devonshire capital funds - gopro

Devonshire Capital Funds: Fund I

An analysis of GoPro

January 2015

For Public Release

-For Public Release-

Disclaimer

For Public Release 2

Full Legal Disclaimer As of the publication date of this report, Devonshire Capital LLC ("Devonshire") has a short position in the stock of the company covered herein (GoPro, Inc.) and stands to realize gains in the event that the price of the stock declines. Following publication of the report, Devonshire may transact in the securities of the company covered herein. All content in this report represent the opinions of Devonshire. Devonshire has obtained all information herein from sources it believes to be accurate and reliable. However, such information is presented “as is”, without warranty of any kind – whether express or implied. Devonshire makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. All expressions of opinion are subject to change without notice, and Devonshire does not undertake to update or supplement this report or any information contained herein.

This document is for informational purposes only and it is not intended as an official confirmation of any transaction. All market prices, data and other information are not warranted as to completeness or accuracy and are subject to change without notice. The information included in this document is based upon selected public market data and reflects prevailing conditions and Devonshire’s views as of this date, all of which are accordingly subject to change. Devonshire’s opinions and estimates constitute a best efforts judgment and should be regarded as indicative, preliminary and for illustrative purposes only. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This report’s estimated fundamental value only represents a best efforts estimate of the potential fundamental valuation of a specific security, and is not expressed as, or implied as, assessments of the quality of a security, a summary of past performance, or an actionable investment strategy for an investor.

This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein or of any of the affiliates of Devonshire. Also, this document does not in any way constitute an offer or solicitation of an offer to buy or sell any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction. To the best of Devonshire’s abilities and beliefs, all information contained herein is accurate and reliable. Devonshire reserves the rights for its affiliates, officers, and employees to hold cash or derivative positions in any company discussed in this document at any time. As of the original publication date of this document, investors should assume that Devonshire is short shares of GoPro, Inc. and stands to potentially realize gains in the event that the market valuation of the company’s common equity is lower than prior to the original publication date. These affiliates, officers, and individuals shall have no obligation to inform any investor about their historical, current, and future trading activities. In addition, Devonshire may benefit from any change in the valuation of any other companies, securities, or commodities discussed in this document.

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Fears over Apple entering GoPro’s market, backed up by IP filings, sent GoPro shares tumbling 12.17% on Tuesday


US 8934045 B2 (2015): Digital camera system having remote control Original applicant: Eastman Kodak Inventors: Kazuhiro Joza, Marc Krolczyk, Keith Stoll Karn

A digital camera system contains an image capture module, which consists of an image capture system and a wireless communication system, and a remote control module, which includes a battery, status display elements, user controls, a wireless communication system, and a power management system

Basic info

Description

Exemplary claims

(1) A digital camera system, comprising: An image capture module including:

A first image capture system including: A first image sensor for capturing a digital image; and A first optical system for forming an image of a first

portion of a scene onto the first image sensor; and A first wireless communication system; and

a remote control module including: A remote control status display including one or more remote

control status display elements for displaying status information pertaining to the image capture module;

A battery-operated power supply; One or more remote control user controls; A second wireless communication system for communicating

with the first wireless communication system using a wireless interface; and

A power management system providing a normal-power state where the remote control status display and the second wireless

communication system are active and a low-power state where the remote control status display and the second wireless system are inactive

Wherein when none of the remote control user controls have been activated for a predefined first time interval the power management system sets the remote control module to operate in the low-power state;

And wherein when a user activates one of the remote control user controls while the remote control module is in the low-power state:

The power management system sets the remote control module to operate in the normal-power state:

The remote control module sends a status inquiry to the image capture module using the second wireless communication system, and in response the image capture module sends status information back to the remote control module using the first wireless communication system; and

The status information is displayed using the remote control status display elements of the remote control status dusplay

Other bibliometric data

Patent application that resulted in this patent was re-assigned from Eastman Kodak to Apple on February 11, 2013 Cites over 56 patents, including previous work by Ricoh, Canon, Kodak, Minolta and other leading electronics and camera companies on camera remote

controls, image sensors, low-power capture modes, etc.; out of the 56 foundational camera and electronics patents that Apple cites, only one is also cited by GoPro’s portfolio of 50 granted patents


One patent erased $880 million dollars from GoPro’s market cap in six-and-a-half hours


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GoPro Share Price (01/13/2015, by tick)

15.47%

How many other patents exist that can do the same?



