Foresight Valuation Group

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Double Trouble – Apple’s Recent Legal Setbacks Highlight Key Lessons in Global IP Strategy

Posted on Modified on by Lynn Dudinsky

Apple Inc. continues to sit at the forefront of global innovation, but even the most sophisticated technology companies are not immune to complex legal challenges. In recent weeks, Apple has faced two significant intellectual property (IP) setbacks, one in the United States and one in the United Kingdom, each with far-reaching implications for companies navigating patent litigation, standards licensing, and global IP enforcement.

This blog examines two recent decisions that have put Apple’s IP practices under scrutiny: one involving the use of Applicant Admitted Prior Art (AAPA) in a U.S. case before the Federal Circuit, and another concerning royalty obligations for standard-essential patents (SEPs) in the UK.

Federal Circuit Reverses PTAB Decision: AAPA Misapplied
In April 2025, the U.S. Court of Appeals for the Federal Circuit overturned a favorable ruling for Apple by the Patent Trial and Appeal Board (PTAB). The case centered on Apple’s challenge to a patent using a combination of a printed publication and Applicant Admitted Prior Art (AAPA), statements made in the challenged patent’s own specification acknowledging the existence of certain prior art.

The PTAB had sided with Apple, holding that the combination was valid grounds to invalidate the claims. However, the Federal Circuit disagreed, clarifying that AAPA alone does not constitute “prior art consisting of patents or printed publications” as required under the America Invents Act (AIA) for inter partes review (IPR) proceedings. The court ruled that while AAPA may inform a skilled artisan’s understanding, it cannot be the primary basis for an obviousness challenge.

Implications:

  • Limits of IPR Strategy: Companies seeking to invalidate patents at the PTAB must ensure their arguments rely primarily on statutory prior art. Internal admissions, even when found in the patent under review, are not enough.
  • Importance of Procedural Precision: This case reinforces how procedural interpretation can outweigh substantive arguments. Understanding statutory language is critical to litigation success.
  • Drafting Risk Awareness: While not directly at issue in this case, the broader takeaway for patent applicants is to be cautious when characterizing prior art in their applications, as such language can be used in litigation, though with limits.
  • Increased Scrutiny of PTAB Practices: The ruling may prompt changes in how PTAB applies AAPA going forward, potentially raising the bar for IPR petitioners more broadly.

UK Court of Appeal Orders Apple to Pay $502 Million in FRAND Dispute
Just days later, Apple received another legal setback, this time from the UK Court of Appeal. On May 1, 2025, the court affirmed a judgment requiring Apple to pay $502 million to Optis Cellular Technology LLC for a global license to its 4G standard-essential patents. The case, which began when Optis sued Apple in 2019, centered on the appropriate amount Apple must pay under fair, reasonable, and non-discriminatory (FRAND) licensing obligations, which are required under global standards-setting agreements.

The decision dramatically increased the damages from the UK High Court’s 2023 estimate of just over $56 million which was made by the judge at the High Court of England and Wales without reliance on experts from either company. The UK Court of Appeals found that a lump-sum license more accurately reflected the global nature of Apple’s 4G usage and the market value of Optis’s portfolio when awarding $502 million based on a $0.15 per unit royalty. Apple had previously indicated that it would not accept a license on terms set by the UK court and may appeal this decision.

Implications for large IP holders and the broader IP landscape:

  • FRAND Licensing as a Global Risk: The case signals a shift in how courts outside the U.S. are willing to impose significant global licensing terms, even where the jurisdictional scope is limited.
  • Litigation Forum Strategy: SEP holders may increasingly look to the UK and other jurisdictions as favorable venues for global FRAND determinations.
  • Financial Exposure in SEP Disputes: The magnitude of the damages awarded suggests that SEP enforcement remains a serious financial risk for tech companies, especially those reliant on standard essential patents.

