IP Licensing at Hewlett-Packard

Patent Engineering Lecture

Joe BeyersVice President, Intellectual Property Licensing

Hewlett-Packard Company

March 12th, 2008

2 HP Confidential

Lecture Outcome

Introduction

HP Patent management process

HP IP Licensing

Critical IP Business issues

General Discussion/Q&A

3 HP Confidential

4 HP Confidential

HP Invention Patenting Process

#1 Innovative idea by an engineer

#2 Invention disclosure filed- Cash reward

#3 Invention disclosures prioritized and a subset turned into patent applications

#4 Patent issued- Cash reward

#5 Ongoing maintenance fees paid

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HP Invention Patenting Process

#1 Innovative idea by an engineer *Invention workshops

#2 Invention disclosure filed- Cash reward

*Those not filed are published

#3 Invention disclosures prioritized and a subset turned into patent applications * Those whose claims are severely restricted are abandoned

#4 Patent issued- Cash reward

* Annual prioritization of issued patents to identify patents to let lapse or to be sold#5 Ongoing maintenance fees paid

*= Ongoing invention asset management

6 HP ConfidentialFigure 1 Evolution of the HP’s IP Strategy

IP creation to developand ship products

Use of IP to protect coreproduct categories

ADDED: Leverage of IP for Increased revenue/value

Use of IP to enable greater freedom of action

January, 2003

90’s

70’s & 80’s

50’s & 60’s Main focus on shipping products

Cross licenses with major companies

Enforcements of IP in selectedproducts segmentsRapid increase in patent filings

Launch of IP licensing function

IP Actions by HPTimeframeStrategic Importance of IP

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Actions of the HP Board in January 2003

Key DecisionSignificant strategic shift in how HP views the importance of intellectual property – patents, copyrights, trademarks and trade secrets

- Protection- Value beyond traditional product revenue

Specific Actions1. Movement of HP IP a into wholly owned affiliate2. Required central approval for any out-licensing of HP

intellectual property or any non-assert agreement3. Created an IP licensing function

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Elements of the HP IP Licensing Function

IP strategy and outlicensing approval process

IPlicensing

HP IP infrastructure

Drive strategies to better protect HP’s IP

Enhance HP’s design freedom

Drive actions to obtain greater value for HP’s IP

Revenue flow to the business units

Build the infrastructure to support the strategy and licensing activities

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any Open

Source action

any Standards

body action

any University agreement

(with IP)

HP IP Approval Process

any Trademark license

SupplyChain

IP Indemnity

ReviewBoard

StandardsStrategyReviewBoard

UniversityAgreement

ReviewBoard

Brand Mgt.

OpenSource ReviewBoard

any non-standard IP

Indemnity action

allother

IPactions

Results: Reviewed more than 6,000 deals since January 2003More than 50% incurred significant changes

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IP Training & Awareness ProgramObjectives:

• Communicate IP Strategy Fundamentals (Invent, Protect, Leverage)• Strengthen protection of HP’s IP • Shift mindset to broadly apply “Strategic Leverage” of IP

HP-wide IP Training Courses• Launched online “IP @ HP: An Overview” training class; required for all Technical Career

Path (TCP) and key HP Services functions (~60,000 employees total)• Additional single-focus IP courses planned (IP Indemnity; Open Source; Standards) • Results:

• Over 30,000 employees have completed the course • Several new opportunities for IP Licensing have been forwarded to IPL• Companies have approached IPL to license the course

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IP Tools

DiscloseDisclosure system inaccurate

MerlinInternal databaseLegal

database

Restrictedmost-complete

CompletePatent Portfolio

Public Services

PCPC

MotherboardMotherboard InputInput

KeyboardMouseJoystickGoggles

CPUCPU MemoryMemory

Regulation

output

SwitchingPowerSupply

SwitchingPowerSupply

TBHMain MemoryCache

BusBus

1Populate StructuredDatabase

ScalableComplete portfolioSegmented by technology & product

2Search &Analytictools

Sophisticated lookup tables keyword cross reference several Databases

3MiningPortfolio

concentration of patents in product categories ID valuable markets patent synthesis & overlay

