http://www.thestar.com/business/article/1018124--nortel-gets-4-5-billion-for-its-patents

Michael Lewis

Analysts said the winning bid, by a group that includes Apple Inc., Microsoft Corp., Sony Corp., Ericsson AB and EMC Corp., raises the bar on the value of intellectual property assets and may push up licensing costs for Google.

They said it also implies hidden value in the technology being developed by companies such as Waterloo-based RIM, which paid about $770 million for its share of the Nortel patents.

As well, the auction result raises the possibility that at least a piece of Nortel’s legacy will remain in Canada.

The Nortel portfolio can now be used as a legal weapon to defend against patent infringement claims, to extract licensing revenue from rivals, or as an engine to develop next-generation mobile capabilities for devices such as smartphones and tablet computers.

“It’s a big boost for RIM,” said MKM Partners analyst Tero Kuittinen, who said he was surprised cash-rich Google failed to match the winning bid.

“Google is now vulnerable,” he said, noting that the search company’s open-source software platform used in Android smartphones has been a lightning rod for patent violation claims. He said the failure raises doubts about Google’s commitment to Android and its community of developers and manufacturers.

He also said the patents and pending patents on mobile standards in the Nortel portfolio will help RIM roll out wireless devices on 4G platforms such as long-term evolution. The LTE standard promises greater web connection and browsing speeds, and enhanced support for such broadband-intensive mobile applications as video downloading and advanced gaming.

The purchase will give Apple and its five bidding partners control over more than 6,000 patents and applications that cover wireless and Internet technologies ranging from mobile standards to Internet search and social networking.

The winning offer came after several rounds of bidding. Details have not been announced on how the patent assets will be divided up among the six companies, which are normally intense rivals.

The deal brings together Apple, RIM and Microsoft, which compete against each other in mobile computing, and leaves out chipmaker Intel Corp., which has been expanding into cellphone technology, and Google, which writes the Android software for handset makers such as Samsung Electronics Co. and LG Electronics Inc. The Android alliance has become the leading platform for smartphones.

Ericsson, the Stockholm-based networking-equipment maker, said it will pay $340 million for its share of the $4.5 billion deal.

“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,” said Alex Poltorak, chairman and chief executive officer of General Patent Corp. in Suffern, N.Y.

“Nobody expected the price to get this high. My speculation is that everybody else pretty much got together bidding against Google and Intel.”

The names of all the other bidders, the offers they made and most details were kept secret throughout the four-day auction, but sources said at least three alliances of bidders took part, one led by patent-buying firm RPX Corp. of San Francisco.

The patent auction brings total proceeds from Nortel’s asset liquidation sale over the past two years to more than $7.6 billion, an amount that will be ultimately dispersed to Nortel’s bondholders, suppliers and employees whose claims are part of more than $16 billion against the Nortel estate.

Proceeds will not be dispersed until Nortel emerges from creditor protection and enters bankruptcy, which Nortel’s creditors say could take at least another year. On Thursday, Toronto-based Nortel was granted a further extension of its protection from creditors until Dec 14.

The value put on the patents “is definitely good news,” said Anne Clark-Stewart, a spokeswoman for a group representing more than 22,000 Nortel pensioners in Canada.

After the latest auction, which wrapped up around midnight Thursday, “there will be more to go around for everyone,” she said, but given the large total of claims against Nortel, creditors will still take a haircut on what they are owed.

Court approvals of the sale will be sought at a joint hearing expected to be held July 11.

Nortel filed for protection in early 2009 after a 10-year business decline exacerbated by the 2007 credit crunch.

Six months before the filing, then chief executive Mike Zafirovski vowed to restructure Nortel as a smaller company, but said interest payments owed bondholders amid a sharp decline in demand for its networking gear forced the company’s hand.

Zafirovski told a parliamentary committee in June 2009 that the federal government had turned down a request for help to stave off bankruptcy. Nortel, whose roots in Canada can be traced to the 1800s, has said its patents were largely developed in Ottawa research labs.

With files from Bloomberg News