WEBINAR

Beyond Patents: Managing IP Risk & Protecting Trade Secrets

Webinar Participants:

David BeckoffVP, Product Development and InsightsMAPI

Michael StankardManaging Director, Manufacturing Industry Practice Leader Aon

Jesus GonzalezDeputy Global Practice Leader for Intangible AssetsAon

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

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Webinar Overview

• Intellectual Property (IP) Defined

• Intellectual Property (IP) Risk Management

• Intellectual Property (IP) Risk Transfer

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

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Historical Risk Management Focus = Tangible Property Damage & Bodily Injury

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Industrial Evolution

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

SOURCE: https://www.tritoninnovation.com/industry40/

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Evolution of Global Economy to Intangible Assets

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

$5T in value driven from trade secrets1

[1] U.S. Chamber of Commerce, The Case for Enhanced Protection of Trade Secrets in the Trans-Pacific Partnership Agreement,

available at (https://www.uschamber.com/sites/default/files/legacy/international/files/Final%20TPP%20Trade%20Secrets%208_0.pdf)

1975

1. IBM

2. Exxon Mobil

3. Proctor & Gamble

4. GE

5. 3M

$715 B

$122B $594B

1985

1. IBM

2. Exxon Mobil

3. GE

4. Schlumberger

5. Chevron

$1.5T

$482B $1.02T

1995

1. GE

2. Exxon Mobil

3. Coca-Cola

4. Altria

5. Walmart

$4.59T

$3.12T $1.47T

2005

1. GE

2. Exxon Mobil

3. Microsoft

4. Citigroup

5. Walmart

$11.6T

$9.28T $2.32T

2018

1. Microsoft

2. Apple

3. Amazon

4. Alphabet

5. Facebook

$23.6T

$19.82T $3.78T

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Evolution of Intangible Assets Top Five S&P 500 Companies

Types of Intellectual Property

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

[1] U.S. Chamber of Commerce, The Case for Enhanced Protection of Trade Secrets in the Trans-Pacific Partnership Agreement,

available at (https://www.uschamber.com/sites/default/files/legacy/international/files/Final%20TPP%20Trade%20Secrets%208_0.pdf)

Design

Trade Secrets

Patents

Copyrights ©

Trademarks™TM

Patent name =

“electronic device”

Patent Name: "Omni-

directional, vertical-lift,

helicopter drone"

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Why does Intellectual Property (IP) matter to the balance sheet?

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

IP encourages innovation, thereby

furthering human progress and

fostering economic growth

Industries deemed IP-intensive by the Property

and Trademark Office accounted for 45.5 million

jobs (30% of the U.S. workforce) in 2014

52% of US merchandise exports

(~$840 billion) are attributable to IP

The number of patents applied for and issued has

grown exponentially in the last several years, and the

amount of patent litigation has risen correspondingly

0

200

400

600

800

2008 2009 2010 2011 2012 2013 2014 20152007 2016

Ca

se

s F

ile

d

Patent Violation Cases Filed

2015 through Nov

30.

Pa

ten

ts I

ssu

ed

per

Ye

ar

Issued Patents

0

2000

4000

6000

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

0

250,000

200,000

150,000

100,000

50,000

300,000

INNOVATION

JOBS

EXPORTS

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Trade Secrets Theft as the Primary Cybercrime Issue

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

Sources: Lex Machina, McAfee, Baker MacKenzie, Locke and Lord, FTC, IP Commission, Insurance Information Institute, Lloyd’s,

Herjavec Group, Cybersecurity Ventures, FBI; analysis by Aon Benfield Analytics

• Trade Secrets are intellectual property assets that a company chooses to keep confidential, as opposed to protecting with public legal filings such as patents or copyrights

• Famous examples include the “Coca Cola Secret Formula,” the “KFC Blend of Herbs and Spices,” and Google Search’s algorithm

• Trade secrets play an essential role in companies’ brand value and corporate strategy. In a Baker McKenzie report, 82% of respondents said their trade secrets are an important, if not essential, part of their business

• Per commerce.gov, theft of these trade secrets costs domestic industries an estimated $200 to $250 billion a year

• The implementation of the DTSA lead to an increase in trade secret litigation

• There are currently limited to no solutions available in the insurance market for the theft of intellectual property

Estimated Costs of Cybercrime

Theft of Intellectual Property - $200-250b

Business Interruption - $60-85b

Data Breach - $40-60b

Incident Response - $35-45b

Privacy Violations - $12-17b

FI Fraud - $15-30b

Other Fraud - $13-19b

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Patents Versus Trade Secrets

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

Patent Protection Trade Secret Protection (EU & US)

Process and Cost Requires application process and official fees Arises automatically, no official fees. Can be costly to maintain

secrecy.

