IP Osgoode & Hennick Centre for Business & Law 2010 Conference

February 11, 2010

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AGENDA

• Introduction to McLean Watson & i4i

• The i4i Story

• Lessons Learned

• Q&A

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MCLEAN WATSON – THE WORLD OF VC’S

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MCLEAN WATSON

Tight knit group with shared values and

complementary investment styles. 15 year

track record of top quartile Venture Capital

Investing in North America & Asia.

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MCLEAN WATSON HISTORY

• 1820 Trading Company

• 1972 School friends

• 1987 – 1994 Softimage Financing & IPO

• 1994 Sale to Microsoft

• 1996 Fund 1 & 1999 Fund 2

• Today $300M AUM, Canada - Singapore

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LEADERSHIP & INNOVATION

1st Quebec IPO on Nasdaq 1992 - Softimage

1st Software only fund in Canada 1996

1st VC in natural resources technology

Only Canadian VC in this area - 2000

Only Canadian VC in Singapore/Asia

Since 1999

Unique Asian Investor Links Singapore Government (1999) & Brunei Investment Agency

1st Canadian VC lead IPO in Singapore

Ntegrator (2005)

1st Canadian VC patent enforcement/monetization

i4i (2004-2009)

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GROWTH RECORDCompany Stage of Investment MW Role Result

FloNetwork

(email marketing)

2 founders, 1 emp, no

product

Lead investor, Chair

Largest investor

Sold to DoubleClick for

$85M

Fortiva

(data

management)

FloNetwork founder

incubated in MW office

Lead investor, Director,

Largest investor

Sold to Proofpoint for

$25M

i4i

(XML software)

2 founders, no emp or

product

Lead & majority investor,

Chair drove IP strategy

Awarded US$300M &

injunction vs. Microsoft

SkyWave

(satellite M2M,

asset tracking)

4 founders, introducing

product

Lead investor, Chair

MW partner now CEO

Raised US $23M –

Inmarsat - $105M value

CTL

Immunotherapies

(cancer vaccines)

Incubated in MW office, 1

founder, no emp

Lead investor, Director

Merged to form Mannkind

Now Mannkind pubco -

$800M mkt cap

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GROWTH RECORDCompany Stage of Investment MW Role Result

Ntegrator(telcom services)

4 foundersLead investor, Largest

investorIPO in Singapore

Lavalife(data management)

Established, but needed

web strategy

Director,

Change Agent

Sold to XXX for $130

million

Vismand(technology-driven

exploration)

conceptLead & majority investor,

Chairman

Raised $20 million,

actively exploring

Quantec(geophysical services,

deep imaging)

Operating long term, but

no proprietary product

finished – prototype stage

Lead investor, Chairman

MW partner now CEO,

Barrick, Noranda and

Govt. Sask all invested,

#1 in mining geophysics

Softimage(3D animation SW)

1 founder, 2 emp, no

product, concept only

Lead investors, 2 directors,

Co-COOs for 1 yr

IPO on Nasdaq; sold to

Microsoft for $200m

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Asset Management and Security via Satellite

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BelAir NetworksIntegrated Mobile Broadband Network: Wi-Fi, WiMAX and Cellular

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Resistivity MT Unconstrained

Isoclinal ViewLooking North

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ResistivityLog10

500

1000

5000

10000

35000

Rhyolite Contact

Massive Sulphide Intersection

Graphitic Argillite

Drillhole IntersectionPoints

MT L108

800m

North RhyoliteMassive Sulphide

IntersectionsChance Mineral OccurrenceMassive Sulphide with Graphite

176,900 tonnes grading 12.8% Zn, 3.24% Pb, and 178g/t Ag

IT Applied to Geophysics – Underground Snapshot

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I4I STORY

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CHAPTER 1 – MEETING MICHEL

Meeting Competition Promise & Handshake i4i’s Office i4i’s Vision SGML XML

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CHAPTER 2 – R&D/PATENT

• 1994 filed for US patent 5,787,449

• Tweed jackets and blackboards

• Evangelists

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CHAPTER 3 – GROWTH & FUTURE

1998 Patent Issues “Oracle of unstructured data” “Overthrowing the Tyrant” Key Customers - USPTO 9/11 White Papers, Green Papers… What it is used for…pharma, carriers, plane,

tanks, financial services, manufacturing “The Henry Ford of data manufacturing”

