© 2014 Winston & Strawn LLP Demonstration: Technology Valuation for Patent Dispute Settlement & Licensing Valuation of Patent Technology Presented by:

© 2014 Winston & Strawn LLP

Demonstration: Technology Valuation for Patent Dispute Settlement & Licensing

Valuation of Patent Technology

Presented by: Randall R. Rader (Ret)

Appearing: John R. AlisonSteven M. AnzaloneDavid P. EnzmingerPaul C. GouletThomas L. JarvisDavid E. Wang

April 15, 2015


Technology Valuation

Randall R. RaderChief Judge Federal Circuit (Ret)

2


Benefits of Proper Valuation

1. Facilitates timely dispute settlement

2. Promotes faster/less risky/more profitable technology transfer

3. Equitably adjusts for problems of “patent quality” --“weak” patent simply worth LITTLE

4. Permits competitors to share technology and “cooperate” in marketplace

5. Rewards inventors for their "contributions"


Benefits of Arbitration/Mediation to Set Value

1. Limits or avoids civil discovery: less expense

2. Expedites defined outcomes in “weeks,” NOT YEARS, providing market certainty

3. Permits parties to select arbitrators/experts with EXPERTISE in economics + technology

4. No jury or bench trial — parties can elect binding or non-binding outcomes

4


Three Step Valuation Process

5

1. Initial Report: preliminary scoring of patents

2. Genesis & TechOne can argue for modifications

3. Final Report: final scoring of patents + royalty


Patent Technology Scoring System

Component (Smallest Sellable Unit) Cost

Cost of Competative Alternatives

Single Use Restriction Drives Sales

User Experience Performance

Energy Efficiency

Tech Valuation

Score

Multi-Core ProcessorWireless LANOrganic MemoryAuto Trigger Controller

Valuation Factors

Converting Tech Eval Scores to Component Royalty Rates

Tech Eval Score 10 9 8 7 6 5 4 3 2 1

Component Royalty Rate 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2%


Team Model

7

1. Arbitrator/Mediator (Rader)

2. Technical expert (Jarvis)

i. determine technological contribution

3. Economic experts (Enzminger, Goulet)

i. determine market demand for patented features

4.Counsel for parties (Anzalone, Wang)

i. Argue that preliminary report should be adjusted


ISSUE: “Smallest Saleable Patent Unit”

8

LaserDynamics, Inc. v. Quanta Computer, Inc.

“[I]n any case involving multi-component products, patentees may not calculate damages based on sales of the entire product, as opposed to the smallest salable patent-practicing unit, without showing that the demand for the entire product is attributable to the patented feature.”


ISSUE: “Entire Market Value Rule”

9

Garretson v. Clark, 111 U.S. 121 (1884)

“The patentee must in every case . . . separate or apportion the defendant's profits and the patentee's damages between the patented feature and the unpatented features . . .

BUT

Profits and damages may be calculated on the whole machine if its “entire value. . . is properly . . . attributable to the patented feature.”


Factual Background

John R. Alison

10


Commercial Situation

1. Genesis Corp. and TechOne are competitors in video game controller market

2. Both companies developing next generation products

3. Other suppliers in the market

4. ASP of video game controllers is about $300

5. Full patent portfolio licenses have max royalty of 3% in this industry

11


Patents At Issue

Genesis Patents

‘007: multi-core processor (low energy processor for smaller tasks; high energy for graphics)

‘222: wireless LAN (wireless transmission at high rate)

TechOne Patents

‘000: organic memory (efficient memory in organic form)

‘005: video controller with automatic trigger controls)


Genesis Corp. Overview

1. No. 3 in the Portable Gaming System Market (13.5% market share)

2. Primary competitors are CompStar and TechOne:

13

Vendor Forecast2015

Shipments

Forecast2015Share

Forecast2015

Revenue(Millions)

2014Shipments

2014Share

2014 Revenue(Millions)

2014/2015ForecastGrowth

1. CompStar 64,196 19.9% $19.9 61,176 18.5% 18.970 4.9%

2. TechOne 63,520 19.7% $19.7 55,184 16.7% 17.115 15.1%

3. Genesis 43,516 13.5% $13.5 40,104 12.1% 12.442 8.5%

4. LapTop Inc.

24,880 7.7% $7.7 24,104 7.3% 7.461 3.2%

5. Virtucon 23,000 7.1% $7.1 19,352 5.8% 5.971 18.9%

Others 103,976 32.2% $32.2 131,192 39.6% 40.605 -20.7%

Total Market 80,772 100.0% $100 82,778 100.0% $102.5 -2.4%


TechOne Corp. Overview

1. No. 2 in the Portable Gaming System Market (19.7% market share)

2. Primary competitors are CompStar and TechOne:

14

Vendor Forecast2015

Shipments

Forecast2015Share

Forecast2015

Revenue(Millions)