GoPro has soared upwards from an initial share price of $24 during its June IPO, propelled by impressive revenue growth and a wave of investor enthusiasm

1

Executive Summary


ForecastEstimated

Go-Pro offers an example of a traditional consumer electronics growth revenue curve


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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

R&D stage Consumer electronics co. Media co.?

Nick Woodman founds GoPro as

Woodman Labs after he is unable to find

suitable camera gear for a surf trip

Digital HERO 5 is released, the first with a 170-degree

view angle, ultra-wide lens (December 2008)

GoPro releases its first HD camera, the

HD HERO, shooting in 1080p at up to 60fps

GoPro introduces its first digital camera,

the Digital HERO, with 10-seconds of

recording capability

GoPro releases the HERO3, with Wi-Fi

connectivity and the ability to shoot in 4k

resolution

GoPro sells 17.8M shares in its IPO,

valuing it at $2.95B (June 2014)

Company releases its first product, a

camera system using 35mm film, in

September 2004

Units soldRevenue

$


Within four years, GoPro has found a way to successfully turn a profit and to grow its earnings

Income Statement;For the Fiscal Period Ending

Dec-31-2010 Dec-31-2011 Dec-31-2013 Dec-31-2013LTM RestatedSep-30-2014

Revenue $64.5 $234.2 $526.0 $985.7 $1,121.7

Total Revenue 64.5 234.2 526.0 985.7 1,121.7

Cost of Goods Sold 31.7 111.7 298.5 624.0 646.8

Gross Profit 32.7 122.6 227.5 361.8 474.9

SG&A Expense 19.5 74.8 137.8 189.0 259.5

Selling and Marketing 13.2 64.4 116.9 157.8 not available

General and Administrative 6.3 10.8 20.9 31.6 not available

R&D Expense 1.4 8.6 36.1 73.7 131.2

Other Operating Expense, Total 20.9 83.5 173.9 262.8 390.7

Operating Income 11.9 39.1 53.6 99.0 84.2

Net Income $11.6 $24.6 $32.3 $60.6 $49.6

GPRO is 94th percentile in the NASDAQ in 1-year

revenue growth, and 98th percentile in 3-year

revenue growth

GoPro has managed to keep its gross margin over 35%, and as high as 50

Faced with stronger competition from HTC,

Polaroid, and Sony, GPRO has raised R&D exp. from 2% of revenue to 12%

Balance Sheet;As of

Dec-31-2010 Dec-31-2011 Dec-31-2013 Dec-31-2013 Sep-30-2014

Cash And Equivalents $ - $29.1 $36.5 $101.4 $237.7

Short Term Investments - - 1.2 2.0 1.6

Total Cash & ST Investments - 29.1 37.3 103.5 239.3

Total Assets - 104.4 246.7 439.7 589.1

Total Liabilities $ - $37.4 $249.3 $367.8 $238.4

Net Debt not available $(28.7) $91.7 $10.2 $(239.3)

Quick Ratio not available 1.5x 0.9x 0.8x 1.5x

Inventory Turnover not available not available 7.6x 7.2x 5.8x

GoPro’s large cash holdings have been bolstered by its recent secondary offering

1.5x quick ratio underscores GoPro’s strong cash position; it could pay

off all liabilities with its cash and short-term investments

GoPro may take advantage of its low long-term debt to

make acquisitions in the near-term





1

Executive Summary

GoPro’s publicity engine has hyped the stock ever since its IPO, but some investors and activists remain concerned

2


GoPro’s valuation in December was abnormally high, especially when looking at companies with comparable PE/PB ratios


P/E (LTM Norm.): 214x P/E (NTM): 74.69x P/BV: 80x

Revenue $6,500

1-Yr Rev. Growth

11.3%

Net Income

($43)

Revenue $985.7

1-Yr Rev. Growth

87.4%

Net Income

$60.6

Revenue $14,474

1-Yr Rev. Growth

45.8%

Net Income

($964)

Revenue $3,022

1-Yr Rev. Growth

24.2%

Net Income

$90

Revenue $2,300

1-Yr Rev. Growth

27.1%

Net Income

$162

Revenue $8,155

1-Yr Rev. Growth

8.7%

Net Income

($169)

Revenue $17,857

1-Yr Rev. Growth

6.9%

Net Income

$162

Multiples based on avg. for quarter ending 12/8/2014

Revenue $2,972

1-Yr Rev. Growth

8.8%

Net Income

$804

Revenue $5,591

1-Yr Rev. Growth

(0.5%)