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CHAPTER 3 – GROWTH & FUTURE

NASA Awards Articles Top CTO’s & Founders Robot Newbridge

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CHAPTER 4 – SURVIVAL?

2002 - massive change in sales pipeline Internal adjustments Every second light bulb removed Refocus on pharma industry Then more focus...on labels

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Sent: Tuesday, January 27, 2004 11:24 AM

Loudon OwenFrom: mvulpe [mvulpe@i4i.com]Sent: Tuesday, January 27, 2004 11:24 AMSubject: patent issues with microsoft

To be very serious here - MS has filed a patent application in the EU that

appears to be what we are doing in x4o and have been for many years

- it may also be an infringment on our core patent - the implications are somewhat obvious

i would think??

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2004-2006

Now what? Crisscross USA Prepare background information package RFP to top firms Find partner/capital Choose lawyers Sanity checks (patent litigation friends…)

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FILED - EASTERN DISTRICT

• January March 9, 2007 filed• i4i LP (then law changed with EBay)• “Case always looks best on the first day”• Discoveries• Who – what – where – when – why• Documents• Documents• Documents• Documents (1 million pages?)

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JUDGE DAVIS• Leonard Davis (judge)• Leonard E. Davis (born 1948 in Fort Worth, Texas) is a

district judge for the United States District Court for the Eastern District of Texas.[1] He was nominated by President George W. Bush on January 23, 2002 and was sworn in on May 15, 2002. He previously served as Chief Justice of the Twelfth Court of Appeals of the State of Texas and was a practicing civil trial attorney in East Texas for 23 years prior to becoming a judge.

• Judge Davis graduated cum laude and first in his class from Baylor Law School in 1976 where he was Editor-in-Chief of the Baylor Law Review and a member of Baylor's interscholastic moot court and mock trial teams. He received his undergraduate degree in Mathematics from the University of Texas at Arlington in 1970, and his Master of Management Science Degree from Texas Christian University in 1974. He worked as a computer programmer and systems analyst prior to entering law school in 1974.[2]

• He has received an American Jurisprudence Award for Excellence in Contracts and Federal Courts.

• He is primarily assigned patent lawsuits in the US district court. [3]

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AND

• April 19, 2008 – Markman Hearing (win/lose)

• May 11 – 2009 Trial Team of 30 McKool Smith (rapid prep b/c illness) Daily transcripts

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AND

• May 19, 2009 – Jury Instructions Bankers? Photos # witnesses Canadians in Texas Experts

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May 20, 2009 - 1:02 PM

From: Loudon Owen [mailto:LOwen@mcleanwatson.com]Sent: Wednesday, May 20, 2009 01:02 PM Central Standard TimeTo: Thomas L. CrismanSubject:Very urgentI don?t know how you deal with this but there is a major date problem

in the transcript ofJudge Davis instructions to the jury. On page 139-140 his instruction to

the jury says?here are ways that Microsoft can show that a claim of the ?449 patent

is not new ?if theclaimed patented method was known or used by other ? before June

14, 2004?This date should be June 14, 1994

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May 20, 2009 - 2:35 PM

From: Thomas L. Crisman [tcrisman@McKoolSmith.com]

Sent: Wednesday, May 20, 2009 2:35 PM

To: Loudon Owen

Subject: RE:

We won 200M

Tom

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““Does that mean you’re going to stop shouting at me, Gordon”

