Presentation at International IP Commercialization Conference on Feb. 24, 2012 about maximizing IP value creation at start-ups

1. IIPCCHK
2012:
“Hong
Kong
as
the
Global
IP
Hub
for
China
on
GD-­‐HK
CEPA
Pla@orm”
Plenary
Session
on
“IP
ValuaFon”
Maximize IP Value Creation for Start-ups
(based on Silicon Valley Success Stories)
初创企业创造最佳知识产权价值的典范
（基于硅谷的成功案例）
Prepared
by:
Al
Kwok
(郭灿辉)
President,
CASPA
PRD
Chapter
Governor
&
Founding
Member,
Savantas
Policy
InsFtute
Principal
IP
Advisor,
STARS
FoundaFon
Founder,
China
InternaFonal
Intellectual
Property
Services
Ltd.
Former
VP
&
CIPO,
NetLogic
Microsystems
(“NETL”)
Feb, 24, 2012

2. Global
IP
Trends
&
Best
PracFces
2

3. CASPA Confidential
Knowledge-based Economic Trend
Evolution of Intangible Assets – U.S. Companies
3

4. CASPA Confidential
Raising
Values
of
a
Product
(IP
is
the
Core)
Price = Values to Customers • 价格
=
给客户的价值
=>
价格
=
成本+服务+IP授权+品牌
(价格 = 给客户的价值) • Pre-sale services mean design-
win efforts providing solutions to
address customers’ problems
Brand Recognition • This is the best sources of
(品牌认知) innovation and ideas for the next-
generation products (Product &
Tech Roadmaps)
Increasing Values (提高增值)
• Post-sale services mean reducing
Embedded IP Licensing customers’ costs of ownership,
(隐含IP授权) extending the useful lifetime of the
product, generating recurring sales
& product improvement ideas
• Embedded IP licensing means the
Pre- & Post-Sale Services customers can use the product IP for
(售前及售后的服务) their own product uplifting &
differentiations - e.g., “Intel Inside”
• Brand recognition means the
Manufacturing Cost customers recognize the product
(生产成本) and its maker for superb quality,
performance, reliability & services
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5. CASPA Confidential
The
Value
Hierarchy
(Business
Models)
Presented
at
Intellectual
Property
Symposium
2002
in
Guangzhou
on
December
10,
2002
Brand Innovation
Intellectual Property (IP)
Values/Profit Margins
50%
Applications/Serv. (Mkt. & Standards)
System Integration (Archit., …)
Outsourcing
40%
Trend
Engineering (Design, ODM,..)
30%
Manufacturing (Process, OEM)
Consumer recognition Core competency
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6. CASPA Confidential
The
Value
Chain
(=>
DemandSupply
in
Alignment)
Great
end-­‐to-­‐end
push-­‐pull
effect
for
market
scaling
thru
lifecycles
For Consumer Electronics Market (Ecosystem)
Consumer Markets (End Users)
Service Providers Various Applications/Services
System Manuf. Differentiated Application Designs
System Integrators System Application Platform(s)
Generic Reference Design (w/ other chips)
IC S/W Platform (API, drivers, etc.)
IC Design houses
IC H/W Platform
6

7. CASPA Confidential
IT Business Value-chain (& Learning Cycle)
 Hierarchy of IT Business (from “service to consumers” as the top
of the value-chain with highest Gross Margin then down):
Service requirements drive H/W platform improvements
Service (to consumers) <=> Domestic market (localization)
(China market is huge enough)
Application (for service) <=> Domestic market (localization)
(China centric standards & IPs)
Network platform <=> Domestic stds. for local services/appl.
International stds. (for global interface)
System Integration <=> Domestic market (localization) vs. Int’l. mkt.
(for applications) (China centric standards & IPs vs. Int’l. ones)
S/W & F/W platform <=> Int’l and domestic stds. (global & local)
H/W platform <=> International stds. (global IC supplies)
Existing OEM/ODM business model breaks the IT Business Food Chain
without positive feedback from Service to drive next product dev. cycle
7