Strategic Takeaways for Technology Companies
Taken together, these rulings offer several lessons for companies navigating the increasingly complex world of IP litigation:

  • Global IP Planning is Essential: Legal decisions in one country can have global implications. Multinationals must anticipate and coordinate litigation strategies across multiple jurisdictions.
  • Proactive Legal Audits: Regular reviews of patent drafting practices and litigation exposure are crucial. Ensuring that internal admissions in patents does not open doors for unintended invalidity risks is now more important than ever.
  • Valuation and Licensing Readiness: As courts impose large-scale licensing obligations, companies must be prepared to defend or justify the value of their own and others’ patent portfolios, especially under FRAND regimes.

Conclusion
Apple’s recent legal setbacks illustrate the challenges even the most sophisticated companies face in managing global intellectual property. The Federal Circuit’s reversal and the UK’s expanded damages ruling in the Optis case serve as timely reminders that patent strategy must be tightly integrated with legal, technical, and business planning.

For consulting firms advising clients on IP strategy and valuation, these cases reinforce the value of forward-looking risk assessments, cross-border legal coordination, and ongoing patent portfolio management. As courts refine the rules around prior art and FRAND licensing, staying ahead of evolving jurisprudence will be key to maintaining competitive advantage and avoiding costly surprises.

Foresight Startup Q&A Blog Series: Modeling Unit Economics

Posted on Modified on by Foresight Valuation Group

 

The Foresight team regularly spends time answering our startup clients’ most pressing questions regarding Financial Modeling, IP Strategy, Valuation, and more. We’ve decided to share some of these important insights in our Startup Q&A Blog Series. This article deals with modeling Unit Economics for your early stage business.

Question:

How Do I Model My Unit Economics? 

One of Foresight’s startup clients approached us asking for advice on how to model the Unit Economics for 2 different business models that the company was considering. The client was launching an Airbnb-type venture and weighing the pros and cons of a Subscription model and Commission model. Although the 2 business models are very different, the Unit Economics modeling is fairly similar, with the largest difference being the Monthly Recurring Revenue (“MRR”) component.

Answer:

  1. Identify the Unit 

The first step to modeling Unit Economics for a majority of (if not all) businesses is to identify the Unit. The Unit is the revenue generating component of your financial model. For a Consumer Software/Subscription business (i.e. Spotify, Microsoft Office 365, etc.), the Unit is likely a single subscriber. Conversely, for Enterprise Software-as-a-Service (SaaS) businesses (i.e. Salesforce, Workday, etc.), the Unit may be an entire organization with many users. In any case, the best starting point for thinking about your Unit may be identifying your “average customer.”

In the case of our client’s Airbnb-type business, the answer is somewhat counter intuitive. The Unit in both cases, Subscription and Commission, is not the end-consumer (the people using the platform to rent). Instead, the Unit is the “Host” – the owners of the assets that are listing their property on the platform. This is because the Hosts are ultimately driving revenue for the business, either through monthly subscription fees or by sharing a portion of their rental proceeds.

  1. Determine Your Customer Acquisition Cost (CAC) 

Once you’ve identified your Unit, the next step is to determine how much it will cost your business to “acquire” them. By definition, for your Unit Economics modeling it is important that you isolate the cost to acquire and onboard a single Unit. There are commonalities among almost all businesses that will be included in your CAC, such as sales expenses, marketing expenses and salaries, but it is also important to consider less-obvious costs that may be more unique to your business, such as data hosting expenses, legal fees, etc.

Again, since the Unit was consistent for our client across both business models, the components of the CAC were also consistent. However, differing business models have significant implications for the CAC that are important to consider. In this case, the Marketing Expenses required to acquire a Host under the Commission model are likely much less than the expenses under the Subscription model. At the most basic level, this is because the costs to acquire a paying user is typically far greater than the costs to acquire a free user.