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THE END

• July 9, 2009- Post Verdict Motion Hearing

• August 11, 2009 – Final Judgment & Permanent Injunction

- THE END -

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Twitter, Conan…Apocalypse Word

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APPEAL

• August 11, 2009 – Final Judgment & Permanent Injunction

• August 18, 2009 – MSFT notice of appeal, Emergency stay motion

• August 24, 2009 – Amicus Dell, HP

• Sept 3, 2009 - Stay granted, WLF amicus

• Sept 23, 2009 – Appeal heard in DC

• Re-examination at same time

• Dec 22, 2009 – Judges Ruling on Appeal

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AND

• Dec 22, 2009 – Judges Ruling on Appeal

• Jan 8, 2010 – Petition for rehearing

• Going forward….

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KEY LESSONS

• Lifestyle vs. Economic Decision

• Daily Surprises, uncertainties

• Reality facing larger opponents

• Power of Press, NPE

• Why not infringe?

• Where are all the Angels? All the Investors?

• Business is People

• Patent Enforcement is People

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THE PATENT WORLD

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Now What Happens?

MEMO

From: CEOTo: Board of Directors

We believe Giant Corporation International is violating

our US patent 7,328,999. We need to take action immediately.

We want to sue, but the risks are high and we don’t have internal expertise.

Please advise what you authorize and recommend ASAP?

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Challenge to Board Member• Describe Patents

Do you know what they cover?• Evidence of Infringement

Claims construction analysis vs. infringers products• Damages Theory

Is the potential return worth the risk • Strategy

Negotiate a license? Litigate? Wait? Ignore?• Funding

Internal? External? Contingency? Funding Expenses? Management Opportunity Cost?• Risks

Validity challenges: What prior art existed at the time? Obviousness? Inequitable conduct? Non-infringement Counterclaims from infringers patents Willingness and ability of management and inventor to testify Complex patent case decided by non-technical jury Re-examination

• Legal Landscape Are you current with Supreme Court Decisions, precedents, venues, patent reform

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Value Maximization - Structural Hurdles

• Asymmetry #1 - Rookie mistakes first time plaintiffs vs. defendants with 100 cases. Defendants capitalize.

• Asymmetry #2 - control in lawyers hands Fee – clear conflicts of interest Contingency – often misaligned & under funded; wide variance in quality and

objectives Power shift from principals to intermediaries (Would you ask law firm to manage your sales and marketing, R&D, or finance?)

• Asymmetry #3 – large defendant vs. small/mid sized plaintiff Can turn to advantage IF have capital and expertise Plaintiffs often run of out capital later in process, when case is strongest &

nearest to realization

Expertise, Control & Power Asymmetries

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Unique Dynamics of Patent World

• Huge industry, immense value & importance• Complicated & specialized

Lawyers rule - seasoned executives live in mortal fear Large companies manage hundreds of cases versus most

companies that never enter fray (a 100:1 ratio tilts the field, and owners of key patents are often in weak position)

• Unrealized patent value. Extensive risk & value arbitrage• Despite industry size, massive holes in

services/expertise & capital• Global opportunity - US enforcement model poised to

move overseas

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Industry Players • Patent Aggregators

• Intellectual Ventures• RPX• Allied Security Trust

• Patent Brokers• IPotential

• Intellectual Property Investment Funds• Northwater Intellectual Property Fund• Altitude Capital Management

• Patent Licensing/Litigation Companies & Funds• General Patent Corporation• Acacia Technologies• Rembrandt Management• Public companies with patent licensing business models

• Hedge Funds• Fortress

• Patent Litigators• Contingency Patent Litigators

• Few pure contingency firms

• IP Merchant Banks• Ocean Tomo

• Specialized Consulting & Advisory Service Firms• Invotex

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Value of a Patent?

A very different investment with potential for strong, risk adjusted returns uncorrelated to the capital markets in an inefficient, poorly understood yet very important asset class

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Q&A – www.i4iLP.com