COMMERCIALIZING INNOVATION

1. COMMERCIALIZING INNOVATION The Role Of IP, A Perspective From South of the Border Presented by A. James Isbester March 20, 2009

2. The Silicon Valley Dream • Big Inc. won’t pursue great new technology so individuals Big Inc. and form Start Up Corp to do so • Seed money rents a garage and buys some machines • Venture Rounds A, B, C get product to market • Sales start to take off • Start Up Corp goes public • Start Up Corp renamed Even Larger Corp, gets risk averse, won’t pursue next new technology • Cycle repeats

3. Dominant Trends In Start-Up Financing • Money is getting more expensive • “Mezzanine” money more readily available than seed money • Investors/venture capitalists are looking for five year exit strategy • IPO’s were increasingly rare in 2008, pre-crisis • Acquisitions increasingly common as an investor exit strategy

4. Interesting Cross-Industry Trend • As between “Innovation” and “Development,” development taking more $, more time • Semiconductors – qualifying, interoperability, standards adoption, customer acceptance • Life sciences – clinicals and regulatory approvals, adoption as standard of care • Telecom – standards adoption, provider purchasing cycles, infrastructure implementation

5. Industry Examples • Semiconductor typical time to market • 1970 – three years including fabrication • 2005 – seven years, assuming an available foundry • Medical device FDA approval time • 1987 – six months • 2007 – three years • Pharmaceutical PMA cost • 1985 - • 2008 - $100 million?

6. The Dominant Trends In Recent US Patent Law • Patentees losing their advantage in the courts • Injunctions • Venue issues • Declaratory relief jurisdiction • Patentees losing their advantage in the Patent Office • Patentable subject matter • Renewed vigour to obviousness • Inter partes reexamination • Bottom line – an innovator’s patents are now subject to greater scrutiny than ever before

7. Legislative Reforms • Maybe this year? • Reduced damages • Procedural impositions upon patent owner • Tilt playing field even further against patentee

8. Lessons To Be Drawn • As innovation is comparatively less expensive, time consuming, patent protection becomes more important • Hard to innovate faster than competitor • As pendulum continues to swing against patentees, • Emphasis on quality rather than quantity • Audience is changing • Corporate purchaser not public markets • Patent Office examiners rather than juries • Plan where to innovate • Blocking patents possible • Elbow room available • Competitors’ patents are not preclusive

9. An Uncomfortable Thought • Innovation requires • Motivation • Opportunity • Ability • Motivation: • customer contact • reward • Opportunity comes from engineering involvement • Design • Manufacturing • Ability comes from training • What happens in an economy in which • a) fewer kids take hard sciences/engineering • b) those who do are better off becoming lawyers • c) design and manufacturing are done “somewhere else”

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