Third WIPO/INSME International Training Program Financing your business with Intellectual Property

1. ZERNIKE (UK) Third WIPO/INSME International Training Program Financing your business with Intellectual Property Topic 2 Acquiring your Intellectual Capital: The relevance of an IP audit in your business strategy Bob Hodgson Zernike (UK) Limited Geneva December 2010

2. ZERNIKE (UK) First some simple definitions • Technology – is how we do things now • Knowledge – is what we already know • Innovation – is doing things differently • Science – is one of the main drivers of innovation • Development – is how we apply science to do useful things • Research – is what we do to find out what we currently do not know Bob Hodgson Geneva 2010

3. ZERNIKE (UK) National competitive strategies and SMEs • Natural resource based: • seen as second order • but crucial to jobs and dependence • Labour surplus: • productivity still an issue • quality standards in products • Systems integration: • rapid adoption and adaption • source of innovation • Advanced technology: • R&D driven leading edge • commercialisation emphasis Bob Hodgson Geneva 2010

4. ZERNIKE (UK) Alternate business strategies and intellectual capital • Lowest cost – efficiency savings for cost edge • Value performance – upgrading at acceptable cost • Most advanced – best performance driver • Greenest – lowest accredited footprint • Service +/- product – speed and responsiveness All rely on knowledge and for some innovation is central Bob Hodgson Geneva 2010

5. ZERNIKE (UK) Mismatches at different levels • National imperative - upgrading productivity and promoting innovation essential • Business level success is continuing to do right what you have always done – change is risky! • Competitiveness challenge: • reconcile the two positions • grow new higher value businesses • improve existing businesses Bob Hodgson Geneva 2010

6. ZERNIKE (UK) Real Economy: innovation engines • ARM – Advanced RISC Machines • IP generator • income from Licences and Royalties • market cap - billions • Generics Group Plc – technology solutions provider • IP accumulator • and commercialiser – spinning out companies • massive P/E ratio on flotation – hope value • Supported by specialist service providers Bob Hodgson Geneva 2010

7. ZERNIKE (UK) The starting point: has it potential value • Who will buy or already buys my product/service? • What will they pay? • How many potential customers are there? • What will any innovation replace? • Will it work and how much will it cost to make? • Is it likely to be profitable? Bob Hodgson Geneva 2010

8. ZERNIKE (UK) Communicating potential: investment readiness • Business plan • Market data and evidence • Communications skills • Differentiating the investment pitch • Cultivation of the risk takers Bob Hodgson Geneva 2010

9. ZERNIKE (UK) Recognising what is there and what to be added • An IP audit to codify present technology • Identification and packaging • An IP search • Negotiation and acquisition Bob Hodgson Geneva 2010

10. ZERNIKE (UK) Personnel and Intellectual Capital • Skilled people are the capital of the knowledge economy • Codified v tacit knowledge • Methods of protection: • formal registration • contract of employment • equity share • Restrictions of trade? Bob Hodgson Geneva 2010

11. ZERNIKE (UK) What are your Intellectual Capital Assets • Advanced technology – the archetypal IP candidate • Market credibility – trade marks and brand reputation • Production expertise – control and quality oriented • Product performance – incremental advances or radical changes Bob Hodgson Geneva 2010

12. ZERNIKE (UK) Sources of technical and business innovation • Clients or customers 70% • Competitors • Internal sources • Associations • Technical standards 50% + • Conferences/trade press • Scientific journals • Consultants • Universities • Government labs 20% Bob Hodgson Geneva 2010

13. ZERNIKE (UK) Supply side perspectives • The inventor: • the idea that will change the world – huge hope value • and make me rich • The research institution: • an output in its own right • with weak commercial perspective • The commercial licence provider: • revenue generating expectations • tempered with restriction of own potential action • Alignment of risks and rewards • clarity and competence of owners • capacity to pay and to exploit • position in market Bob Hodgson Geneva 2010

14. ZERNIKE (UK) Valuation: the unresolved challenge • Easy – when there is a revenue stream • But even then worries about sustainability • Before the revenue stream it is much more uncertain • And is characterised by information asymmetries • inventor knows the technology • entrepreneur knows the market • investor needs to independently evaluate both • and then to reach a deal! Bob Hodgson Geneva 2010

15. ZERNIKE (UK) Some additional limitations • IP system is not always applicable • advanced engineering around F1 racing • accumulated tacit knowledge • Commercial perspectives can cripple business • Pro fit and its American licensee • defence costs can overwhelm revenues • all but a few USA universities spend more on IP than they receive Bob Hodgson Geneva 2010

16. ZERNIKE (UK) Making the market work • Stimulating the supply side • Stimulating interest among MSMEs • Training brokers and agents • Educating fund managers • Ensuring quality implementation • Building the history Bob Hodgson Geneva 2010

17. ZERNIKE (UK) Thank You BOB HODGSON ZERNIKE (UK) Ltd The Grove High Street Sawston Cambridge UK CB2 4HJ 0(044)1223 526980 bhodgson@zernikeuk.com Bob Hodgson Geneva 2010