2014Shipments

2014Share

2014 Revenue(Millions)

2014/2015ForecastGrowth

1. CompStar 64,196 19.9% $19.9 61,176 18.5% 18.970 4.9%

2. TechOne 63,520 19.7% $19.7 55,184 16.7% 17.115 15.1%

3. Genesis 43,516 13.5% $13.5 40,104 12.1% 12.442 8.5%

4. LapTop Inc.

24,880 7.7% $7.7 24,104 7.3% 7.461 3.2%

5. Virtucon 23,000 7.1% $7.1 19,352 5.8% 5.971 18.9%

Others 103,976 32.2% $32.2 131,192 39.6% 40.605 -20.7%

Total Market 80,772 100.0% $100 82,778 100.0% $102.5 -2.4%


GAMING SYSTEM AVERAGE SALES PRICES

GENESIS• 2015 Forecast Shipments = 43,516

• 2015 Forecast Revenue = $13.5 million

• 2015 Forecast Average Sales Price = $310.23

TechOne• 2015 Forecast Shipments = 63,520

• 2015 Forecast Revenue = $19.7 million

• 2015 Forecast Average Sales price = $310.14

15


GENESIS CORP.

Technical EvaluationTom Jarvis

Economic EvaluationPaul Goulet

16


‘007 Patent: Computer Processor With Selectable Cores for Power Conservation

17


Performance & Energy Data for Dual Cores

18

Task32 Bit

Processor64-Bit

Processor Difference

Word Processing Pagination (pages / sec) 55 58 5%

Excel Formula Recalculations (operations / sec) 1.2 1.3 8%

Rending Real Time Graphics (Mpix / sec) 0.4 63 15650%

Power Consumption (watts: joules / sec) 80 140 75%

Battery Life (hours) 5.25 3.0 -43%

Fig 2


'007 Dual Core Processor

Advantages

1. Combines advanced graphics + long battery life

2. Auto enable/disable of 64-bit processor

Disadvantages

3. Greater cost than single core processor

4. Complexity of detector circuit

19


Patent No. 007

1. Processors with selectable cores widely used in gaming system CPUs

2. TechOne Implements the technology:Snapshot of Bill of Materials for TechOne Gamer

20

Function Manufacturer Part Number Description CostCPU Includes

Globex GLB X570 CPU – Globex GLB processor X570, quad core, 2.6 GHz, 1MB L2 cache, with selectable cores for power conservation

$26.29

Total BOM (Materials Only) $100

Estimated Manufacturing Costs $12 Total BOM (Materials & EMS Provider’s Costs Only) $112.00


Rating for Patent No. 007

Economic Value of Patent 007 to TechOne Gaming System:

1. The CPU, implementing Genesis’s processor with selectable cores, is the second most expensive component in the TechOne Gamer

2. It represents $26.29 out of the $112 total cost or approximately 23%

3. This represents a large economic value to the gaming system as a whole and suggests a high rating

HOWEVER

21



CPU is not the most important:

“The CPU is the most visible component in the eyes of most buyers. Most gaming computers are labeled – often multiple times – with the brand of processor inside them. This would lead you to believe that the processor is the most important component in a gaming computer. It isn’t – that title goes to the video card.”

Gamer’s Journal, Matt Smith, January 15, 2015.

22

http://www.makeuseof.com/tag/cpu-technology-explained/



Connectivity is a More Powerful Driver:

“Consoles have evolved into more than simply black boxes for playing games. They are multimedia hubs that stream videos and music, and access Twitter and Facebook.”

PCWorld, Max Wintergreen, December, 2014.

23



24

TOP FACTORS DRIVING GAMING SYSTEM PURCHASE

1. Connectivity 2. Game Console 3. Better Resolution 4. Faster Processing Power 5. Brand

Source: Nelsen 360° Gaming Report

Copyright © 2015 The Nielsen Company


Patent No. 007

1.Processors with selectable cores widely used in gaming system CPUs

2.TechOne Implements the technology:Snapshot of Bill of Materials for TechOne Gamer

25

Function Manufacturer Part Number Description CostCPU Includes

Globex GLB X570 CPU – Globex GLB processor X570, quad core, 2.6 GHz, 1MB L2 cache, with selectable cores for power conservation

$26.29

Total BOM (Materials Only) $100

Estimated Manufacturing Costs $12 Total BOM (Materials & EMS Provider’s Costs Only) $112.00



Economic Value of '007 Patent:

1.Processor is the second most expensive component

2. It represents $26.29 out of the $112 total cost or approximately 23%

3.Represents a large economic value to the gaming system as a whole and suggests a high rating

HOWEVER

26



CPU is not the most important:

“The CPU is the most visible component in the eyes of most buyers. Most gaming computers are labeled – often multiple times – with the brand of processor inside them. This would lead you to believe that the processor is the most important component in a gaming computer. It isn’t – that title goes to the video card.”


27



Connectivity is a More Powerful Driver:

“Consoles have evolved into more than simply black boxes for playing games. They are multimedia hubs that stream videos and music, and access Twitter and Facebook.”

PCWorld, Max Wintergreen, December, 2014.