Net Income

$558

Revenue $6,170

1-Yr Rev. Growth

5%

Net Income

$913

Revenue, net income from 2013 ($M)

Owns, operates, or leases 298 leading entertainment and other venues globally; 150M+ ticket sales per year

Leading international cable company, with 14x GoPro’s revenue and impressive revenue growth

Key rating institution with over $839M in levered FCF in 2013 and $2.1B in cash

4th-largest cable provider in US, with 27.6M subscribers and $961M in operating income

Largest provider of wireless infrastructure in US; signed large tower leasing agreement with AT&T in 2013

Leading American consumer and products brand with $5.6B in revenue and consistent 40+% gross margins

Major South Korean conglomerate with holdings across an impressive span of industries

Ascendant athletic wear company with major long-term supply deals and a significant addressable market

British multination clothing, footwear, and home products retailer with sold net income and $6B in revenue


In December, GoPro’s market cap ($9.2B*) placed it alongside the world’s largest consumer goods, media, and tech companies


Revenue ($M) Net income ($M) Rev. growth, 1-yr.Company & Mkt. Cap* Description

$74,488 ($3,100) (2.45%) Europe’s second-largest car manufacturer by

volume; global deliveries of 2.82 million Rapidly expanding in Chinese market

$19,800 ($1,790) 0.09%

French telecommunications equipment company Industry Group Leader for Technology Hardware

in Dow Jones Sustainability Indices review One of Top 100 Global Innovators for 4th

year in a row

$23,100 $620 (5.19%) Office supply chain with 2,000 stores worldwide

and over 90,000 employees

$8,500 $449 (3.57%)

American multinational media company Holds Down Jones & Co., the NY Post, Harper

Collins, and other publishing and newspaper assets

Earned off of its broad content and media holdings

$7,500 $449 18.8%

Manufactures and sells automation equipment and systems and medical equipment

One of Top 100 Global Innovators in 2013, per Thomson Reuters

Leading technology innovator

$55,070 $167 5.48%

Multinational manufacturer of consumer, home, and automotive electronics

Ranked in top 50 Most Innovative Companies in 2014 by BCG

One of world’s top electronics brands

*all market caps as of 12/5/2014

$10.14B

$9.55B

$9.87B

$9.18B

$9.2B

$10.34B


Analysts have hyped GoPro’s stock since its IPO, but skeptics have raised doubts


What GoPro’s media hype engine says… …what critics say about GoPro’s situation

GoPro has continued to see stellar revenue growth; GoPros should be among the key gifts this holiday

season, as it has top billing at Amazon and Best Buy

GoPro will need to ship 15M to 20M devices annually to grow into valuation; long-term projections of annual GoPro sales are closer to 10M to 12M

Unlike Apple’s iPod, GoPro cameras appeal to a much smaller addressable market, which is already showing signs of saturation

GoPro’s intended shift towards a media / content company means it should be valued as such; it has

one of the top 10 YouTube brand channels

GoPro has yet to generate any significant revenue from its YouTube channel or media efforts, yet it has the same market cap as News Corp

GoPro doesn’t necessarily own content shot on its devices

GoPro’s cameras feature industry-leading technology that its competitors can’t match, which will allow it to

sustain margins

GoPro’s cameras are not significantly better than those of its competitors, nor are its chipsets differentiated or particularly unique

In fact, GoPro faces increasingly intense competition from Sony, HTC, and Polaroid, among others

GoPro offers 4% net profit margins and $110M in positive levered free cash flow generated each year; momentum / enthusiasm of retail investors keeps

bumping it higher

Picking and choosing out of a basket of metrics is dangerous; any look at the fundamentals should focus on its sky-high price-to-book, forward P/E, and price-to-sales ratios; mob mentality is not a long-term viable valuation method

GoPro plans to release its own line of consumer drones in late 2015, expanding its product offering into what

may be the next hot consumer product

Leading drone manufacturers have already begun selling drones with cameras sourced in-house

GoPro is four years behind industry leaders, and may be shooting itself in the foot since many drone manufacturers market their drones for use with GoPro cameras

Google may look to acquire GoPro in 2015

The majority of proposed synergies benefit GoPro above all; GoPro’sspecialization is not near-term relevant to Google Glass

Google paid $9.5B for Motorola and received 4,500 patents and was able to bolster Android; $9B for a camera company with limited IP appears high




1

Executive Summary

The crest of this wave of Wall Street hype is evident in frothy media coverage of GoPro and surprising, if not outright worrying, valuations metrics

2

But as the valuations have grown, so have questions about GoPro’s future success3


Not everyone believes the hype surrounding GoPro, and some have made their opinions known


Copperfield Research

Citron Research

Kerrisdale Capital

“GoPro is a tech hardware company. Yet it has spun a story, which is a very convenient fiction, for Wall Street to parrot: that it can become a ‘media company’. Why? Because users are uploading some of their videos to YouTube?”

