Latest on the Nortel bidding war

The deadline for submitting bids for the Nortel patent portfolio is clearly drawing near and "informed" leaks are appearing. Presumably intentionally to drive up the price. The latest leak is reported on the fierce wireless website and lists Apple, Google as well as the Chinese companies Huawei and ZTE as potential bidders. Nothing surprising there. The Nortel portfolio includes a number of gems which any company operating in the wireless space would love to have - if only to act as a bargaining chip in licensing and negotiating deals. Neither Apple nor Google have an extensive telecoms patent portfolio and so they would love to build the portfolio. Huawei and ZTE are starting to build massive portfolios, apparently subsidized by the Chinese government. Indeed Huawei is now one of the bigger PCT patent filers and ZTE claims to hold 10% of the essential LTE related patents. However, whilst they have many pending patents, their granted portfolio is much smaller.

Intriguingly two consortia including patent licensing firms are also in the running. One consortium apparently consists of Intellectual Ventures and InterDigital. IV is known for its accumulation of patents, whilst InterDigital possesses several patents that are relevant to mobile telecommunications standards (but has also lost some court disputes). The other consortium includes RPX - a patent aggregator that acts on behalf of several major companies to take patents "out of the market". RPX is currently planning its IPO as reported here and here. Will it be using some of the proceeds to purchase the Nortel portfolio.

These two consortia could clearly push the price of the portfolio up tremendously. Neither has much interest in cross-licensing since they do not actually make any products as such. RPX is aiming to buy up problematic patents to support their membership base (as explained here). No doubt having a ripe bag of telecoms patents will "encourage" a few more companies to sign up and help the IPO on its way. IV has until recently not been known for enforcement of its patent rights, whereas InterDigital has been active. So it will be interesting to see how that works out if they win the pot of gold. Both companies will have an interest in "monetarising" their new assets.

The sheer sums of money here are just mind-boggling. The size of the mobile telecommunications market is clearly massive, but it is also going to take a major investment for any company to justify the figures that are being talked about. It will not be unnoticed that none of the established players such as Nokia, Ericsson or Alcatel figure among the potential acquirers. They all have substantial portfolios of relevant patents - but then Nokia is known to be a backer of RPX and Ericsson purchased the LTE assets of Nortel some months ago and presumably got a license to the relevant IP thrown in with the deal. So they don't need the rights. Has this all been factored in? The IAM blog was sceptical about whether the bond purchasers who have pushed up the value of the Nortel bonds really understood the process.

Let's hope nobody has to see his car because of his Nortel patent portoflio.

Technorati Tags:
Nortel, Telecommunications

Nortel Bonds

It's not often that this blogger reads the Toronto Globe and Mail - despite that newspaper's reputation - but he was intrigued by the little story that appeared in one of his webzines last Friday which clearly emanated from that newspaper. It's a report about Nortel bonds. In March 2009 - just after Nortel filed for bankruptcy - these were fetching 10c on the dollar. In other words, investors were not expecting that Nortel's assets would actually cover much of the debt. Last week the bonds were up to 88c on the dollar - that's an 880% rise in just under two years. So - how did that come about?

Well, the Globe and Mail adds, it's at least partly due to the potential from the still unsold patent portfolio, which we've already reported on here. It's fascinating to see how sophisticated investors are now pricing in potential returns on IP sales into the valuation of bonds.

Nortel's Patent Assets

We've reported from time to time on the planned sale of Nortel's patent assets which have attracted the interest of a number of companies, particular the portfolio related to the sale of the assets related to the forthcoming LTE (long term evolution) and SAE standards. Reports indicate that Nortel may have seven patents of the 105 declared relevant patent families.

An exclusive report in Reuters indicates that the sale should be completed in the next few weeks. Front runners include both Apple and Google who are probably looking to build up their telecommunications-related patent assets as a bargaining chip to gain access to patent essential to the operation of mobile telecommunications. InterDigital is apparently also interested, whilst Reuters could not elicit a comment from Canadian telecommunications company RIM which had apparently previously a view that the patents were a national asset to Canada.