8. CASPA Confidential
Example: Low-end vs. High-end
 China
e-­‐book
as
a
low-­‐end
example
 “Shanzhai”
business
model
(山寨型商业模式)
 Copy
others’
design
concepts
 Add
more
common
(proven)
applicaFons
 Aim
for
low-­‐cost
and
low-­‐price
(~US$250)
 Li_le
post-­‐sale
on-­‐going
services
 Li_le
connecFon
to
on-­‐going
e-­‐commerce
service
 Li_le
customer
feedback,
no
learning
and
no
product
innovaFon
 Apple’s
iPad
as
a
high-­‐end
example
 Designed
as
an
e-­‐commerce
CRM
tool
(Fed
to
iTunes
e-­‐commerce
pla`orm)
-­‐
one-­‐stop
e-­‐commerce
business
ecosystem
 More
recurring
business
from
post-­‐sale
of
iPad
(hardware)
 Aim
for
high-­‐value
and
affordable
price
(~US$600)
 Complete
the
“H/W
pla@orm
to
Service”
end-­‐to-­‐end
cycle
for
next-­‐generaFon
product
innovaFon
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9. CASPA Confidential
Types & Ranking of Innovation
In the order of lasting value impact to society (from most to least):
 New business model (global productivity jump) - great lasting value impact
 E.g.: e-Commerce (internet), pure-play foundry business model, carbon trading…
 New business process (global productivity jump) - great lasting value impact
 E.g.: Window/Office (new work environment), outsourcing, TQM, ERP…
 New application/market (for exist. prod. or tech.) - great value impact
 E.g.: GPS, RFID, radar guiding… - from military to commercial applications
 New technology (for existing product) - great value impact sometimes
 E.g.: High-speed CMOS (over NMOS) for power reduction and device scaling
 New product/service (for existing market) - medium value impact
 E.g.: On-line shopping/trading, SMS (China), digital broadcast…
 New combination of package of technologies, products and services
 E.g.: Apple’s iPhone and iPod, Blackberry, solar, clean tech…
 New design (implementation or appearance) - limited value impact
 New system architectures: e.g., the Sandisk “338” patent for flash-memory card
 New subsystem/circuitry
9

10. IP
Value
CreaFon
pracFced
by
Silicon
Valley
Top
InnovaFng
Companies
–
Best
of
the
Best
10

11. CASPA Confidential
Intellectual Capital
Intellectual Capital
Human Intellectual
Capital Assets
(Tacit Knowledge  Codified Knowledge)
2
1
IP
How to expand one’s Intellectual Property (IP):
 By converting Human Capital into Intellectual Assets through the
Employment Agreement and systematic and thorough
documentation of the process of engineering and improvement
 By converting Intellectual Assets into Intellectual Property through
legal claims (by patents & confidential notices) and protection (by
NDA and proper access controls – on a “need-to-know” basis)
Source: VSI Alliance (IPPWP2 1.0) 11

12. CASPA Confidential
Maximizing IP Value Creation – Part 1
 Innovation <= Differentiating values to customers
 Highest values = Mission-and-time critical (“Must-have”) ones
 Customers must use and buy the product when available
 Little values <= “me-too” innovation w/o differentiation
 Intellectual property (IP)
 Protected, reproducible and scalable innovation
 Patent is the best form of protected IP
 Exclusive rights for 20 years to use for commercial purposes
 Values of the patent is based on its “CLAIMS”
 The 1st CLAIM is most important in a patent
 Scope – the broader and the more independent, the better
 The fewer enabling elements and less restrictions, the better
 Coverage – covering all means of customer value creations
 Mapping value creations vs. enabling elements
 Values to customers: performance (functionality & speed), price
(yield improvement & cost reductions), quality (robustness,
consistency, tolerance & reliability) & delivery (shortened cycle-
time and lead-time). 12