28



29



Source: Nelsen 360° Gaming Report



‘222 Patent: Wireless LAN

30


‘222: Wireless LAN

31


Standard Essential Patent (SEP)

1. IEEE 802.11(n) WiFi standard

2. ‘222 Patent was disclosed & declared essential

3. Committee adopted this feature

4. Obligation to license on Fair, Reasonable, and Nondiscriminatory terms (FRAND)

32


Advantages & Disadvantages

1. Reliable wireless with high data rate

2. Wi-Fi cheap & widely available

3. Allows downloading to prevent resale of games

Disadvantages

4. Additional cost

5. More complex than cable or USB options

33


Patent No. 222

1. Wireless LAN widely used in gaming systems

2. TechOne implements the technology:

Snapshot of Bill of Materials for TechOne Gamer

34

Function Manufacturer Part Number Description CostWWAN Module (3G) $42.85Includes Clampett Industries C1AXWG WLAN module – Bluetooth, Wifi $3.99

Total BOM (Materials Only) $100 Estimated Manufacturing Costs $12 Total BOM (Materials & EMS Provider’s Costs Only) $112




1. WLAN Module for Wi-Fi is one of lower cost components in the TechOne Gamer

2. It represents $3.99 out of the $112 total cost or approximately 3.5%

3. This represents a low economic value to the gaming system as a whole and suggests a low rating

HOWEVER35



The WLAN Module with R/F interface with Bluetooth and Wifi allows multiple methods of connectivity

Connectivity is the number one driver of purchases of gaming systems indicating a high rating

The '222 Patent reads on the Wifi 802.11 standard and has been declared essential to practicing that standard—and as seen in the technical review it is considered one of the top 10% of Wifi essential patents

36



1. Importance of ‘222 patent to WiFi standard

2. In absence of comparable licenses, use a “Top Down” valuation method

• Average price of Wifi chip

• Average profit for that Wifi chip

• Profit times ratio of patent holder’s Wifi essential patents to all Wifi essential patents

In re Innovation IP Ventures, LLC Patent Litigation (ND Illinois, Oct. 2013)

3. Over 3,000 WiFi essential patents, suggesting lower rating

37



Connectivity allows for digital game distribution

• Freezes out the retailer

• Cut costs greatly

• Prevents resale

• Increases profits 350% (Digital Downloads and the Prohibition of Resale Markets for Information Goods, Benjamin Schiller):

38

Allowing resale does significantly reduce firm profits. Using data from the video game market, I found that consumers in fact tire of video games very quickly, and as a result market prices decline quickly as used goods are resold to consumers with lower valuations for the product. I found that prohibiting resale raises firm profits by over 350%, because it allows firms to maintain high prices.



1. Average Sales Price of Game = $55

2. Average Profit is 15% = $8.25

3. Digital downloads increase profit $28 per game

4. High rating for patent essential to connectivity that allows digital download

39


Patent No. 222

1. Wireless LAN widely used in gaming systems

2. TechOne implements the technology:Snapshot of Bill of Materials for TechOne Gamer

40

Function Manufacturer Part Number Description CostWWAN Module (3G) $42.85Includes Clampett Industries C1AXWG WLAN module – Bluetooth, Wifi $3.99

Total BOM (Materials Only) $100 Estimated Manufacturing Costs $12 Total BOM (Materials & EMS Provider’s Costs Only) $112




1.The WiFi Chip is a lower cost component

2.WiFi chip is $3.99 out of the $112 total cost or approximately 3.5%

3.This represents a low economic value to the gaming system as a whole and suggests a low rating

HOWEVER 41



WiFi allows multiple methods of connectivity

Connectivity is the number one driver of purchases of gaming systems indicating a high rating

The 456 Patent reads on the Wifi 802.11 standard

42



1. Importance of ‘222 patent to WiFi standard

2. Without comparable licenses, use “Top Down” method

• Average profit for that Wifi chip

• Profit times ratio of patent holder’s WiFi essential patents to all WiFi essential patents

In re Innovation IP Ventures, LLC Patent Litigation (ND Illinois, Oct. 2013

3.Over 3,000 WiFi essential patents, suggesting lower rating

43



Connectivity allows for digital game distribution

• Freezes out the retailer

• Cut costs greatly

• Prevents resale

• Increases profits 350% (Digital Downloads and the Prohibition of Resale Markets for Information Goods, Benjamin Schiller):

44

Prohibiting resale raises firm profits by over 350%, because it allows firms to maintain high prices.



1. Average Sales Price of Game = $55

2. Average Profit is 15% = $8.25

3. Digital downloads increase profit $28 per game

4. Wireless purchase is commercially valuable

45


TechOne Corp

Technical EvaluationTom Jarvis

Economic EvaluationDavid Enzminger

46


‘000 High Speed, Low Power Organic Memory

• RAM with organic + semiconductor materials

• Organic materials increase electron mobility

• Higher speeds than conventional memory

• Faster response time

• Consumes less power

47


Advantages

High speed maximizes processor performance

Lower power consumption

Disadvantages

Higher cost

No impact on low demand software

48

‘000 High Speed, Low Power Organic Memory


Patent No. 000

1. High Speed Low Power Memory widely used in gaming system CPUs

2. Genesis Implements the technology:Snapshot of Bill of Materials for Genesis GoPro

49

Function Manufacturer Part Number Description Cost Tyrell Corp. M16 High Speed low power memory $5.50 Total BOM (Materials Only) $97.00 Estimated Manufacturing Costs $11.00 Total BOM (Materials & EMS Provider’s Costs Only) $108



