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IP Osgoode & Hennick Centre for Business & Law 2010 Conference February 11, 2010 AGENDA • Introduction to McLean Watson & i4i • The i4i Story • Lessons Learned • Q&A 2 McLEAN WATSON MCLEAN WATSON – THE WORLD OF VC’S 3 McLEAN WATSON MCLEAN WATSON Tight knit group with shared values and complementary investment styles. 15 year track record of top quartile Venture Capital Investing in North America & Asia. 4 McLEAN WATSON MCLEAN WATSON HISTORY • • • • • • 1820 Trading Company 1972 School friends 1987 – 1994 Softimage Financing & IPO 1994 Sale to Microsoft 1996 Fund 1 & 1999 Fund 2 Today $300M AUM, Canada - Singapore 5 McLEAN WATSON LEADERSHIP & INNOVATION 1st Quebec IPO on Nasdaq 1992 - Softimage 1st Software only fund in Canada 1996 1st VC in natural resources technology Only Canadian VC in this area - 2000 Only Canadian VC in Singapore/Asia Since 1999 Unique Asian Investor Links Singapore Government (1999) & Brunei Investment Agency 1st Canadian VC lead IPO in Singapore Ntegrator (2005) 1st Canadian VC patent enforcement/monetization i4i (2004-2009) 6 McLEAN WATSON GROWTH RECORD Company Stage of Investment MW Role Result FloNetwork 2 founders, 1 emp, no Lead investor, Chair (email marketing) product Largest investor FloNetwork founder Lead investor, Director, incubated in MW office Largest investor i4i 2 founders, no emp or Lead & majority investor, Awarded US$300M & (XML software) product Chair drove IP strategy injunction vs. Microsoft 4 founders, introducing Lead investor, Chair product MW partner now CEO Inmarsat - $105M value Incubated in MW office, 1 Lead investor, Director Now Mannkind pubco - founder, no emp Merged to form Mannkind Fortiva (data management) SkyWave (satellite M2M, asset tracking) CTL Immunotherapies (cancer vaccines) 7 Sold to DoubleClick for $85M Sold to Proofpoint for $25M Raised US $23M – $800M mkt cap McLEAN WATSON GROWTH RECORD Company Ntegrator (telcom services) Stage of Investment MW Role Lead investor, Largest 4 founders investor Lavalife Established, but needed Director, (data management) web strategy Change Agent Vismand (technology-driven Lead & majority investor, concept Chairman exploration) Quantec Operating long term, but (geophysical services, no proprietary product deep imaging) finished – prototype stage Softimage 1 founder, 2 emp, no Lead investors, 2 directors, (3D animation SW) product, concept only Co-COOs for 1 yr Lead investor, Chairman MW partner now CEO, 8 Result IPO in Singapore Sold to XXX for $130 million Raised $20 million, actively exploring Barrick, Noranda and Govt. Sask all invested, #1 in mining geophysics IPO on Nasdaq; sold to Microsoft for $200m McLEAN WATSON Asset Management and Security via Satellite 9 McLEAN WATSON BelAir Networks Integrated Mobile Broadband Network: Wi-Fi, WiMAX and Cellular 10 McLEAN WATSON IT Applied to Geophysics – Underground Snapshot MT L108 Resistivity MT Unconstrained Rhyolite Contact Resistivity Log10 35000 10000 5000 1000 Chance Mineral Occurrence Massive Sulphide with Graphite 176,900 tonnes grading 12.8% Zn, 3.24% Pb, and 178g/t Ag North Rhyolite Massive Sulphide Intersections 500 100 Isoclinal View Looking North Drillhole Intersection Points Massive Sulphide Intersection 800m Graphitic Argillite 11 McLEAN WATSON I4I STORY 12 McLEAN WATSON CHAPTER 1 – MEETING MICHEL Meeting Competition Promise & Handshake i4i’s Office i4i’s Vision SGML XML 13 McLEAN WATSON CHAPTER 2 – R&D/PATENT • 1994 filed for US patent 5,787,449 • Tweed jackets and blackboards • Evangelists 14 McLEAN WATSON CHAPTER 3 – GROWTH & FUTURE 1998 Patent Issues “Oracle of unstructured data” “Overthrowing the Tyrant” Key Customers - USPTO 9/11 White Papers, Green Papers… What it is used for…pharma, carriers, plane, tanks, financial services, manufacturing “The Henry Ford of data manufacturing” 15 McLEAN WATSON CHAPTER 3 – GROWTH & FUTURE NASA Awards Articles Top CTO’s & Founders Robot Newbridge 16 McLEAN WATSON CHAPTER 4 – SURVIVAL? 