Transcript Slide 1

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
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McLEAN WATSON
MCLEAN WATSON – THE WORLD OF
VC’S
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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.
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McLEAN WATSON
MCLEAN WATSON HISTORY
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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
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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)
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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)
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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,
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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
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McLEAN WATSON
BelAir Networks
Integrated Mobile Broadband Network: Wi-Fi, WiMAX and Cellular
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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
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McLEAN WATSON
I4I STORY
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CHAPTER 1 – MEETING MICHEL
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Meeting
Competition
Promise & Handshake
i4i’s Office
i4i’s Vision
SGML
XML
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CHAPTER 2 – R&D/PATENT
• 1994 filed for US patent 5,787,449
• Tweed jackets and blackboards
• Evangelists
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CHAPTER 3 – GROWTH & FUTURE
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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”
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McLEAN WATSON
CHAPTER 3 – GROWTH & FUTURE
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NASA
Awards
Articles
Top CTO’s & Founders
Robot
Newbridge
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CHAPTER 4 – SURVIVAL?
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2002 - massive change in sales pipeline
Internal adjustments
Every second light bulb removed
Refocus on pharma industry
Then more focus...on labels
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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??
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McLEAN WATSON
2004-2006
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Now what?
Crisscross USA
Prepare background information package
RFP to top firms
Find partner/capital
Choose lawyers
Sanity checks (patent litigation friends…)
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FILED - EASTERN DISTRICT
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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?)
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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]
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AND
• April 19, 2008 – Markman Hearing
(win/lose)
• May 11 – 2009 Trial
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Team of 30
McKool Smith (rapid prep b/c illness)
Daily transcripts
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AND
• May 19, 2009 – Jury Instructions
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Bankers?
Photos
# witnesses
Canadians in Texas
Experts
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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
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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
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“Does that mean you’re going to stop
shouting at me, Gordon”
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THE END
• July 9, 2009- Post Verdict Motion Hearing
• August 11, 2009 – Final Judgment &
Permanent Injunction
- THE END -
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Twitter, Conan…Apocalypse Word
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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
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AND
• Dec 22, 2009 – Judges Ruling on Appeal
• Jan 8, 2010 – Petition for rehearing
• Going forward….
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KEY LESSONS
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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
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McLEAN WATSON
THE PATENT WORLD
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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?
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McLEAN WATSON
Challenge to Board Member
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Describe Patents
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Evidence of Infringement
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Internal? External? Contingency? Funding Expenses? Management Opportunity Cost?
Risks
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Negotiate a license? Litigate? Wait? Ignore?
Funding
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Is the potential return worth the risk
Strategy
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Claims construction analysis vs. infringers products
Damages Theory
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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
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Are you current with Supreme Court Decisions, precedents, venues, patent reform
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McLEAN WATSON
Value Maximization - Structural Hurdles
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Asymmetry #1 - Rookie mistakes
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Asymmetry #2 - control in lawyers hands
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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
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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
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McLEAN WATSON
Unique Dynamics of Patent World
• Huge industry, immense value & importance
• Complicated & specialized
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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
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McLEAN WATSON
Industry Players
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Patent Aggregators
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Patent Brokers
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IPotential
Intellectual Property Investment Funds
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Intellectual Ventures
RPX
Allied Security Trust
Northwater Intellectual Property Fund
Altitude Capital Management
Patent Licensing/Litigation Companies & Funds
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General Patent Corporation
Acacia Technologies
Rembrandt Management
Public companies with patent licensing business models
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Hedge Funds
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Patent Litigators
Contingency Patent Litigators
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Few pure contingency firms
IP Merchant Banks
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Fortress
Ocean Tomo
Specialized Consulting & Advisory Service Firms
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Invotex
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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
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Q&A – www.i4iLP.com
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