The value of the patents to newcomers in the telecommunications field, such as Apple and Google, is clear. Apple will be budgeting for licensing fees for access to essential patents to be able to implement telecommunications standards. Any patents they obtain can then be thrown into the pot to reduce the payments. Google are presumably currently relying on HTC for the IP rights - but would no doubt welcome access to a larger telecommunications portfolio in the mid-term to reduce any payments for cross-licence agreements to which they might need to sign up. No doubt a number of patent trolls or NPEs will sniffing around to see whether the portfolio has sufficient value to be able to make a return on the investment, as Joff Wilde has reported here.

Reuter's reports that Nortel's 4000 patents have been split up into different packages covering different technologies, including wireless handset and infrastructure, as well as optical networks, Internet advertising and computers. Given the need for interoperability in the telecoms field and Nortel's possession of seven highly relevant patents, it seems that these seven patents may be highly valuable. However, purchasers may be disappointed if the patents are ever litigated, as there may be potential prior art not considered by the patent office which could severely damage the value of the patents as both IP.COM and InterDigital have had to learn over the years. Both have had to live with patent rights that have been limited after a court action.

Technorati Tags:
Patent Sale, Standards, Telecommunications, Nortel

NORTEL's LTE Patents

There's a lot more going on about Nortel's patents and a lot of confusion about whether they have been sold or not. The latest message is that they have not been sold. The author erroneously picked up the story from another source and has since been corrected. The auction that took place after NSN's initial approach. The approach from Nokia Siemens Networks was a stalking horse and under US bankruptcy law any other bidders must bid for the same "package of assets" - which did not include the patent rights, as NSN did not want them.

There's a report over on seeking alpha that Canadian company Research in Motion are arguing that the LTE patents are a national treasure and should be kept in Canadian hands.

There's more about stalking horse bidders in US Chapter Bankruptcy over here.

Nortel sells its patents to Ericsson

I am indebted to Joff Wild who reported on his IAM blog the recent developments on the Nortel asset sale. A few weeks back we discussed the bid by Nokia Siemens Networks on our post and significantly noted that the LTE patent rights were not included in the bid for USD 650 Million. Swedish company Ericsson pipped them with a massive USD 1.13 billion offer which included apparently the patent rights.

This apparently has upset Canadian company RIM and a number of politicians in Canada would like to see the bid overturned on grounds of national security. The Dow Jones Newswire reports, however, that the Canadian industry minister has yet to make a decision.

Our post quoted JPMorganChase who apparently had valued the patent rights at USD 2.9 billion - although a more realistic value might be USD 950 million. If we look at the USD 480 million difference in Ericsson and NSN bids and do a net present value analysis it does look as if those LTE patents would be worth around USD 950 million over their lifetime.

Ericsson have, of course, got their own portfolio of LTE patents. So they probably don't need any more to "swap" with other players. A cynic might suggest that the main reason for purchase would be to ensure that the IP rights remain in safe hands and don't get snapped up by a "troll" who wishes to extract cash from the telecommunications companies.

Royalty Rates in the telecommunications industry

The issue of royalty rates in the telecoms industry has always been one surrounded in mystery. My attention has been drawn to a contribution on a industry newsletter Light Reading (of which I had never heard). It dates from May 2008 and suggests that Nortel is (was) looking at a royalty rate of 1% per handset for access to its portfolio of patents essential to the LTE standard. This seems about right from my knowledge of the industry. Nortel has not got any handsets to sell and so there seems to be little to be gained from cross-licensing in the industry.

Nortel is, of course, bankrupt and has just sold much of its business to Nokia Siemens Networks, but according to Light Reading not the rights to its patents (see here). Light Reading reports that ChaseMorgan have calculated that the rights to the patents could end up being up to $2.9 billion, although a more reasonable value might be $950 million.