Term 20 years maximum duration Potentially unlimited in duration

Requirements Must be novel, sufficient and inventive No novelty, inventive step or sufficiency requirements. Must

have commercial value and not be readily ascertainable

Maintenance Only requires renewal fee payments once

granted

Requires lifetime maintenance to keep secrecy, can be complex

Enforceability Typically more straightforward to enforce if

infringed

Need to show adequate maintenance of secrecy. Can be

unclear

Scope of Protection Clearly defined by the claims Defined by what the trade secret is purported, not restricted by

jurisdiction

Geographical Protection Patents are only enforceable in the

jurisdictions they are granted in

No exclusions

Remedies Damages (can be enhanced), injunctions,

costs, royalties

Damages, injunctions, costs, royalties

Licensing Patentee is free to license Licensing must be done under a confidentiality agreement

Risks Can be opposed/invalidated. If not granted,

the technology will still have been disclosed.

Other parties can still rely on secret prior use

provisions

Can be reverse engineered.

Can be patented by another party.

Can be disclosed by sale/public use

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Polling question # 1:Has your company experienced a material IP event over the last 24 months (e.g., a challenge to its IP assets, third-party infringement of its IP assets, or allegation that it is infringing third-party IP rights)?

A. YesB. NoC. Don’t Know

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

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Survey ResultsHas your company experienced a material IP event over the last 24 months (e.g., a challenge to its IP assets, third-party infringement of its IP assets, or allegation that it is infringing third-party IP rights)?

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

Yes58%

No31%

Don't know12%

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Financial Losses from IP Infringement Can Be Substantial

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

Large Financial Losses Incurred Through IP Litigation

Subject Matter Loss Company Paid To Type of IP

Acid Reflux medication, Protonix $2.2B Teva Pharmaceuticals Pfizer Patent

Hepatitis C drug $1.8B Abbott Labs Centocor, Inc Patent

Intravascular stents $1.7B Boston Scientific Cordis Corp. Patent

Karaoke recordings $1.2B 1729172 Ontario, Inc Sony Copyright

Prosthetic valve for aortic stenosis $1.1B Medtronic, Inc Edwards Lifesciences Patent

Glypohsate-tolerant plants $1.0B DuPont Monsanto Patent

Kevlar $919M Kolon Industries DuPont Trade Secret

Instant cameras $925M Kodak Polaroid Patent

Designer handbags $864M Xiang Ding Ai Chanel Trademark

Hard disk drive magnetic materials $750M Marvell Semiconductor Polaroid Patent

Vacuum wound therapy units $645M Healthcare Essentials KCI USA Patent

Email, wireless communication $613M Research in Motion NTP Trademark

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The Changing Trade Secret & Patent Equilibrium

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

• The combination of technology and market trends and recent court decisions on patent eligibility

has altered the trade secret and patent equilibrium

• Enhancement of trade secret protection via the DTSA helps offset patent system contraction for

innovators, and is likely to lead to increased focus on protecting innovation through trade secrets

• The accelerated pace of innovation in many industries is conducive to trade secret protection

• Rising employee mobility (and strategic poaching of talent)

• Patenting can be unpredictable & take years

• More and more innovation is behind the “firewall” or in the “cloud”

• IP theft is pervasive

Schecter, M., (2016, June 20). The changing trade secret and patent equilibrium. Retrieved from

https://techcrunch.com/2016/06/20/the-changing-trade-secret-and-patent-equilibrium/

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Polling question # 2:Has an independent third party conducted a valuation of your company’s IP assets (including trademarks, patents, copyrights, trade secrets and know-how)?

A. YesB. NoC. Don’t Know

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

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Survey Results Has an independent third party conducted a valuation of your company’s IP assets (including trademarks, patents, copyrights, trade secrets and know-how)?