  1. Calculate Monthly Recurring Revenue (MRR) 

The MRR for your Unit Economics model is another critical input that looks at the amount of revenue that your business collects from each Unit on a recurring basis. The simplest determination of MRR is for a subscription business with a single subscription tier. If the business only offers 1 subscription level, to 1 type of customer, then the MRR is equal to the monthly subscription fee. The MRR calculation becomes more detailed as you begin to add additional subscription tiers, different types of customers, add-on features, etc. In these cases, you should again undertake the exercise of determining the characteristics of your average customer, and calculate the recurring revenue generated based on these features.

For our client, MRR is the component of the Unit Economics model that differs the most between the 2 business model options. For the Subscription model, the determination of MRR is again fairly simple – it is equal to the monthly subscription fee that the average Host will pay to list their assets on the platform. For the Commission model, however, the calculation becomes much more involved. Because the revenue generated from the Unit under the Commission model is not uniform or guaranteed, many assumptions need to be made about the transactions. These assumptions include Average Transaction Size, Average Number of Transactions per Month,  Average Number of Listings per Month, etc. From this example, it is clear how quickly the MRR calculation can complicate.

  1. Know Your Industry Benchmarks (Churn Rate) 

Particularly in the early stages of your business and Unit Economics modeling exercise, it is important to be acutely aware of your industry benchmarks. For inputs such as CAC and MRR, although each business will have unique values, it should raise a “red flag” if your inputs are orders of magnitude away from what similar companies are reporting. If solid justifications exist for your deviation from industry norms, proceed with your modeling but be prepared to answer questions about the abnormalities.

While CAC and MRR are determined using internal inputs and assumptions in conjunction with industry benchmarks, Churn Rate (“Churn”) will come exclusively from benchmarks for all new companies. Churn is defined as the percentage of customers that you lose each month. In the early stages of your business, you simply lack the operating history to know how “sticky” your service is, so instead you should turn to the market to tell you how frequently customers leave (unsubscribe, cancel, become inactive, etc.) similar platforms.

Using these 4 steps as a starting point, you should be well on your way to constructing a solid Unit Economics model. This will become the foundation of your Financial Model as a whole, and help you determine your specific funding requirements among many other key details about your business. For a more in-depth explanation and example of Unit Economics modeling, check out Foresight President, Efrat Kasznik’s talk titled “Telling Your Story with Numbers,” and register to attend one of our upcoming talks!

Startup Q&A Blog Series: Valuing Early-Stage Startups

Posted on Modified on by Foresight Valuation Group

The Foresight team regularly spends time answering our startup clients’ most pressing questions regarding Financial Modeling, IP Strategy, Valuation, and more. We’ve decided to share some of these important insights in our Startup Q&A Blog Series. This blog deals with valuing an early-stage startup when dealing with seed investors.

Question:

How Do I Value My Seed Stage Startup?

A Foresight client was preparing for a seed funding round, and asked us the best way to value their business. Because early-stage companies lack operating history, and in a majority of cases lack any form of revenue, assigning value to the startup cannot be done with “traditional” methods such as a discounted cash flow analysis or a revenue “multiple” approach. The client is launching a smart wearable health tracking device, and looking to substantiate a $12M pre-money valuation.

Answer:

  1. Know the Current Market Comps

Because early-stage startups cannot be valued on cash flows, investors often turn to the market to determine the “going rate” for businesses in any given sector. This is where the entrepreneur should start as well. Undervaluing your business in negotiations with investors means you will likely give up greater ownership percentage than is necessary – something that should be avoided at any stage of the business, not just the seed stage. Conversely, overvaluing your business could kill the deal before it even starts. When both the investor and entrepreneur are educated on current market conditions, the starting point of valuation negotiations can at least begin in the same ballpark. The ColleyGO publication is a great resource for starting your market research. Below is a sample chart from this report:

Not only can we gather the median pre-money valuation for seed companies of which was $16,725,000 in 2024 according to this chart, but we can also observe trends in seed stage valuation over time. Various public sources are available for valuation research by country, market, etc. As a starting point, Foresight’s client knows that they within the median range with the targeted $12M valuation.