“The clearest comparison to GoPro is Beats Headphones…Apple bought Beats for 2x revenue…At the time of the acquisition, much of the media opined that 2x sales was high for a product in a commoditized industry.”

“We have never seen analysts on consumer electronics gear company resort to social media ‘eyeballs’ metrics to justify valuations…In Wall Street’s compulsion to fabricate a story where a story does not exist, you see its fingerprints on GoPro media.

“We believe $GPRO has used accounting gimmickry to overstate EBITDA by at least 10%. Very aggressive”

“$GPRO is not what it seems. Great product, great chart…but accounting has yet to be fleshed out well.”

Media strategy is unlikely to bear fruit; although GoPro has millions of YouTube subscribers and hundreds of millions of views of its videos, the idea of the company obtaining significant amounts of revenue from YouTube or a cable TV station is “ludicrous”

Some investors have compared GoPro’s camera to Apple’s iPod, but unlike the iPod it does not have an ecosystem and is not “materially superior” to its competition

Accounting issues

Wall Street market-making

Weak fundamentals


Is GoPro the next Flip Cam?


History

Previous hype surrounding Flip

Flip Video cameras were a popular product line sold from 2006 to 2011 by Pure Digital Technologies

Hailed as “the future of journalism video”, Flip Cams were one of the “most significant electronics products of [2008]”, according to New York Times tech writer David Pogue

Over seven million were sold between 2006 and 2011; at times it represented over 35% of the camcorder market

In 2011, however, Cisco, which had acquired Flip for $590M, shuttered the business, seeking to exit the low-margin, increasingly competitive consumer camera market while retaining Flip’s valuable intellectual property portfolio

Introduction

Flip is “looking at a younger audience, 14-25 or 28, who’ll just slip it into their pocket…This particular product is a subsector we’re creating”

Ray Sangster, Flip Video’s European president “e-tailers moved very quickly…they’re the guys with the fingers

on the pulse.”Ray Sangster, Flip Video’s European president

“Pure Digital reveals YouTube-friendly Flip Video Ultra”

Engadget The Flip Ultra is part of the “modern reporter’s toolkit”

Rory Cellan-Jones, BBC tech correspondent “A Reporter’s Toolbag: Reduced to Two – Flip Camera and

iPhone…The Flip video camera’s simple, one-red-button

design makes it perfect for capturing quick video pieces”Nieman Reports

The Flip Ultra was released on September 12, 2007, quickly becoming the best-selling camcorder on Amazon; within a year it had

captured 13% of the camcorder market

The Flip Mino HD, Pure Digital’s first HD camera, was released on November 11, 2008

Cisco Systems acquired Pure Digital on May 21, 2009 for $590M in stock

On April 12, 2011, Cisco announced it was shuttering Flip, laying off 550 employees and “writing off” its $590M purchase; the unit was “considered a drag on margins” and was “facing

increased competition from traditional camcorder players”

Cameras are still a rapidly commoditizing, replaceable piece of consumer electronics

340400400

150

50219421

20042002 2003 2005 201020092006 20082007 2011

Flip Sales ($M)¹

¹Estimated on analyst consensus




1

Executive Summary


2


While many of the previous points are concerning, we are asking a more fundamental question: how much technology does GoPro actually own?

4


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2.8Canon

Toshiba

JVC

Panasonic

FUJIFILM

Nikon

GoPro

Olympus

Polaroid²Sony

HTC

Garmin

Most analysts, whether long or short, value GoPro as a technology company…but how much technology does GoPro own?