Economic Value of Patent 000 to Genesis Gaming System:

1. The memory, implementing TechOne’s high-speed low-power technology, is one of the least expensive component in the Genesis Gamer

2. It represents $5.50 out of the $108 total cost or approximately 5.1%

3. This represents a low economic value to the gaming system as a whole and suggests a low rating

50



Memory is a commodity product in consumer devices:

“Commodity flash memory is commonly used in consumer devices; these devices are price sensitive and require mass storage for music, videos, books, photos, games and other user data. Over time, the demand for storage has increased, but the sensitivity towards price has stayed the same. As a result, there is a never ending urgency for commodity memory suppliers to continuously reduce cost.”

Electronic Design, Jake Razzo, August 2, 2014.

51



52

Memory does not drive consumer purchasing:

TOP FACTORS DRIVING GAMING CONSOLE PURCHASE

1. Connectivity 2. Game Controller 3. Better Resolution 4. Faster Processing Power 5. Brand

Source: Nelsen 360° Gaming Report Copyright © 2015 The Nelsen Company


‘005 Wireless Game Controller

• Multiple controller ports for operating gaming functions independently

• Auto-activate function for continuously sending trigger signal, i.e., firing weapons

53


Advantages

Player freedom of movement

Auto-Trigger

• Drives sales

• Enhances action video games

• Improved user experienceDisadvantages

• Single purpose – Limited applicability

• Mechanical feature – difficult to repair

54

'005 Wireless Game Controller


Patent No. 005

1. Wireless game control unit widely used in desktop gaming systems, but now beginning to appear in portable systems

2. Genesis implements the technology:

Snapshot of Bill of Materials for Genesis GoPro

55

Function Manufacturer Part Number Description CostIncludes RichCorp KBD15 Wireless Game Control Unit $10.00 Total BOM (Materials Only) $97.00 Estimated Manufacturing Costs $11.00 Total BOM (Materials & EMS Provider’s Costs Only) $108.00



Economic Value of Patent 005 to Genesis Gaming System:

1. The wireless game control unit is one of the more expensive components in the genesis GoPro

2. It represents $10 out of the $108 total cost or approximately 9.3%

3. This represents a relatively large economic value to the gaming system as a whole and suggests a high rating

56



The wireless game control unit allows for wireless gaming and multi-use (texting, web searching, etc.)—two of the top four features driving consumer choice

57

TOP FEATURES IN GAME CONTROLLERS

1. Wireless 2. Motion Sensing 3. Rumble Feature 4. Multiple Use

Source: Nielsen 360° Gaming Report

nielsen . . . . . . .



Initial Report

58





Energy Efficiency

Tech Valuation

Score

Multi-Core Processor 26 20 No M Medium High High 4Wireless LAN 4 4 Yes H High Medium Medium 7Organic Memory 5 4 No L Low High High 3Auto Trigger Controller 20 None No H High Low Low 8

Initial Report


Genesis Response

Steve Anzalone

59


Genesis Response on Patent Valuation

'007 Multi-Core Processor patent:

4 score too low, should be well above 3 score for ‘000 organic memory patent

‘222 Wireless LAN patent:

7 score too low, more important than ‘005 auto trigger patent that has 8 score

60

Component CostCost of

AlternativePrevent Resale


Energy Saving Score

Multi-Core Processor 26 20 No Medium High High 4Wireless LAN 4 4 Yes High Medium Medium 7Organic Memory 5 4 No Low High High 3Auto Trigger Controller 10 None No High Low Medium 8



'007 Multi-Core Processor patent: HIGH impact on user experience,

much higher proportion of product cost than memory

1. Evidence shows processor capability is main factor distinguishing new for prior generation gaming systems

2. Initial Report not consistent in scoring patents if patent valuation is related to component cost

61




Energy Saving Score




'007 Multi-Core Processor patent

Platform Competition:

new capabilities such as superior graphics required for new platform to succeed

customer will buy next platform & games from company only if platform superior

Processor:

characteristics critical to overall performance of system;

system is considered superior only if processor is faster & higher capacity

62



'007 Multi-Core Processor patent

Patent provides superior graphics capability

Evidence shows this capability critical in new consoles & games:

Winds of War™ A Smash Hit With Gamers, But Strains Graphic Processing Capabilities of Most Game Consoles

Winds of War™ has taken the video gamers to new levels of 3-D animation, but the $99 price tag is just the tip of the total cost of ownership and sales are lagging. Only the most recent generation of home video controllers can perform at this level—users of older equipment are already complaining about frozen frames and the sudden

realization that an additional $250 video player may be required to enjoy the program at its highest levels of operation.

63



'000 Organic Memory patent: overvalued compared to '007

1. Unimportant to customers of highest valued games compared to processor

2. If cost is relevant, memory chip is much less valuable than processor chip

64




Energy Saving Score




'000 Organic Memory patent

Initial report correct that value of organic memory to user is LOW

Customers in blogs & forums focus on processor and graphics chips, agree that speed of system RAM almost irrelevant:

Linus Tech Tips

Does RAM speed is really matter in gaming?