2002 - massive change in sales pipeline Internal adjustments Every second light bulb removed Refocus on pharma industry Then more focus...on labels 17 McLEAN WATSON Sent: Tuesday, January 27, 2004 11:24 AM Loudon Owen From: mvulpe [[email protected]] Sent: Tuesday, January 27, 2004 11:24 AM Subject: patent issues with microsoft To be very serious here - MS has filed a patent application in the EU that appears to be what we are doing in x4o and have been for many years - it may also be an infringment on our core patent - the implications are somewhat obvious i would think?? 18 McLEAN WATSON 2004-2006 Now what? Crisscross USA Prepare background information package RFP to top firms Find partner/capital Choose lawyers Sanity checks (patent litigation friends…) 19 McLEAN WATSON FILED - EASTERN DISTRICT • • • • • • • • • January March 9, 2007 filed i4i LP (then law changed with EBay) “Case always looks best on the first day” Discoveries Who – what – where – when – why Documents Documents Documents Documents (1 million pages?) 20 McLEAN WATSON JUDGE DAVIS • Leonard Davis (judge) • Leonard E. Davis (born 1948 in Fort Worth, Texas) is a district judge for the United States District Court for the Eastern District of Texas.[1] He was nominated by President George W. Bush on January 23, 2002 and was sworn in on May 15, 2002. He previously served as Chief Justice of the Twelfth Court of Appeals of the State of Texas and was a practicing civil trial attorney in East Texas for 23 years prior to becoming a judge. • Judge Davis graduated cum laude and first in his class from Baylor Law School in 1976 where he was Editor-in-Chief of the Baylor Law Review and a member of Baylor's interscholastic moot court and mock trial teams. He received his undergraduate degree in Mathematics from the University of Texas at Arlington in 1970, and his Master of Management Science Degree from Texas Christian University in 1974. He worked as a computer programmer and systems analyst prior to entering law school in 1974.[2] • He has received an American Jurisprudence Award for Excellence in Contracts and Federal Courts. • He is primarily assigned patent lawsuits in the US district court. [3] 21 McLEAN WATSON AND • April 19, 2008 – Markman Hearing (win/lose) • May 11 – 2009 Trial Team of 30 McKool Smith (rapid prep b/c illness) Daily transcripts 22 McLEAN WATSON AND • May 19, 2009 – Jury Instructions Bankers? Photos # witnesses Canadians in Texas Experts 23 McLEAN WATSON May 20, 2009 - 1:02 PM From: Loudon Owen [mailto:[email protected]] Sent: Wednesday, May 20, 2009 01:02 PM Central Standard Time To: Thomas L. Crisman Subject: Very urgent I don?t know how you deal with this but there is a major date problem in the transcript of Judge Davis instructions to the jury. On page 139-140 his instruction to the jury says ?here are ways that Microsoft can show that a claim of the ?449 patent is not new ?if the claimed patented method was known or used by other ? before June 14, 2004? This date should be June 14, 1994 24 McLEAN WATSON May 20, 2009 - 2:35 PM From: Thomas L. Crisman [[email protected]] Sent: Wednesday, May 20, 2009 2:35 PM To: Loudon Owen Subject: RE: We won 200M Tom 25 McLEAN WATSON “Does that mean you’re going to stop shouting at me, Gordon” 26 McLEAN WATSON THE END • July 9, 2009- Post Verdict Motion Hearing • August 11, 2009 – Final Judgment & Permanent Injunction - THE END - 27 McLEAN WATSON Twitter, Conan…Apocalypse Word 28 McLEAN WATSON APPEAL • August 11, 2009 – Final Judgment & Permanent Injunction • August 18, 2009 – MSFT notice of appeal, Emergency stay motion • August 24, 2009 – Amicus Dell, HP • Sept 3, 2009 - Stay granted, WLF amicus • Sept 23, 2009 – Appeal heard in DC • Re-examination at same time • Dec 22, 2009 – Judges Ruling on Appeal 29 McLEAN WATSON AND • Dec 22, 2009 – Judges Ruling on Appeal • Jan 8, 2010 – Petition for rehearing • Going forward…. 