For Public Release 16¹ Within last 20 years; US/Europe/JP INPADOC families² Conservative estimates based on point of last certainty

R&

D s

pendin

g, la

test

annual, $

B

Revenue, FY2013, $M

Direct Competitors in Action Cam Market

Leading Digital Camera Manufacturers

Size scales with patent portfolio¹

Examining camera-specific patent portfolios of leading manufacturers

Among leading camera makers, GoPro has the lowest R&D spend and the 2nd –smallest patent portfolio

Garmin has a small camera IP portfolio, but it also has 350 other patent families covering its core

products


GoPro CEO Nick Woodman and S-1 filings have hinted at this problem before, as recently as August 2014

For Public Release 17¹ Source: Bloomberg phone call, August 2014

“We relied on the engineering departments of our contract manufacturers for innovation – at their pace of innovation. [But now] we’ve got a ton of brilliant products in

the pipeline, and we’ve developed a ton of brilliant intellectual property”

Nick Woodman, GoPro Founder and CEO¹

Risk factors

Many of our existing and potential competitors enjoy substantial competitive advantages, such as… larger intellectual property portfolios…Our intellectual property rights and proprietary rights may not adequately protect our products.…Our business may suffer if it is alleged or determined that our technology or another aspect of our business infringes the intellectual property rights of others.…If we are unable to maintain or acquire rights to include intellectual property owned by others in the content distributed by us, our marketing, sales or future business strategy could be affected or we could be subject to lawsuits relating to our use of this content.

GoPro S-1




1

Executive Summary


2


While many of these attacks are concerning, none of them are the attack we are presenting today; GoPro’s core problem is far more significant…it hardly owns any technology

4

GoPro appears to have gone to market with a technology product before it owned any technology

5


In January 2014, GoPro was granted its 5th patent family, but had already sold over 8.1 million cameras – this matters


35 U.S. Code § 283The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.

35 U.S. Code § 284

Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed.

35 U.S. Code § 286Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.

35 U.S. Code § 281 A patentee shall have remedy by civil action for infringement of his patent.

If you infringe and sell products in the past, you can be held liable in the future:


Potential for “lookback”



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Design Patents

Utility Patents

Revenue

Design Patents

Utility Patents

Units Sold

Recapping GoPro’s revenue and unit sales timeline underscores that its products predate its granted patents

For Public Release 20¹ US/Europe/JP grants² Units sold est. 2004-2010, proj. 2014³ Revenue est. 2007-2008, proj. 2014

GoPro Patenting¹ vs. Sales²

GoPro Patenting¹ vs. Revenue³

GoPro Revenue³ / Utility Patent¹ ($M)

Revenue / Utility Patent

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GoPro had sold almost two million cameras before it had a single US granted patent


Each successive iteration of GoPro has introduced new features reliant on new technology – but does GoPro own the technology its cameras utilize?

21

Digital HERO Digital HERO 3 Digital HERO 5 HD HERO HD HERO 960 HD HERO2 HERO3 HERO3+ HERO4

Digital Video with audio HD 4K

Ke

y

fea

ture

Sto

rag

e

me

diu

m

Internal / external flash memory

170º lens

External SDHC flash

120 fps Wi-Fi

Po

we

r so

urc

e

AAA batteries1,100 mAh Li-ion battery + optional Battery BacPac (not compatible with HD

HERO 960)

Re

so

l-u

tio

n

512x384 1080p 960p 1080p 4k

Fra

me

-ra

te 30fps

Internal flash memory

60fps 120fps 240fps

Wa

ter-

pro

of

to

30’ 100’ 197’ 131’

For Public Release


Covers existing GoPro case shape

Majority of the IP that GoPro owns appears to cover the design of its products, not its core technology…


Design Patents

Battery

Camera Housings

Expansion Modules

Lens Covers / Windows / Adapters

USD682778S1 Ornamental design for a GoPro lithium ion battery

USD646313S1 Describes housing for GoPro’s Hero cases

USD657808S1 Design for a camera housing

USD674429S1 Design for camera housing with three lens windows

USD702276S1 Design for square camera housing with latch

USD702747S1 Design for housing with square lens cover

USD699277S1 Design for housing for Dual Hero system

USD674428S1 Design for housing for Dual Hero system

USD699276S1 Design for a square camera housing

USD702277S1 Design for a square camera housing

USD710922S1 Design for a square camera housing with LCD viewing pane in back

USD710921S1 Design for a camera housing with square lens cover

USD698791S1 Ornamental design for a BacPac expansion module

USD691608S1 Ornamental design for a GoPro Battery BacPac

USD698790S1 Ornamental design for a BacPac expansion module

USD691609S1 Ornamental design for a GoPro Battery BacPac, with fewer ports

USD692472S1 Design for a lens adapter

USD699275S1 Design for a lens adapter

USD702755S1 Design for a cylindrical lens cover

USD702754S1 Design for lens cover with cover for button as well

USD657811S1 Design for spherical lens window on GoPro’s waterproof cases

USD644679S1 Covers the specific design of the lens window of GoPro’s waterproof cases

USD689537S1 Design for a flat lens camera assembly; resembles “Dive Housing”

USD688726S1 Design for a suction cup mount

USD698851S1 Design for a suction cup mount

USD677748S1 Design of a mounting system for a “sports board”



Important to note that, surprisingly, many of GoPro’s competitors have used very different design language in their offerings

Mounts

These cover form, not function

Some prior art surrounding suction mount iterations

Covers design, not function of mounting system

Important to note that most GoProcompetitors have waterproof bodies, not cases

Are lens covers a core GoPro accessory?