  1. Know What Matters to Early-Stage Investors

Although it is a great starting point, most investors will be a bit more sophisticated in their valuation process than simply taking the market median. In particular, there are certain characteristics of a business that investors will consider when assigning value to an early-stage company. In 2011, Dave McClure, founder of the accelerator 500 Startups, shared insights on his methodology for valuing such companies. McClure said that each of these 5 components of a business were worth $1M in value:

  • Market
  • Product
  • Team
  • Customers
  • Revenue

The value assigned to each point can change over time, and would probably be more than $1M today given the sharp increase in pre-money valuations since 2011.  Each investor has her or his own heuristics.

When developing your pitch deck for the seed round, it is important to keep these factors in mind, and highlight those that are strengths of your own business. If you have existing, brand name customers, make sure to call them out. If you operate in a particularly large or “hot” market, emphasize this and quantify it in any way possible. Our client happens to have a particularly strong founding team with experience working with and launching products in similar industries. This will be a great point to emphasize when negotiating for their target valuation.

  1. Efrat’s “Bonus Point”

One component that is noticeably absent from McClure’s list, and that is particularly pertinent to Foresight, is Intellectual Property. IP gives companies an inherent advantage over the competition, and as such, such advantages should be considered in the valuation of the business. Traditional valuation methodologies often overlook the true value of IP to a business – something that Foresight tries to combat. For this reason, entrepreneurs should be acutely aware of the business’s  IP value from the early stages and understand how it impacts the value of the business as a whole.

When considering your company’s IP and the value it adds to your business, make sure to consider all forms of IP,  not just patents. A granted patent is undoubtedly something to hang your hat on when negotiating valuation, but remember to also highlight things like a strong brand, customer relationships, trade secrets, customer data, etc. Even the potential to develop these strong IP assets is something to be considered for your pitch (for example, the potential of amassing customer data even though you may only have a small number of subscribers at this stage). With 2 design patents and 4 provisional patents, our client certainly has some increased leverage in the valuation discussion.

  1. Bonus Note for Hardware Startups

Hardware startups are still very viable businesses, although they come with a number of inherent challenges that software or service startups do not face. Because of this (and because hardware is not the most trendy space), some early-stage investors may shy away from hardware deals.

For those entrepreneurs dealing with hardware, Foresight recommends a few things. First, be creative when developing your business model. One of the main drawbacks of traditional hardware businesses is that revenue is restricted to a single transaction. Modern business models, like we see in software, integrate things like subscriptions or upgrade plans to increase the recurring nature of the company’s revenue. Second, think about how software can work with your product. Even something as simple as a mobile application can open many more possibilities for your hardware business (customer data, premium content, community building, etc.). Finally, be mindful of your audience when pitching your business. Knowing that the word “hardware” might raise some red flags, be creative in how you present your idea to keep investors engaged. For our client, we suggested simply replacing any mention of the word “hardware” with words like “device,” or “delivery mechanism”.

Navigating the Intersection of Copyright and AI: Understanding Digital Replicas

Posted on Modified on by Lynn Dudinsky

In our last blog in this series on AI, we discussed how to identify and overcome AI Hallucinations when utilizing AI for business purposes. In today’s blog, we are touching on another issue that has been on the forefront of AI as the use of artificial intelligence has grown and new features have been added to the long list of capabilities; namely, digital replicas. These are AI-generated imitations of human voices, images, or appearances that are so realistic, they are often indistinguishable from the real thing. While these digital replicas offer exciting possibilities for creativity and innovation, they also present complex legal challenges, particularly concerning copyright and individual rights. In an ongoing effort to bring awareness to the potential issues with AI and to push lawmakers to address the growing potential threat with legal frameworks, the U.S. Copyright Office (USCO) in 2023 launched an initiative to examine copyright and policy issues raised by AI. Since launching this initiative, the USCO has received over 10,000 comments and is in the process of publishing a multi-part report addressing various topics and analyzing the issues, which will be published as they are completed. On July 31, 2024, the Office published Part 1 of the Report, which addresses the topic of digital replicas.