13. CASPA Confidential
Maximizing IP Value Creation – Part 2
 Customer value driven corporate culture:
 Innovation is pursued solely to create DIFFERENTIATING
VALUES to the customers (sharpshooting & no shotgun
approach)
 Contributing directly to their bottom-line in term of critical functionality,
cost, performance, low-power, quality and delivery
 Strategic partnership and close working relationship with the lead
customer is a must
 All valuable innovation ideas come from lead (strategic) customers
 Cisco for NetLogic Microsystems (recently ranked as the best supplier by
Cisco)
 Aligning all the company’s activities to be proactively responsive
to the customers’ current and future needs
 Including technology and product roadmaps as well as employee
evaluation/promotion
 Continuous innovations by solving the customers' next biggest
problems (the next product development cycle)
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14. CASPA Confidential
Continuing Innovation Methodology
Lead Customers’ Requirements => 2nd G => 3rd G =>…
Close collaboration between the customer and the vendor
Differentiating Value Creations => 2nd G => 3rd G =>…
Business Model => 2nd G => 3rd G =>…
Product Roadmap => 2nd G => 3rd G =>…
Technology Roadmap => 2nd G => 3rd G =>…
IP Portfolio Development => 2nd G => 3rd G =>…
The next innovation ideas come from customers & “Stress Tests” identifying
(1) The weak-links in product design & performance and scalability
(2) System (architecture) integrity and scalability (elasticity) issues
(3) The bottlenecks for scalability (technology and manufacturability roadmap)
14

15. CASPA Confidential
AK comment: NM solutions address the
processing performance requirements for
mission-and-time critical (interactive, real-time,
mobile, multimedia, high QoS) applications in
cutting-edge broadband networks
July 20, 2010 CIIPS Presentation 15
15

16. CASPA Confidential
Understand the Core Differentiation
 How fundamental is the idea? More the better!
 Independent of technology? “Must-have” for intelligent?
 What position is it in the value-chain? Higher the better!
 On top at the global system architecture level? Or H/W level?
 What values can it bring to the customer?
 Mission-and-time critical? Improve its profit margins?
 How disruptive can it be? Exponential growth potential!
 Whole new paradigm shift? Last forever?
 Can another technology/idea be its disruptor?
 How basic is the invention? On “NDA” level?
 Its usefulness over time - invariant? Its lifecycle?
 What is the required supporting ecosystem for its usefulness?
 What are the alternative/competing solutions?
 What is its market share? Differentiations?
 How large the TAM can it serve now and future?
 Demand driven by Moore’s Law and Metcalfe’s Law?
16