Interchangeable lenses seem to be mostly pushed by external brands

Utilize GoPro’s proprietary port to protect copycats

Protects Blackout Housing in multiple iterations


Could protect stereoscopic camera housing designs


Doesn’t appear to map to current product

Covers basic battery design


…while GoPro’s utility patents predominantly focus on various housings, mounts, and harnesses


Utility Patents

US8606073B2 Method for managing multiple video streams of a broadcast

US8837928B1 Housing with laterally-mounted latch mechanisms

US8325270B2 Camera housing with integrated expansion module and cable from module to camera



US8644629B2 Decompression of images captured by Bayer-style camera

US8718390B1 Two operating modes of accessing and decoding image plane data

US8538143B2 Compressing RGB images from single-sensor imager by separating into planes

US8345969B2 Method of compressing color imagery of video from Bayer sensor

US8879861B2 A method of accessing / decoding image planes to re-construct an image

US8014597B1Separating image into independent color channels and encoding / compressing them,

storing them, and re-combining into full-color display

US8830367B1 Image sensor, frame controller, and processor system to reduce rolling shutter

US8879858B1 Storing compressed image data in multiple band states

US8687086B1 A method of compressing image data before sending to a digital signal processor

US8014656B2 Two-piece mount for attaching camera to sports board

US8870475B1 Detachable buckle component for mounting on a sports board

US8857775B1 System with a spring clamp for mounting a camera to various equipment

US8150248B1 Two-piece mount for attaching camera to sports board

EP2341389B1 Strap that allows for two secured positions of camera

US8079501B2 Harness for attaching camera to a human user



Some of these patents refer to technology for which prior patenting and prior art records are extensive

Broadcasting

Camera Housings

Compression / Image

Manipulation

Mounts / Harnesses

Given prior patenting and

potential prior art, these may not

survive IPR

Post-Alice decision, these patents

deserve further examination

Much extant IP in this area

May be susceptible to prior art

Not applicable to existing business model; prior use?

Certain of these appear to be susceptible to prior art / practice; while this family has received consistent attention from GoPro, questions about its strength remain

Potential for high throughput apps

Deserving of prior art search; narrow?

Use of frame buffer predates this

Important concerns over decades of prior art in this field; relatively narrow claim construction

Superseded by new mounts

How limited is applicability / use?

How limited is applicability / use?

Language may have workarounds


The heart of GoPro’s IP is the process of mounting cameras onto surfboards


‘Over the years, [Preston ‘Pete’ Peterson] got interested in photography. In a direct line from Tom Blake to Doc Ball, Pete produced several prototype camera housings for his own use and experimentation. His most notable experiment was “an underwater housing that George Downing mounted on his board and on his back like a butt pack,” wrote Craig Lockwood, based on what Pete’s son John told him. “Shot at Makaha in the mid-1950s, these may be the first-ever shots of a board taking off underwater.”’¹

Footage likely shot at Sunset Beach on Oahu, no later than 1962; TV show Adventures in Paradise aired on ABC from 1959 to 1962²

¹ Source: Legendary Surfers, Malcolm Gault-William² Retrieved from YouTube




1

Executive Summary


2



4

In fact, GoPro made a name for itself as a tech company well before it had one, single granted patent

5

Does GoPro have necessary technology it needs to drive its ambitious future growth strategies?