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

No50%

Don't know36%

Yes, within the last 24 months

10%

Yes, some time ago 4%

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Value of Corporate Intangible Assets

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

Regulatory & PCI

Actions

Credit Monitoring

ForensicsPublic Relations

Notification Extortion

Payments

Dependent

Business

Interruption

Systems Failure

Business Interruption

PIIPCI

PHI

Customer

Insights

Trade Secret

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IP Risk Management – Adopting a Risk-Based Strategy

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

Business

Strategy and

Governance

IP Strategy

and

Management

Risk Retention

and Transfer

Risk

Identification

and Triage

Other

Mitigation

Tools

Resolution of

Specific

Scenarios

I. Quantitative Risk Analysis (Using “Exposure” and “Experience” Data)

II. Qualitative Risk Analysis (Leveraging Analytic Tools)

Litigation

Support

Other

Deterrent

Portfolio

Conflict

Review

Acquisition /

Licensing

(Un)Known

Companies

Other

Relationships

(Un)Known

Patents

Aggregate

Risk

Segmented

Risk

Transfer

Availability

Transfer

Terms

Transfer

Advisability

Transfer

(see right)

Mitigation

(see right)

Cli

en

t

Ob

jec

tive

s

An

aly

se

sO

utp

uts

/

Ou

tco

me

s

Lan

dscap

e

III. Screening Analysis (Model Based)

IV. Detailed Analysis (3rd Party and Client Patents)Asset

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Trade Secret Governance

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Trade Secret Protection Review: Cataloging, Prioritizing, Managing, Protecting

▪ Access control

▪ Periodic review

▪ Third-party access

▪ Third party external disclosure

▪ Least privilege

▪ Storage locations

▪ Remote access

▪ Encryption

▪ Secure file transfer

▪ Data loss prevention tools

▪ Physical security

▪ On-boarding & off-boarding

▪ NDAs and contractual agreements

▪ Policy agreement

▪ Security training

▪ Approval for sharing/transfers

▪ Risk analysis and management

▪ Incident response planning and readiness

▪ Security assessments, metrics, and testing

▪ Security policies and procedures

▪ Logging, monitoring, triage capabilities & coverage

▪ Investigation procedures & forensic procedures

▪ Ability to detect potential loss

▪ Different types of IP will warrant unique security considerations

▪ Data formats and methods of accessTargets &

Threats

Sharing

Protection

Processes

Governance

Logging &Detection

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Survey Results: What approach was used in your company’s most recent IP valuation?

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

2% 2%4%

9% 9%

74%

Cost-based method Income-basedmethod

Market-basedmethod

Qualitative approach Other Don't know

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Polling question # 3:IP Insurance: Has your organization (or you in your role) purchased/placed standalone IP insurance that covers patent infringement and/or trade secrets theft?

A. YesB. NoC. Don’t Know

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

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Survey Results IP Insurance: Has your organization (or you in your role) purchased/placed standalone IP insurance that covers patent infringement and/or trade secrets theft?

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

50%

48%

26%

24%

24%

15%

2%

Property and Casualty insurance

Network Security and Privacy Policy

Trade Secret Theft Policy

IP Liability Policy

None of the above

Technology Errors and Omissions Policy

Don't know

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B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

2019 Ponemon Study: Tangibles vs Intangibles% of Property, Plant & Equipment and information assets

covered by insurance

60%

16%

0%

10%

20%

30%

40%

50%

60%

70%

The percentage of potential loss to PP&E assetscovered by insurance

The percentage of potential loss to information assetscovered by insurance

• Respondents estimated the value of Tangibles

at 1.032bn vs. $1.155bn in intangibles

• 81% of respondents state that Intellectual

Property risk is a Top 10 risk for their

organization

• 43% of Enterprise Risk Management Activities

do NOT include IP

• 28% of respondents say their company

experienced a material IP event

•Article I, Section 8, Clause 8, of the United

States Constitution grants Congress the

enumerated power "To promote the progress of

science and useful arts, by securing for limited

times to authors and inventors the exclusive

right to their respective writings and

discoveries.”

Financial Statement Impact Comparison Study & Report

conducted by Ponemon Institute LLC, Sponsored by Aonhttps://www.aon.com/thought-leadership/ponemoninstitutereport.jsp

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IP Liability Insurance Matrix

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Key Findings

• Foundations in place to build upon

• Uneven IP engagement

• A business case remains paramount

• Risk is significant and rising

• Room to learn from leaders

B e y o n d P a t e n t s : M a n a g i n g I P R i s k & P r o t e c t i n g T r a d e S e c r e t s

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IP Risk in Your Risk Maturity Score

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Q &A

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