Invest in Growth - Stabilize supply chain How LOT Network Addresses the PAE Problem 1 LOT Network CEO Ken Seddon Introduction of Ken Seddon 25 Years of Engineering and IP experience • BS. EE Georgia Tech, Master’s Device Physics from ASU, JD from ASU • Motorola: engineer and patent prosecution • Intel: Asst. Director of Patents - patent prosecution and licensing • Numonyx: Chief IP Counsel • Micron: Asst. General Counsel • Apple: Strategic patent licensing, patent purchasing, NPE defense • ARM: VP of IP 2 Annual Fixed Cost to Companies Litigation, Licensing, Settlements $29 Billion 3 PAEs - hurting innovation PAEs greatest litigation risk to high-tech New PAE suits per quarter companies 2,000 PAE AIA 88.2% 1,500 1,000 Operating Companies 500 11.8% Average 2019: PAEs are responsible for 88% of high-tech patent litigation in the US! 4 Where are the PAEs getting their patents? Inventor/ University 81% of patents acquired 19% from PAEs come from companies7 Operating Company 81% Companies provide PAEs with most of the patents 5 2014: LOT Network is formed as the solution LOT Membership over time 500 Board of Directors 475 450 425 400 375 350 325 300 275 250 225 200 175 150 125 100 75 50 25 LOT Begins 0 2/28/156/30/15 2/29/166/30/16 2/28/176/30/17 2/28/186/30/18 10/29/14 10/31/15 10/31/16 10/31/17 10/31/18 6 LOT Membership over time LOT Agreement is scaling 700 675 650 625 600 Board of Directors 575 550 525 500 475 450 425 400 375 350 325 300 275 250 225 200 175 150 125 100 75 50 25 0 2/28/156/30/15 2/29/166/30/16 2/28/176/30/17 2/28/186/30/18 2/28/196/30/19 7 10/29/14 10/31/15 10/31/16 10/31/17 10/31/18 10/31/19 Today: LOT Includes the most sophisticated Global IP holders across all industries 8 Who is joining and why? 9 Some of LOT’s 650+ members Software: Some of LOT’s 650+ members Hardware: 12 Some of LOT’s 650+ members Automotive: 13 Some of LOT’s 650+ members Financial Services 14 Some of LOT’s 650+ members Entertainment/media 15 Some of LOT’s 650+ members Retail: Key Others: 16 Some of LOT’s 650+ members in China 17 EconSight: LOT Network has 12 of largest AI Patent holders EconSight, “Artificial Intelligence As A Key Technology and Driver of Technological Progress”, 2019 PRIVILEGED AND CONFIDENTIAL - NOT FOR DISTRIBUTION 18 LOT Network includes 11 of the largest holders of Blockchain IP https://www.jdsupra.com/legalnews/overview-of-the-patent-landscape-in-the-40312/ What is LOT Network? Non-Profit Community Protecting Innovation LOT - community providing PAE immunization 20 How LOT Protects Members A license to the other members of LOT Network that applies ONLY on and after transfer of the particular patent to a patent assertion entity (License on Transfer - LOT) 21 No effect on traditional uses of patents Free to Free to Free to Free to Cross License Do Nothing Assert Sell LOT - community providing PAE immunization 22 No effect on traditional uses of patents ▪ LOT Members involved in recent IP disputes: ▪ Cisco ▪ Arista ▪ Waymo ▪ Uber ▪ Google ▪ Oracle 23 No Burden to being a member Don’t have to Don’t have to list patents give notice Don’t have to report 24 What is an assertion entity? A patent holder, in combination with its affiliates, that generates more than 50% of its gross revenue from patent assertion. 25 How LOT works 26 Illustration of the LOT Agreement's Operation Today: Companies 1 and 2 Tomorrow: Company 2 sells a Future: LOT membership is immune join the LOT Network. patent to a Patent Assertion Entity. from patent, regardless of the owner. 1 2 1 2 1 2 $ Over 2,381,000 WW assets PAE PAE PAEX Over 651,000 US assets License to LOT membership Legend: automatically becomes effective. = Transferred patent(s) 27 Illustration of the LOT Agreement's Operation Today: Companies 1 and 2 Tomorrow: Company 1 sells a join the LOT Network. patent to an Operating Company 1 2 1 2 OP CO E OP CO $ F OP CO D OP CO H Over 2,381,000 WW assets PAE Over 651,000 US assets OP CO OP CO C G Legend: License to LOT membership = Transferred patent(s) automatically becomes effective when transferred to PAE. 28 Illustration of the LOT Agreement's Operation Today: Companies 1 and 2 Tomorrow: Company 2 becomes join the LOT Network. an assertion entity 1 2 11 2 PAE Over 2,381000 WW assets License to LOT membership Over 651,000 US assets automatically becomes effective. 