6


GoPro’s corporate strategy, outlined in its reports and calls, references many technology areas with significant IP activity


Manufacture and sell consumer drones

Become a media company

Pursue image stabilization

Improve waterproof cases/bodies

Add GPS location to camera

GoPro patenting Industry patenting

0

0

5

3

0

~1,400

~2,600

~15,900

~300

~860

Forward-looking GoPro strategies

-For Public Release-G

rante

d P

ate

nts

¹

Enthusiasm over GoPro’s strategy to enter drones should be tempered by competitors’ patenting levels


207207

173

115

868165576251424948

292413211314111

0

50

100

150

200

250

2007 2009 20102003 20082006 2011 20122005200419961994 1995 2000 2001 200219981997 1999 2013 2014

Patenting on UAVs

¹ US/JP/EP grants, ’94 to ‘14

UAV / UAS Patenting

Early work led by American defense

corporations

Foundational work re. hobbyist drones is

from early 1990s

Small clusters of inventorship have started to

appear, although citation network is still fledgling

Parrot SA, which jumpstarted

consumer drone market, has a strong

portfolio

Honeywell has a particularly strong

portfolio around the use of cameras with

drones

Assignee network


GoPro’s competitors own the software, hardware, and methods of content management and distribution


Gra

nte

d P

ate

nts

¹

1,1861,1191,097

1,2201,346

1,148

942919897755

684628548532566603563

397356346

210

200

400

600

800

1,000

1,200

1,400

19971996 2000 2004 20061999 200520031998 200220011994 1995 2007 2011 201320092008 201420122010

Patenting on broadcast communications


Key GoPro competitor Sony rests at the center of the broadcast communication citation network, with well

over 1,100 patents

Nielsen Co also boasts a strong portfolio, unsurprisingly

Google’s portfolio includes estimating demographic

compositions, data collection on users and dynamic data

delivery

HTC, another GoPro HERO competitor, has a strong portfolio on handling and

managing multimedia broadcasts

GoPro does not appear on this citation network, which only features portfolios of

over eight patents

Digimarc also shows well in this space, with key

watermarking technology, image processing, and

second screen IP

Broadcast Communications Patenting

Assignee network


Attempts by GoPro to include image stabilization in its products may be hemmed in by its competitors’ (especially Sony’s) patenting


Gra

nte

d P

ate

nts

¹ 252272

255

223235214

168153151

88121

103101

444536

82

4833

1720

50

100

150

200

250

300

20132007 2011 20122009 20102008 20141994 1999 2000 2005 2006200420022001 20031998199719961995

Patenting on image stabilization


Image Stabilization Patenting

Nikon and Canon represent the center of image

stabilization patenting, with consistent transfer of

knowledge between the two

Small group of Irish / European optics and

photography companies

Sony Corp has a strong, relatively distinct, portfolio; this is no surprise given the

success of its image-stabilized action cameras

Even smaller competitors, such as Minolta and Casio,

have strong portfolios surrounding image

stabilization

Assignee network


Kodak, Sony, and Ricoh have been patenting around waterproof cameras since the mid- to late-90s


Gra

nte

d P

ate

nts

¹

8679

726161

5347

3939

2533

4041

293240

242115

22

10

20

40

60

80

100

1998 20021997199619951994 1999 2001 201420132012201120102009200820032000 20062005 20072004

Patenting on waterproof cameras


Waterproof Camera Patenting

Very isolated citation network; little work between

secondary players

Key cluster includes Kodak, Ricoh, Sony, Olympus, Fuji, and Minolta with research occurring predominantly

from 1994 to 2004US Navy and US Army have each contributed to the field,

focusing on underwater cameras for submarine

detection

Assignee network


GoPro has located a niche in the GPS / camera space, but its application is narrow


Gra

nte

d P

ate

nts

¹

4749

36

26

32

1720

914

710

5577542210

10

20

30

40

50

2000 2001 2002 2003 2004 2005 2006 2007 20081999199819971996 201220112010 2013 2014200919951994

Patenting on GPS in cameras


GPS and Camera Patenting

Nokia (5) and Sony Ericsson (13) both have portfolios

surrounding this technology

GoPro / Woodman Labs claims an integrated

expansion module that may include a GPS unit (it is not

internal to the camera)

Apple and Samsung both have patents in this

technology space, with Apple focusing more heavily on the

camera side

Digimarc uses GPS to digitally watermark images and videos with location

data

Fujifilm describes image capturing devices with maps

and an apparatus for identifying images

Assignee network




1

Executive Summary


2



4

In fact, GoPro made a name for itself as a tech company well before it had one, single granted patent

5

Despite its recent attempts to improve its IP, GoPro still does not have the intellectual property it needs to control its future

6

If GoPro has infringed others’ technology, it may be liable for hundreds of millions of dollars in damages looking backward and hundreds of millions of dollars in royalties looking forward

7


Past companies have demonstrated how costly technology can be to acquire retroactively


Marvell Technology was found in December 2012 to have intentionally infringed two Carnegie Mellon University patents and was ordered to pay $1.17 billion dollars in damages