17. CASPA Confidential
Anatomy of a Generic Problem-solving (Intelligent)
Process Presented by Al Kwok as a vision in 1999
Steps in an intelligent process
The cycle: Observe/monitor Analyse Decide Execute
Focus: References/result Ref./result Action Action
Constraint: Data (more the Data (more Resources Resources
better) the better) (less the better) (less the better)
Preferred Concurrent & Concurrent Interactive & Concurrent if
mode of real -time & real-time if iterative possible
operation possible (what if?)
Time factor Parallel Parallel if Algorithmic by Parallel if
possible nature possible
Preferred Pattern Pattern
method: recognition recognition
Pattern recognition parallel-search engine is
fundamentally superior to algorithmic one
The NetLogic Microsystems’ core patent portfolio was fundamentally
based on this core concept: how to perform pattern recognition better
through parallel-search engines (including Layer 7 since then).
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18. CASPA Confidential
A Fundamental & Useful Innovation!
 The basic DNA of intelligence is the ternary (“1” or “0” or “X”) CAM cell
with the implementation of “don’t care” state in circuit by means of the
Mask bit
Match bit
Mask bit = 0 Mask bit = 1
Input bit
0 1
= Ref. bit
Input bit
1 1
= Ref. bit
 2 memory cells, a comparator circuit to determine “Match” (i.e., basic
intelligence) & a Mask bit to give a dimension of freedom (i.e., option)
 Degree of intelligence <=> degree of possible options
 The ternary CAM (content addressable memory) becomes the basic building
block for parallel-processing engines/filters.
 KBP (knowledge-based processor) is essentially a massy array of ternary
CAM with some classification and prioritization circuits.
 SRAM that was avoided by IC manufacturers like plague has reborn into its
second life as high-value ternary CAM -- What an innovation! Discovering
treasure in a junk yard!
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19. CASPA Confidential
IP Value Assessment Criteria
 Factors driving valuation (based on share % of TAM)
 The Strength of the patent (legal aspect)
 Scope, territories, claims, enforceability…
 The Significance of the patent (technical aspect)
 How fundamental? Timelessness of its values
 Differentiating functionalities: Values to customers
 Competing solutions: need comprehensive benchmarking
 The Usefulness of the patent (market aspect)
 Applications with respect to industry standards and ecosystems
 Sunrise (emerging trends) vs. Sunset (displaced practices)
 Present state of market readiness (units shipped and growth rate)
 Differentiations against competition (market share)
 Customer/market acceptance: TAM and market share
 Average Selling Price of the product and IP value in the product
 The Lifecycle of the patent (longevity aspect)
 The expiration date of the patent
 Emerging disruptive technologies against the patent
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20. CASPA Confidential
AK comment: Based on a portfolio of ONLY ~100 patents
AK comment: With only 163 granted US patents as of June 8, 2008
(All multi-billion $ companies)
AK comment: Considering the facts that NM is much less than 1/10 of the size (in
revenue) of the other 9 top-ranking companies and much younger (~10 years old), it
is a crowning achievement! Likewise, “ipIQ” rated NM’s portfolio the best for a
medium size (~$100M) high-tech company worldwide in its “Patent Scorecard 2006”
report with the 2nd highest CII (current impact index).
CIIPS Presentation 20
July 20, 2010 20

21. CASPA Confidential
(Set Roadmaps and Standards for Global Collaboration)
Unprecedented Global Collaborative Innovation in human history:
along the Supply-Chain and Value-Chain with roadmaps & standards
21

22. CASPA Confidential
Conclusion
 Knowledge
Economy
is
based
on
intangible
asset
creaFons
 The
market
values
of
high-­‐tech
corporaFons
reflect
this
trends
 Intellectual
ProperFes
(IP)
with
patent
protecFon
are
the
crown
jewels
 IP
covers
all
three
aspects:
Business,
technical
and
legal
 China
must
focus
its
patent
creaFons
on
applicaFons/services
 IP
in
the
Supply-­‐Chain
are
dominated
by
foreign
companies
with
earlier
starts
 China
as
a
late
comer
to
the
IPR
game
can
find
open
field
in
applicaFons/services
 Adequate
IP
por`olio
in
the
Demand-­‐Chain
(applicaFons/services)
can
help
cross-­‐
licensing
negoFaFons
with
IP
por`olio
owners
on
the
supply-­‐side
 Leveraging
China’s
emerging
market
demands
in
a
massive
scale
 Value
creaFon
must
be
for
differenFaFng
values
to
customers
 Generate
mission-­‐and-­‐Fme
criFcal
soluFons
that
customers
MUST
buy
 Patent
must
be
drajed
to
reflect
“enabling
elements”
vs.
“differenFaFng
values”
 Patent
is
a
legal
document:
a
term-­‐limited
CONTRACT
for
MONOPOLIZATION
 It
must
be
drajed
by
highly
qualified
patent
a_orneys
who
understand
the
technology
 Chinese
enterprises
need
to
learn
from
Silicon
Valley
experiences
 How
NetLogic
Microsystems
can
rank
so
high
among
giants
with
~100
patents
 Why
Intel
offered
to
trained
its
engineers
to
be
patent
a_orneys
22

23. CASPA Confidential
Thank You!
多谢光临指导!
al.kwok@ciips.org
131-1383-7806
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