In a word: No. Gaming makes heavy use of the graphics card, which has its own dedicated RAM which is optimized for gaming (GDDR5). System memory is really not important for games.

RAM speed is only beneficial in CPU intensive games, like poorly ported console games or demanding strategy games, in those cases yes an increase in RAM

speed will yield performance increases.

65



‘222 Wireless LAN patent: HIGH impact on user experience, higher scores than ‘005 patent in performance & functional categories

1. Evidence shows WLAN capability increases profits & reduces costs of industry far in excess of $4 chip price—prevents resale

2. Initial Report not consistent in scoring patents: low score of ‘222 compared to ‘005 only justified by component cost—not accurate measure of value to infringer & not followed for ‘007 patent

66




Energy Saving Score




‘222 Wireless LAN patent

Critical Impact on Industry Profits:

1. Kill resale market: by downloading games, suppliers eliminate video game resale market, which reduces prices & profits

2. Reduce costs: by distributing over WLAN, eliminate costs & profits of third party retail stores; eliminate manufacturing, packaging, shipping, printing costs for video games

3. Increase sales: easier to buy & no delay; new games typically sell for $55; console makers make & sell video games; WLAN can be used to market and sell games, upgrades, expansion packs, extra features

4. Compete with Smartphones: increasing % of games bought using smartphones; systems with WLAN can compete

67




Patent provides convenient network connectivity

Evidence shows huge impact of killing resale market for used games

(see B. Shiller, Wharton School, Digital Downloads & the Prohibition of Resale Markets for Information Goods, page 23):

Contrary to traditional theory, which holds that resale markets should not reduce profits of producers of perfectly durable goods, I found evidence that in markets that have the feature that consumers tire of goods, allowing resale does significantly reduce firm profits. Using data from the video game market, I found that consumers in fact tire of video games very quickly, and as a result market prices decline quickly as used goods are resold to consumers with lower valuations for the product. I found that prohibiting resale raises firm profits by over 350%, because it allows firms to maintain high prices.

68




Evidence shows WLAN capability is critical

(see Journal of Interactive Marketing, Value Creation in the Video Game Industry, page 151 (2013) :

Physical to Digital

Traditionally games were distributed on physical disks, in boxes including printed manuals. The industry is moving quickly to digital distribution though; from 2009 to 2011, the ratio of physically distributed games dropped from 80% to 69%, and digitally distributed games rose accordingly.

This shift offers multiple likely advantages to game producers. In addition to increasing profit margins by eliminating retailers and production costs (e.g., for the disks and boxes), producers can attain more direct relationships with individual players. For example, by making its PlayStation Network central to game play, Sony collects data about customer usage patterns, which should enhance its value-enhancing, tailored offers.

69



'005 Auto Trigger patent: overvalued compared to '222

1. Auto Trigger does not improve game sales, profits, or costs

2. Auto Trigger is one mechanical button on controller with multiple hardware & software components; invention implemented in only portion of controller & other parts add value

3. In contrast, Wireless LAN chip performs no function & has no structure unrelated to ‘222 Wireless LAN patent

70




1. Component cost can overvalue or undervalue inventions

2. Value of patent is Economic Benefit to Infringer; here, chip cost is inappropriate because ignores principal economic benefits of ‘222 patent & wrongly gives entire value of controller to ‘005 patent

3. Example—Eli Whitney’s cotton gin cleaned cotton as fast as 50 people; true value of invention should take into account financial benefit to infringer instead of cost to make a cotton gin

71




Energy Saving Score




'007 Multi-Core Processor patent:

4 score too low, should be well above 3 score for ‘000 memory patent

‘222 Wi-Fi patent:

7 score too low, more important than ‘005 auto trigger patent that has 8 score

72


AlternativeSingle Use Restriction Drives Sales


Energy Efficiency Score

Multi-Core Processor 26 20 No M Medium High High 4

Organic Memory 5 4 No L Low High High 3

Wireless LAN 4 4 Yes H High Medium Medium 7

Auto Trigger Controller 20 None No H High Low Low 8


Genesis Response

73



Source: Nelsen 360° Gaming Report Copyright © 2015 The Nielsen Company

2 Genesis patents address top 4 factors in buying gaming system:

• ‘007 patent: processor is key to console, resolution, & faster processing

• ‘222 patent: Wi-Fi is key to connectivity


Genesis Response

'007 Multi-Core Processor: HIGH impact on sales & user experience,

much higher value than memory

1. Processor is most visible component in console; performance distinguishes new from old generation

2. Processors much more valuable than memories

74





Multi-Core Processor 26 20 No Medium Medium High High 4

Organic Memory 5 4 No Low Low High High 3


Genesis Response

• Processor drives sales because it is marketed and is heart of any gaming system:

“The CPU is the most visible component in the eyes of most buyers. Most gaming computers are labeled – often multiple times – with the brand of processor inside them.”