29 LOT Network is non-profit: Annual Fee LOT Member’s Annual Revenue Annual Membership Fee Less than $5 million Free Between $5 and $10 million Free Between $10 and $25 million Free Between $25 and $50 million $5,000 Between $50 and $100 million $10,000 Between $100 million and $1 billion $15,000 Greater than $1 billion $20,000 (cap) 30 LOT provides value to its members 31 Analysis of assets litigated by PAEs 32 What type of patents did PAEs assert in 2019? (2,072 litigations using 1,188 patents worldwide) 400 G06F: Electrical Data Processing 370 H04L: Transmission of Digital Information 358 H04N: Pictorial Communications H04W: Wireless Communication Networks H04B: Transmission 300 G06Q: Data Processing Systems H04M: Telephonic Communications H01L: Semiconductor Devices G06K: Data Recognition G06T: Image Data Processing 200 194 174 110 106 98 100 82 # of patent assets# of 62 60 0 G06F H04L H04N H04W H04B G06Q H04M H01L G06K G06T 33 LOT has 1.7 million patents like the patents that PAEs assert worldwide 400,000 LOT has over 1,741,000 assets G06F: Electrical Data Processing 337964 in the exact areas as assets that PAEs use to sue H04L: Transmission of Digital Information (2,381,000+ Overall) H04N: Pictorial Communications H04W: Wireless Communication Networks 300,000 H04B: Transmission G06Q: Data Processing Systems H04M: Telephonic Communications H01L: Semiconductor Devices 200,000 G06K: Data Recognition G06T: Image Data Processing 125572 102002 100,000 # of patent assets 65722 48103 29653 30836 28904 10371 14335 370 358 194 174 110 106 98 82 62 60 0 G06F H04L H04N H04W H04B G06Q H04M H01L G06K G06T 34 Analysis of assets bought 35 Patent sales: Forecast of future litigation 3,000 G06F:Electrical Data Processing Top 10 patent categories of H01L:Semiconductor Devices 12,835 assets sold H04L:Transmission of Digital Information 2348 H04W:Wireless Communication Networks 2,250 G02B:Optical Elements H04N:Pictorial Communications 1887 G06Q:Data Processing Systems G11C:Static Stores A61B:Diagnosis 1,500 G06K:Data Recognition 1239 750 669 # of patent assets#of patent 475 432 331 252 230 180 0 G06F H01L H04L H04W G02B H04N G06Q G11C A61B G06K Source: AST Patent Deals Report, Feb 2020 36 Patent sales: Forecast of future litigation 400,000 LOT has over 2,112,000 assets G06F:Electrical Data Processing H01L:Semiconductor Devices 337964 in the same areas as the assets sold in 2019 (2,381,000+ Overall) H04L:Transmission of Digital Information H04W:Wireless Communication Networks 300,000 G02B:Optical Elements H04N:Pictorial Communications G06Q:Data Processing Systems G11C:Static Stores A61B:Diagnosis 200,000 G06K:Data Recognition 125572 102002 100,000 # of patent assets 65722 48103 33005 30836 29653 19431 2348 1887 1239 669 475 432 331 252 3287 230 180 0 G06F H01L H04L H04W G02B H04N G06Q G11C A61B G06K Source: AST Patent Deals Report, Feb 2020 37 Yeah, but does LOT REALLY work? 38 LOT Members have divested assets, but… • Over 26,000 have left LOT Network • 35 of those assets have landed in the hands of 8 different PAEs • One of those PAEs is Intellectual Ventures No LOT Member has ever been sued by an asset that has left the Network Data from: 39 Backup 40 References 1. Patent Freedom • https://www.patentfreedom.com/about-npes/litigations/ 2. James Bessen & Michael Meurer, The Direct Costs from NPE Disputes, 99 Cornell L. Rev. 387 (2014). 3. RPX 2014 Litigation Report. • http://www.rpxcorp.com/wp-content/uploads/sites/2/2015/03/RPX_Litigation-Report-2014_FNL_040615.pdf 4. US Patent and Trademark Office • http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm 5. ROL Group • http://www.richardsonoliver.com/news/2014/12/1/buyers-and-sellers-in-the-2014-brokered-patent-market 6. Linda Biel, AST 7. Dan McCurdy, RPX presentation at 2017 IP Counsel Cafe spring meeting, Palo Alto, CA. 8. Kevin Jakel, Unified Patents presentation at 2015 IP Counsel Cafe spring meeting, Palo Alto, CA. 9. Mark Lemely & Douglas Melamed, Missing the forest for the Trolls, Cornell Law Rev. 2013. 10. Robert Gebelhoff. (2015, November 23). ‘Patent trolls': Reading the comments. The Washington Post. Retrieved from https://www.washingtonpost.com/news/in-theory/wp/2015/11/23/patent-trolls-reading-the-comments/ (© 2015) 41 What about small companies? ● Startups and small companies are softest targets for trolls − 50% of all companies sued by trolls make less than $10 million/year − Over 50% of all patent lawsuits concern software patents† † GAO report on IP: http://www.gao.gov/products/GAO-13-465 42 2/3rds of LOT Members are start-ups 43 Significant Value in adding suppliers to Membership Significant value in adding some Suppliers Company A Company B Company C Both Suppliers and Customers get protection from patents outside their bilateral Suppliers Suppliers Suppliers ecosystems Value 45 Why LOT is good for BUYERS Can trust $ Help save suppliers $29 billion Stabilize supply chain 46 Why LOT is good for SUPPLIERS Reduce Gain access indemnification to IP costs Become Program “preferred” voluntary supplier 47 LOT Membership over time 700 Today: LOT Includes 675 650 625 600 IBM the most sophisticated Toyota 575 Comcast/NBC 550 Visa 525 Caterpillar Global IP holders Disney 500 Aptiv 475 Tencent across all industries 450 Microsoft Arista 425 Denso 400 Square 375 Boeing ADM 350 American Express 325 Facebook Covestro 300 Oracle 275 NetApp 250 Salesforce eBay 225 Tesla 200 Volkswagen 175 Cisco Alibaba 150 Honda 125 Nissan 100 Electronic Arts GM 75 Amazon 50 Lenovo Hyundai 25 0 2/28/156/30/15 2/29/166/30/16 2/28/176/30/17 2/28/186/30/18 2/28/196/30/19 48 10/29/14 10/31/15 10/31/16 10/31/17 10/31/18 10/31/19 Who’s next? 49 New PAE suits per quarter 2,000 AIA 1,500 1,000 500 Average Some of LOT’s 650+ members in Cybersecurity Some of LOT’s 650+ members 52.