4Facilitate quick identification of patents for licensing initiatives

5 ProjectCapture

Capture knowledge from active licensing programs for collaborationAssists future programs

MagicPatent Analysis / Collaboration

Taxonomy

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IP Tools - Screenshots

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HP Patent Licensing Opportunities

Areas of concentration/strength

Areas of weakness

Licensing Opportunities

Patent Acquisition

Internal Development

Potential Licensing Initiatives

Potential Mega Targets

Proactive Patent Acquisition Process

Enrichment of Portfolio– Focused R&D– More aggressive filing– Greater country coverage– More maintenance renewals– Improved protection

HP PatentTaxonomy

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HP’s IP Assessment / Actions

IP Monetization

IP Design Freedom - Specific, Broad

IP Defensive Actions

Anal

ysis

of H

P’s

IP P

ortf

olio

Anal

ysis

of O

ther

Com

pany

’s P

rodu

cts

and

IP P

ortf

olio

High Low

Low High

Rela

tive

IP S

tren

gth

Rela

tive

IP E

xpos

ure

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HP IP Licensing Business Segments

1. Technology Licensing

2. Brand Licensing

3. Patent Sales

4. Standards Licensing

5. Patent licensing/assertions

Subtotal # projects 150

6. Patent/license acquisition

7. IP Strategy

Reve

nue

Gen

erati

on

N

on R

even

ue

Gen

erati

on

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HP IP Value Results - $M

0

FY03 FY04 FY05 FY06 FY07

$ M

illi

on

s

November 15, 2006

17 HP ConfidentialFigure 2 Types of Enterprise Value created by an IP licensing Function

Primary performance measure Secondary performance measure “Atta-boy” measure

IP Cash IP Value IP Strategic Value

Cash income that: a) Is tied directly to an IP transaction

b) Is truly incremental

c) Is “recognized” in the P&L

Examples include:

- Upfront cash payments - Royalty payments - Other cash payments, that may appear as a cost of sales or operating expense reduction

Other forms of value that: a) Is tied directly to an IP transaction

b) Is truly incremental

c) Is measurable d) Directly affects some aspect of the P&L

Examples include:

- Purchasing discounts/rebates - Elimination of current cash liabilities - Gross margin on incremental product purchases

Value that is likely to be beneficial to the company’s operating profit but may be difficult:

a) to accurately quantify or

b) to prove that it was the sole/direct contributor

Examples include the reduction/eliminations of:

- litigation liabilities - assertion liabilities - the cost of an IP License

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250

250

0FY07 FY08 FY09 FY10 FY11

Figure 3 : IP Revenue Recognized or Forecasted By Year Deal Closed

2010 Closed

2009 Closed

2008 Closed

2007 Closed

Closed prior to 2007

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Legal-Led vs. Business-Led IP Licensing

Legal-Led Business-Led

PreciseMethodicalRisk AdversePassiveIP for Defense

EntrepreneurialInnovativeRisk TolerantProactiveIP for Offense

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$MNew Patents

Asserted

Product Purchase Commitment

New Product

line

HP – Company X Patent License Agreement

$M

Current License

$M

$M Paid

$M Due

$M Gross Margin

$M

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$MNew Patents

Asserted

Product Purchase Commitment

NewProduct

Line

HP – Company X Patent License Agreement

$M

Current Disc License

$M

$M Paid

$M Due

$M Gross Margin

$M

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Major IP Landscape Shifts

IP viewed as a strategic corporate asset

Patent reform

IP protection in emerging markets

Open source

Digital rights management

Patent auctions

Patent trolls

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“Patent Trolls”

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IP Dynamics Between Operating Companies and Patent Trolls

PRODUCTS

IP IP

PRODUCTS

PRODUCTS IP

Company A Patent Troll

Net Balance of IP Value

Company A Company B