30 McLEAN WATSON KEY LESSONS • • • • • • • • Lifestyle vs. Economic Decision Daily Surprises, uncertainties Reality facing larger opponents Power of Press, NPE Why not infringe? Where are all the Angels? All the Investors? Business is People Patent Enforcement is People 31 McLEAN WATSON THE PATENT WORLD 32 McLEAN WATSON MEMO From: CEO To: Board of Directors We believe Giant Corporation International is violating our US patent 7,328,999. We need to take action immediately. We want to sue, but the risks are high and we don’t have internal expertise. Please advise what you authorize and recommend ASAP? Now What Happens? 33 McLEAN WATSON Challenge to Board Member • Describe Patents • Evidence of Infringement • Internal? External? Contingency? Funding Expenses? Management Opportunity Cost? Risks • Negotiate a license? Litigate? Wait? Ignore? Funding • Is the potential return worth the risk Strategy • Claims construction analysis vs. infringers products Damages Theory • Do you know what they cover? Validity challenges: What prior art existed at the time? Obviousness? Inequitable conduct? Non-infringement Counterclaims from infringers patents Willingness and ability of management and inventor to testify Complex patent case decided by non-technical jury Re-examination Legal Landscape Are you current with Supreme Court Decisions, precedents, venues, patent reform 34 McLEAN WATSON Value Maximization - Structural Hurdles • Asymmetry #1 - Rookie mistakes • Asymmetry #2 - control in lawyers hands • first time plaintiffs vs. defendants with 100 cases. Defendants capitalize. Fee – clear conflicts of interest Contingency – often misaligned & under funded; wide variance in quality and objectives Power shift from principals to intermediaries (Would you ask law firm to manage your sales and marketing, R&D, or finance?) Asymmetry #3 – large defendant vs. small/mid sized plaintiff Can turn to advantage IF have capital and expertise Plaintiffs often run of out capital later in process, when case is strongest & nearest to realization Expertise, Control & Power Asymmetries 35 McLEAN WATSON Unique Dynamics of Patent World • Huge industry, immense value & importance • Complicated & specialized Lawyers rule - seasoned executives live in mortal fear Large companies manage hundreds of cases versus most companies that never enter fray (a 100:1 ratio tilts the field, and owners of key patents are often in weak position) • Unrealized patent value. Extensive risk & value arbitrage • Despite industry size, massive holes in services/expertise & capital • Global opportunity - US enforcement model poised to move overseas 36 McLEAN WATSON Industry Players • Patent Aggregators • • • • Patent Brokers • • IPotential Intellectual Property Investment Funds • • • Intellectual Ventures RPX Allied Security Trust Northwater Intellectual Property Fund Altitude Capital Management Patent Licensing/Litigation Companies & Funds • • • • General Patent Corporation Acacia Technologies Rembrandt Management Public companies with patent licensing business models • Hedge Funds • • Patent Litigators Contingency Patent Litigators • • • Few pure contingency firms IP Merchant Banks • • Fortress Ocean Tomo Specialized Consulting & Advisory Service Firms • Invotex 37 McLEAN WATSON Value of a Patent? A very different investment with potential for strong, risk adjusted returns uncorrelated to the capital markets in an inefficient, poorly understood yet very important asset class 38 McLEAN WATSON Q&A – www.i4iLP.com 39 McLEAN WATSON