Understanding the Concept of Digital Replicas

Digital replicas refer to AI-generated content that mimics the voice, image, or appearance of a real person. These can range from AI-generated voices in music tracks to digital images used in movies or advertisements. The sophistication of AI technology has made it possible to create these replicas with minimal human intervention, raising concerns about authenticity, consent, and ownership. If you have ever interacted with these digital replicas, you would realize how powerful the technology is and the high level of risk associated with the creation of near-perfect copies of a person’s likeness, tone and manner of speaking if used in an unauthorized manner.

The Legal Landscape: Existing Protections and Gaps

The USCO’s report highlights the current legal frameworks addressing the protection against unauthorized digital replicas. These include:

  1. State Privacy and Publicity Laws: These laws offer some protection, particularly through rights of publicity and privacy. However, their effectiveness varies by state, and they often fall short of addressing the complexities introduced by AI-generated replicas.
  2. Federal Laws: The report discusses several federal laws, such as the Copyright Act, the Federal Trade Commission Act, and the Lanham Act, which provide some level of protection. Yet, these laws were not designed with AI in mind and thus may not fully cover the nuances of digital replicas.
  3. The Need for New Legislation: The report strongly advocates for the creation of new federal laws specifically designed to address the challenges posed by AI-generated digital replicas. It argues that existing laws are inadequate to protect individuals from unauthorized use of their likenesses or voices, particularly when such replicas can be easily created and distributed without consent.

The Impact on Creativity and the Arts

The proliferation of AI-generated digital replicas has sparked debates within the creative community. On the one hand, these technologies can be powerful tools for artists, enabling new forms of expression and creativity. On the other hand, they pose a threat to traditional forms of artistic labor, potentially displacing human artists and performers.

For example, in the music industry, AI-generated songs featuring the voices of well-known artists without their consent have already caused controversies. Similarly, in the film industry, the use of digital replicas for actors could lead to fewer opportunities for real actors, raising ethical and economic concerns. The counter to this argument is the ease at which non-artists are able to create custom works using tools like text-to-video which allows people like myself, with no artistic skills, to generate short videos and creative images with simple prompts. In a few years, it is likely that I could use a series of prompts to create a 2-hour custom movie with my son as the main character. Whether this stifles the industry or opens up new industries, in a similar way as people predicted when the internet reached average users, is the trillion dollar question.

Moving Forward: Balancing Innovation and Rights

As AI continues to evolve, so too must our legal frameworks. The USCO’s report emphasizes the importance of balancing technological innovation with the protection of individual rights. It calls for new federal legislation that would:

  • Provide clear guidelines on the use of digital replicas.
  • Protect both celebrities and private individuals from unauthorized exploitation of their likenesses.
  • Ensure that individuals retain control over their digital replicas, with the ability to license or refuse the use of their likeness.

Conclusion

The intersection of copyright law and AI is a rapidly developing area, with significant implications for both creators and consumers. The USCO’s report on digital replicas is a crucial step in addressing the legal challenges posed by AI-generated content. As we navigate this new frontier, it is essential to find a balance that promotes innovation while safeguarding individual rights and creative integrity. Unfortunately, the concerns by most in the industry will not be resolved through the publication of multi-part reports and will ultimately be determined by members of Congress or the judiciary with the latter being the most likely source of future guidance. One concern with this approach is that it is, by definition, reactionary if left to the judiciary. Many artists, designers and others in the creative arts will be required to be harmed before judicial intervention is realized. We have seen a recent example of this in the 2023 Writers Guild of America Strike which lasted nearly 150 days and was targeting issues pertaining to a variety of issues, one of which was the use of AI and ChatGPT and the threat of replacing artists as opposed to these being tools to facilitate research and script ideas.  If the US decides to lead the world in creating frameworks for the legal uses of AI, it is incumbent upon our elected representatives to take action based on the feedback and create these guidelines for the industry to follow which will allow the US take a leading position in the regulation of AI and the use of Digital Replicas.

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