75


Genesis Response

• ‘007 processor gives better user experience & system performance:

• Console & system considered superior only if have best processor

• Multiple cores critical:

• Can only handle graphics & complex computations with fast 64-bit core

• 32-bit core can handle text & audio

• Need both cores:

• Graphics critical in new games

• Low power critical in all devices, especially portable handheld

• Multiple cores in one processor work at same time in single chip

76


Genesis Response

77



Source: Nelsen 360° Gaming Report Copyright © 2015 The Nielsen Company

‘007 processor critical for 3 of top 4 factors in selling systems:

• Best CPU needed to define & sell new consoles • 64-bit core needed for high resolution graphics• CPU with multiple cores provides faster processing power


Genesis Response

'000 Memory patent: overvalued compared to '007

1. Unimportant to customers of highest valued games compared to processor

2. Memory chips are commodities & much less valuable than processor chips

78





Multi-Core Processor 26 20 No Medium Medium High High 4Organic Memory 5 4 No Low Low High High 3


Genesis Response

'000 Memory patent

• Initial report correct that memory rated LOW in driving sales & user experience

• Customers in blogs & forums focus on processor & graphics chips, agree that speed of system RAM is irrelevant:

"Linus Tech Tips

Does RAM speed is really matter in gaming?

In a word: No. Gaming makes heavy use of the graphics card, which has its own dedicated RAM which is optimized for gaming (GDDR5). System memory is really not important for games.

RAM speed is only beneficial in CPU intensive games, like poorly ported console games or demanding strategy games, in those cases yes an increase in RAM

speed will yield performance increases. "

79


Genesis Response

'000 Memory patent

• Memory chips are commodities & less valuable than CPU:

80

“Commodity flash memory is commonly used in consumer devices; these devices are price sensitive and require mass storage for music, videos, books, photos, games and other user data. . . . [T]here is a never ending urgency for commodity memory suppliers to continuously reduce cost.” Electronic Design


Genesis Response

‘222 Wi-Fi patent: HIGH impact on driving sales & user experience, higher scores than ‘005 patent in other functional categories

1. Wi-Fi capability increases profits & reduces costs of industry far in excess of $4 chip price—prevents game resale

2. Lower score compared to ‘005 not justified:

• Not accurate measure of value to Wi-Fi & connectivity to infringer

• Auto trigger is only one of many features in controller, while Wi-Fi is the main function of Wi-Fi chip

81





Wireless LAN 4 4 Yes High High Medium Medium 7Auto Trigger Controller 20 None No High High Low Low 8


Genesis Response

‘222 Wi-Fi patent

Critical to Increase in Industry Profits:

1. Kill resale market: by downloading games, suppliers eliminate video game resale market, which reduces prices & profits

2. Reduce costs: by distributing over WLAN, eliminate costs & profits of third party retail stores; eliminate manufacturing, packaging, shipping, printing costs for video games

3. Increase sales: easier to buy & no delay; new games typically sell for $55; Wi-Fi most convenient way to market and sell games, upgrades, expansion packs, extra features

4. Compete with Smartphones: increasing % of games bought using smartphones; gaming systems need Wi-Fi to compete

82


Genesis Response‘222 Wi-Fi patent

• Wi-Fi capability critical to increasing profits:

• Wi-Fi provides best & most convenient connectivity (wireless, highest data rate, cheap, generally available)

• Kills resale market for used games:

83

“Contrary to traditional theory, which holds that resale markets should not reduce profits of producers of perfectly durable goods, I found evidence that in markets that have the feature that consumers tire of goods, allowing resale does significantly reduce firm profits. Using data from the video game market, I found that consumers in fact tire of video games very quickly, and as a result market prices decline quickly as used goods are resold to consumers with lower valuations for the product. I found that prohibiting resale raises firm profits by over 350%, because it allows firms to maintain high prices.” (B. Shiller, Wharton School, Digital Downloads & the Prohibition of Resale Markets for Information Goods, page 23):


Genesis Response


WLAN capability is critical to reducing costs:

(see Journal of Interactive Marketing, Value Creation in the Video Game Industry, page 151 (2013):

"Physical to Digital

Traditionally games were distributed on physical disks, in boxes including printed manuals. The industry is moving quickly to digital distribution though; from 2009 to 2011,

the ratio of physically distributed games dropped from 80% to 69%, and digitally distributed games rose accordingly.

This shift offers multiple likely advantages to game producers. In addition to increasing profit margins by eliminating retailers and production costs (e.g., for the disks and boxes), producers can attain more direct relationships with individual players. For

example, by making its PlayStation Network central to game play, Sony collects data about customer usage patterns, which should enhance its value-enhancing, tailored offers."

84


Genesis Response

'005 Auto Trigger patent: overvalued compared to '222 Wi-Fi patent

1. Auto Trigger does not improve sales, profits, or costs for GAMES

2. Wi-Fi chip performs no function & has no structure unrelated to ‘222 Wi-Fi patent

3. Auto Trigger feature is one button on controller with multiple components; ‘005 patent implemented in small portion of controller; other parts add very important features & value

85


Genesis Response


• Auto-trigger implemented in one small part (one button) of $20 controller

• Auto-trigger unrelated to any top features provided by game controllers:

86

TOP FEATURES IN GAME CONTROLLERS

1. Wireless 2. Motion Sensing 3. Rumble Feature 4. Multiple Use

Source: Nielsen 360° Gaming Report

nielsen . . . . . . .



