Quarterly Newsletter: September 2004

Minimizing the Risk
A recent trend called de-risking has begun to catch on. It is the practice of minimizing the risk associated with new innovations. It requires a team approach that includes the entrepreneur and a talent pool comprised of experienced executives that lays the groundwork for establishing a successful company. This approach is combined with an initial investment to lay the groundwork for putting all of the key components such as marketing and sales strategy as well as the management team in place The idea is to begin generating revenues to demonstrate a track record. This process prepares a company for the traditional Series "A" funding, typically from a Venture Capital or Private Equity Fund.

What's the Potential of a Groundbreaking Technology?
PCR - Polymerase Chain reaction, a process for rapidly multiplying fragments of DNA, isn't just one of the most groundbreaking techniques in all of chemistry, it has been one of the most financially successful. Originally developed by Kary Mullis at Cetus Corporation in the 1980's, the technology is owned in part by Applied Biosystems. The technology generates about $50,000,000.00 per year. When you consider the license fees, royalties and patent infringement awards, that's $1,000,000,000.00 in revenues from inception. And, that's just for human identification analysis and research. Roche owns the rights to two other key markets, paternity test kits and human diagnostics.

Now for the bad news. The initial patents begin to expire in early 2005! Hundreds of new Patents have been and are being filed by Applied Biosystems in order to maintain its technical and financial position.

Microsoft Patents Body Power
Patent 6,754,472 describes a method for transmitting power and data to devices worn on the body and for communication between those devices by using human skin as a power conduit and data bus. Microsoft's Patent proposes a personal area network that allows a single data input or output device be used by multiple portable devices. They even envision devices being used by the family pets.

Confidential?
A recent survey by the BBC found that nearly 40% of workers have received confidential information that was not meant for them. Another 15% admit sending confidential information by mistake and 17% of those were unable to retrieve the data. Are you protecting your confidential information?

Who's Next?
Mexico City - Security has reached the subcutaneous level for Mexico's attorney general and at least 160 people in his office. They have been implanted with microchips that give them access to secure areas of their headquarters.

Seoul - Parents in South Korea will now be able to track their children by using a device in a new mobile phone that has been designed for kids. SK Telecom Co. is selling colorful cell phones with antennas that look like human ears and a built in tracker using the global positioning satellite (GPS) network.

Osaka - The rights and wrongs of RFID "chipping" of human beings has been debated since the tracking tags reached the technological mainstream. Now, school authorities in the Japanese city of Osaka have decided the benefits outweigh the disadvantages and will now be implanting tracking chips in children at one primary school. Readers installed in school gates and other key locations to track the children's movements will read the tags.

Valuation Rules
Robert Goldscheider is probably the best-known economic damages expert in the nation. Although he has testified in more than 100 IP cases, it's his 25 percent rule that made him famous. The rule holds that, all things being equal, a licensee will pay 25 percent of profits as a reasonable royalty. He developed his rule in 1959 while drafting license agreements for clients such as Philco Corporation. The rule is based on the fact that a licensee assumes about 75% of the risk in commercializing new products. That left 25 percent of the risk to the licensor, reflected in a 25/75 percent split of pretax profits.

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