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Winnipeg Free Press - PRINT EDITION

Nortel auctions patents to 'rock star' consortium for $4.5B

By: John Valorzi

Posted: 07/2/2011 1:00 AM | Comments: 0 (including replies)

TORONTO -- Nortel Networks Corp. has auctioned off its remaining patents to a "rock star" group of technology companies in the biggest patent sale in history, ending a massive selloff that generated US$7.7 billion for the insolvent former Canadian technology giant.

A consortium that includes leading smartphone makers Apple and Research In Motion Ltd. (TSX:RIM) and computer giant Microsoft will pay US$4.5 billion in cash for about 6,000 patents and patent applications belonging to Nortel.

Since Nortel declared bankruptcy in early 2009, the company has already sold US$3.2 billion of operating units -- bringing the total value of the company's selloff to US$7.7 billion -- one of the biggest asset sales in Canadian history.

The US$4.5 billion price tag on the Nortel patents is five times higher than an initial bid by Google Inc. that was used as a floor price to launch the auction earlier this week.

That bid reflects the true market value of Nortel's patented technology -- which touches nearly every aspect of telecommunications, including Internet search and social networking.

"This is by far the biggest patent auction in history both in terms of number of patents sold and in terms of the price tag," Alexander Poltorak, a New York patent lawyer, said Friday a few hours after the patent sale was announced.

Poltorak called the buying group a "rock star consortium" and said "nobody expected the price to go this high."

"Patents have become the currency of the knowledge-based economy. As of today, patents graduated from an obscure and arcane area of law to the front lines of business.

"Had Nortel's management realized they had been sitting on the goldmine of patents, the Nortel bankruptcy could have been averted through patent monetization."

Besides RIM, Microsoft and Apple, other members of the consortium are EMC, Ericsson and Sony. RIM said its portion of the purchase is worth about US$770 million.

The sale of the last of Nortel's technology assets is expected to be completed in the third quarter and is subject to approvals from Canadian and U.S. bankruptcy courts in a joint July 11 hearing.

Another patent expert described the sales price as unprecedented, similar to what companies pay to buy entire companies, not just their patents.

"What you are looking at is a list of the companies that are in this incredibly active battle for the mobile computing platform," Ron Epstein, CEO of Epicenter IP Group, a patent broker not involved in the Nortel auction.

"Clearly patents are being deployed as an important strategy asset in winning that battle."

Having a patent could allow one smartphone to have distinguishing features over another, or it could raise the cost for a rival to make the product if it has to pay licensing fees, Epstein said in an interview with The Associated Press.

Poltorak, founder and CEO of General Patent Corporation, a patent licensing and enforcement firm, said there were some surprises in the consortium of the world's best-known tech companies.

"No one expected Microsoft to be part of it, as Microsoft claimed it had world-wide licenses on Nortel patents and it complained about possible antitrust issues arising out of sale of naked patents stripped of their contractual encumbrances," he said.

Poltorak added that it was also strange that Apple recently settled a patent suit with Nokia where it agreed to pay a large sum of money and ongoing royalties, just a few weeks before winning the Nortel auction.

The consortium prevailed in an auction this week over Google (Nasdaq:GOOG), which had said it planned to bid $900 million in cash for all of Nortel's remaining patents and patent applications.

Phones running Google's Android system compete with Apple's iPhone and RIM's BlackBerry devices.

In a statement Friday, Google general counsel Kent Walker called the outcome "disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition."

"We will keep working to reduce the current flood of patent litigation that hurts both innovators and consumers," he said.

Google had said it wanted the patents to defend itself against patent lawsuits from other companies until U.S. Congress enacts broader changes to the patent system to help reduce such litigation. Google gives away its Android software for free, counting on its wider use to drive usage of other Google services, such as search and maps.

Nortel's court protection from creditors had earlier been extended to Dec. 14, to give the company more time to complete the sale of its assets and other restructuring efforts.

"The size and dollar value for this transaction is unprecedented, as was the significant interest in the portfolio among major companies around the world," George Riedel, Nortel's chief strategy officer, said in a release at midnight announcing the patent sale.

Nortel had previously announced it did not expect its shareholders to receive any value from its creditor protection proceedings.

Nortel, which once employed 95,000 people around the world and was worth nearly $300 billion, filed for bankruptcy protection in the U.S. and Canada in early 2009.

The company was hobbled by a sharp downturn in orders from phone companies and looming debt payments. According to a filing last fall, Nortel had just under US$10 billion in total liabilities, including debt, at Sept. 30, 2010.

Over the last couple of years, Nortel has sold its wireless network business to Sweden's Ericsson for $1.13 billion and its enterprise solutions business to U.S.-based Avaya Inc for $689 million, among others.

Ten years ago, at its height, Nortel was among the world's most advanced developers of telecom equipment and accounted for a third of the value of all companies listed on the Toronto Stock Exchange.

But the company was felled by changing market conditions, economic upheaval and an accounting scandal that devastated its stock price.

Although Nortel was by far Canada's largest spender on research and development, some of its work ended up as technological dead ends -- at least temporarily -- while at other times its innovations were so advanced that it would take years to determine whether they would be market winners.

Much of Nortel's research and development was done in Ottawa, at a facility formerly known as Bell Northern Research, although Nortel also had research facilities around the world.

Some 400 former Nortel employees found themselves abruptly cut off from their long-term disability benefits this year, as part of a court-approved pension settlement between Nortel and its former employees.

-- CP, with files from AP

Republished from the Winnipeg Free Press print edition July 2, 2011 B4

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