Genesis Response

'005 Auto Trigger patent: overvalued compared to '222 patent if based on chip costs

1. Relying on component cost alone can overvalue or undervalue inventions

2. Value of patent is Economic Benefit to Infringer; comparing chip cost inappropriate because ignores economic benefits of ‘222 patent & wrongly gives entire value of controller to ‘005 patent

3. Example—Eli Whitney’s cotton gin cleaned cotton as fast as 50 people; valuation of patent should take into account financial benefit to infringer instead of cost to make a part

87





Wireless LAN 4 4 Yes H High Medium Medium 7Auto Trigger Controller 20 None No H High Low Low 8

TechOne Response

David Wang


TechOne’s Patent Portfolio

89

3


Preliminary Report: User Experience = “Low”

Misconception: Memory has low impact on user experience.

‘000 Patent: The patented memory operates “several times faster” than the “fastest existing” conventional memory.

90

The ‘000 Patent Has A High Value

‘000 Patent at 3:20-23



Currently there is no other memory on the market that achieves comparable speeds.

Other memories are “several times” slower.

91



92

Memory has a low impact on factors driving consumer demand?




© 2014 Winston & Strawn LLP 93

Memory speed affects 3 of the top 5 factors:






Memory speed affects 3 of top 5 factors:

TOP FACTORS DRIVING GAMING CONSOLE PURCHASE1. ConnectivityData to or from outside networks must be stored in memory. On-line games.

CPUMemory




CPUMemory

TOP FACTORS DRIVING GAMING CONSOLE PURCHASE1. ConnectivityData to or from outside network must be stored in memory. Slow memories make gaming consoles appear as if consoles are DISCONNECTED.



Memory speed affects 3 of the 5 top factors:TOP FACTORS DRIVING GAMING CONSOLE PURCHASE

3. Better ResolutionRequires more graphic/video data, just like Blu-ray have 4 times more graphic/video data than DVDs.

CPUMemory


Display


Memory speed affects 3 of top 5 factors:TOP FACTORS DRIVING GAMING CONSOLE PURCHASE

3. Better ResolutionRequires more graphic/video data, just like Blu-ray output 4 times more graphic/video data than DVDs.Slow memory means disrupted video.

CPUMemory


Display



4. Faster Processing Power When fast processor matters to consumers (graphic games etc.), fast processor is meaningless if the memory is a bottleneck.

CPUMemory


Display



The dramatically higher speed organic memory of the ‘000 Patent affects 3 of the top 5 factors important to consumer

purchasing decisions.

No other patented feature at issue affects this many of the top factors.

The ’000 Patent Has a High Value

99



100


The ‘005 Patent Has High Value

101

The game controller is the #2 factor driving consumer purchasing decisions:






The Mediator’s value of 8 is correct.

8

102


Wireless Controller is Smallest Saleable Unit

The smallest saleable unit for the ‘005 patent (wireless controller) is the wireless controller, not just the trigger.

103


Genesis’ Patent Portfolio

104


Gaming consoles commonly use a 64 bit processor without switchable 32-bit/64-bit cores so as to achieve high graphic performance.

Although a 64 bit processor consumes more power than a 32 bit processor, a gaming console does not need a 32 bit processor because (1) graphics and video are constantly running in a game and (2) games do not perform word processing or Excel spreadsheet tasks.

Thus, the ‘222 switchable-core processor has low impact on gamer experience.105

The ‘007 Patent Has Low Value in Gaming


The ‘007 Patent Has Low Value In Gaming

106

A CPU with switchable cores for power conservation does not drive consumer purchasing decisions at all:






The processor of the ‘007 Patent that can switch between 32-bit and 64-bit cores has little usefulness in a

gaming console.

The ’007 Patent Has Low Value in Gaming

107



108


The ‘222 Patent Has Low Value

Single Use Restriction? “Yes” should be “No”

The WIFI ‘222 patent:

did not invent downloading of games/videos, and

is not the only way that allows users to download games.

Non-infringing alternatives that allow users to download games from the internet include Bluetooth wireless, Zigbee wireless, cellular wireless, and wires.

109



110

The WIFI approach in the ‘222 patent is no better at achieving “single use restriction” than the prior art and non-infringing alternatives.

Game manufacturers do not care whether games are downloaded by WIFI, Bluetooth, Zigbee, cellular, or an Ethernet cable.

Single Use Restriction? “Yes” should be “No”.


CONCLUSION

1. The ‘000 Patent for an organic memory having “dramatically faster” speeds has a high value of 8.

2. The ‘005 Patent for wireless keyboard/gaming controller has a high value of 8.

3. The ‘007 Patent for a CPU having switchable 32-bit and 64-bit cores has a low value in gaming applications of 2.

4. The ‘222 Patent for WIFI connections has a moderate value of 4.

111


Final Report & Royalty / Unit

112



Single Use Restriction

Warranty Repair Cost


Energy Efficiency

Tech Valuation

Score

Multi-Core Processor 26 20 No 3 Medium High High 4Wireless LAN 4 4 Yes 0.5 High Medium Medium 5Organic Memory 5 4 No 0.5 Low High High 4Auto Trigger Controller 10 None No 2 High Low Medium 9

Final Report


113



114

User Experience should be High


Misconception: Memory has low impact on user experience.