Marvell has chosen instead to continue to appeal; in the meantime, as of April 2014, the verdict has reached $1.54 billion dollars

($1,540M)

DuPont was ordered to pay Monsanto $1 billion dollars after losing a patent verdict in August 2012 This was followed by a new licensing deal in March 2013 that threw out the earlier verdict but

required DuPont to make at least $1.75 billion dollars in royalty payments over the next several years

($1,750M)

In late 2002, RIM was found guilty of infringing NTP’s patents on wireless email and ordered to pay $53 million dollars

Instead, RIM continued to appeal until March 2006 when, hit with a stern warning from the presiding judge, it agreed to pay NTP $612.5 million dollars

($612M)

Intel faced the music several times in the early 2000s, paying Intergraph Corp $300 million dollars in April 2002 for infringing Intergraph’s patents with its Pentium chips, an additional $150 million dollars for infringing with its Itanium chips, and following those up with a March 2004 settlement of $225 million dollars to close all outstanding patent litigation between the two companies

($675M)

EchoStar Corporation settled its patent litigation with TiVo in May 2011, signing a license deal and agreeing to pay TiVo $500 million dollars ($500M)

SAP was found in 2009 to infringe a business method patent held by Versata Software and was ordered to pay $139 million dollars; after a new trial, this amount grew to $391 million dollars ($391M)

After a 2010 verdict, Microsoft agreed to pay VirnetX Holding Corp $200 million dollars to license its patents on secure network communications ($200M)

W.L. Gore & Associates was ordered by the Federal Circuit in January 2015 to pay C.R. Bard Inc. $1.06 billion dollars after it willfully infringed Bard’s blood vessel graft patent ($1,059M)


Canary in the coal mine? Some companies think GoPro is infringing their IP


Z-Dimensional, LLCVStream Technologies,

LLC

Acc

use

d p

roduct

sPate

nts

in s

uit

Case

info

rmation

Hero Hero2 Hero 3

Hero3+ Black Edition Dual / 3D Hero System

Jaws flex clamp Digital video cameras

US5,742,737 – “Method For Recording Voice Messages On Flash Memory In A Hand Held Recorder”

Venue: CA Southern District Filed: 12/5/2012Latest Docket Entry: 1/27/2014Status: Open in Scheduling

US7,729,530 – “Method and Apparatus for 3-D Data Input to a Personal Computer with a Multimedia Oriented Operating System

Venue: TX Eastern District Filed: 4/15/2014Latest Docket Entry: 11/5/2014Status: Closed in Initial Pleadings

US8,602,662 – “Camera and Accessories Clamping Mount”

Venue: Colorado District CourtFiled: 1/21/2014Latest Docket Entry: 11/19/2014Status: Closed in Claim Construction (Settled)

US6,690,731; US8,179,971; US6,850,647; US7,627,183; US7,489,824 – Five patents relating to compression / decompression of video data

Venue: CA Southern District Filed: 12/5/2012Latest Docket Entry: 1/27/2014Status: Open in Scheduling

As a direct result of its relationship with Dinkum, GoPro became intimately aware of the ActionPod Products, including product components and the manufacturing process, and Dinkum’s desire to grow its business through sales of these products

In October 2013, GoPro release the Jaws Flex Clamp, a clamping monopod mount as an accessory to its camera line that is substantially similar to the ActionPod Products

Upon information and belief, GoPro developed the Jaws Flex Clamp at the same time it was promoting the ActionPod Products Upon information and belief, GoPro intentionally kept secret from Dinkum its development of the Jaws Flex Clamp By copying the ActionPod Products to create the Jaws Flex Clamp, GoPro misappropriated the skill and labor of

Dinkum


Many of GoPro’s key features appear to be referenced by earlier patents assigned to competitors


US5481303A – Nikon

US6002240A– Dell

US7327122B2– Mathews Associates

US7123935B2– Canon

US5475539A – Casio

US5438363A– Nikon

US6624842B2– Diversified Patent

US6864911B1– HP

US6285471B1– Siemens

US6987527B2 – Philip Kossin

US7714925B2 – Samsung

US6462508B1– Kinpo Electronics

US6574433B1–Frank Stuempfl

US7924323B2– Walker Digital

These are just a few of the patents that engineering analyses commissioned by Devonshire Capital Funds suggest GoPro may infringe


Many companies with strong track records of defending IP appear to hold patents related to GoPro products



Thank you


Matt Stack, Fund ManagerDevonshire Capital Fund

[email protected]

mailto:[email protected]



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