Study
This analysis is related to the valuation of nano-composite material
technology (patents and know-how) for tax purposes by a large US
chemical company
We applied the relief from royalty method, one of the most common
methods for valuing royalty-bearing intangibles
TECHNOLOGY
Information
Applications: packaging
Products : Plastic bottle
Unit sales: Bottles
Selling Price: $0.06 /bottle
Markets: US
PRODUCT &
SERVICES
Information
Unit Sales: 2 bill. bottles
Growth Rates: 15%
Market Penetration: 5%
MARKET
Information
Royalty rates: 3%, 10 years
Discount rates: 15%
FINANCIAL
Information
Conclusions
Audience Q&A
 Thank you!

39