‘000 Patent: The patented memory operates “several times faster” than the “fastest existing” conventional memory.

115


‘000 Patent at 3:20-23



Currently there is no other memory on the market that achieves comparable speeds.

Other memories are “several times” slower.

116



117

Top 5 factors that drive consumer purchasing decisions:





Memory speed affects 3 of the top 5 factors:







TOP FACTORS DRIVING GAMING CONSOLE PURCHASE1. ConnectivityData to or from outside networks must be stored in memory. On-line games.

CPUMemory




CPUMemory

TOP FACTORS DRIVING GAMING CONSOLE PURCHASE1. ConnectivityData to or from outside network must be stored in memory. Slow memories make gaming consoles appear as if consoles are DISCONNECTED.



Memory speed affects 3 of the 5 top factors:TOP FACTORS DRIVING GAMING CONSOLE PURCHASE

3. Better ResolutionHigh resolution means more graphic data (Blu-ray have 4 times more graphic data than DVDs). High resolution & 3D require storing more graphic data.

CPUMemory


Display



3. Better ResolutionSlow memory means disrupted video/graphics.

CPUMemory


Display



4. Faster Processing Power When fast processor matters to consumers (graphic games etc.), fast processor is meaningless if the memory is a bottleneck.

CPUMemory


Display



The dramatically higher speed organic memory affects user experience and 3 of the top 5 factors.

No other patented feature at issue affects this many of the top factors.

“User Experience” is “high” and

the ’000 Patent has a high value

8124



125

Tech Valuation Score should be higher



126

The game controller is the #2 factor driving consumer purchasing decisions..






• The panel’s experts opine that the auto-trigger game controller is essential to drive sales.

• The panel’s value of 8 should be increased.

10

127


Wireless Controller is Smallest Saleable Unit

The smallest saleable unit for the ‘005 patent (wireless controller) is the wireless controller, not just the trigger.

128



129

Single Use Restriction should be No



Single Use Restriction?

The WIFI ‘222 patent:

did not invent downloading of games/videos, and

is not the only way that allows users to download games.

Non-infringing alternatives that allow users to download games from the internet include Bluetooth wireless, Zigbee wireless, cellular wireless, and wires.

130



131

The WIFI approach in the ‘222 patent is no better at achieving “single use restriction” than the prior art and non-infringing alternatives.

Game manufacturers do not care whether games are downloaded by WIFI, Bluetooth, Zigbee, cellular, or an Ethernet cable.

Single Use Restriction? “Yes” should be “No”.

4



132

User Experience should be low


Gaming consoles commonly use a 64 bit processor without switchable 32-bit/64-bit cores so as to achieve high graphic performance.

Although a 64 bit processor consumes more power than a 32 bit processor, a gaming console does not need a 32 bit processor because (1) graphics and video are constantly running in a game and (2) games do not perform word processing or Excel spreadsheet tasks.

Thus, the ‘222 switchable-core processor has low impact on gamer experience.133



The ‘007 Patent Has Low Value In Gaming

134

A CPU with switchable cores for power conservation does not drive consumer purchasing decisions at all:






The processor of the ‘007 Patent that can switch between 32-bit and 64-bit cores has little usefulness in a

gaming console.

“User Experience” should be reduced to “Low”.

The ‘007 Patent has a low value.

2135


CONCLUSION

1. The ‘000 Patent for an organic memory having “dramatically faster” speeds has a high value of 8.

2. The ‘005 Patent for wireless keyboard/gaming controller has a high value of 10.

3. The ‘222 Patent for WIFI connections has a moderate value of 4.

4. The ‘007 Patent for a CPU having switchable 32-bit and 64-bit cores has a low value in gaming applications of 2.

136


Final Report

137





Energy Efficiency

Tech Valuation

Score

Multi-Core Processor 26 20 No M Medium High High 4Wireless LAN 4 4 Yes H High Medium Medium 5Organic Memory 5 4 No L Low High High 4Auto Trigger Controller 20 None No H High Low Low 9

Final Report


Royalty

138

Component (Smallest Saleable Unit)

Royalty Base

Final Score

Royalty Rate

Royalty / Unit

Genesis 007 Processor $26 4 0.8% $0.21222 Wireless LAN $4 5 1.0% $0.04

Total $0.25

TechOne 000 Organic Memory $5 4 0.8% $0.04005 Wireless Controller $20 9 1.8% $0.36

Total $0.40

Field of Use Home + Portable Units

Valuation of Patent Rights:


Questions / Answers

139

© 2014 Winston & Strawn LLP Demonstration: Technology Valuation for Patent Dispute Settlement & Licensing Valuation of Patent Technology Presented by:

Documents

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winston strawn llp issue

winston strawn llp team

weak patent

economics technology

smallest salable patent

market demand

entire value