It seems ironic, but in the end Nortel Network Corp.’s future was more valuable than its past.
Criticized for not moving fast enough to take advantage of the shift to new technologies which played a role in it getting protection from bankruptcy in 2009, an auction of Nortel intellectual property that ended late last week pulled in US$4.5 billion from a consortium of some of the biggest names in the industry – Research In Motion, Apple Inc., EMC Corp., LM Ericsson, Sony Corp. and Microsoft Corp.
There were no details on how the group will share the intellectual property.
In a news release RIM said it’s share of the winning bid was US$770 million.
“It’s almost a silver lining for Canada,” said Ron Gruia, the Toronto-based principal telecommunications analyst for Frost & Sullivan, “because some of the intellectual property will stay home with RIM.”
By joining a consortium Waterloo, Ont.-based RIM showed it learned a lesson from the way it previously looked at Nortel’s remains, Gruia added. RIM tried in vain to fight Ericsson’s purchase of CDMA wireless assets in the court of public opinion and in Parliament. This time it at least shares something tangible.
"We believe the consortium is in the best position to utilize the patents in a manner that will be favorable to the industry long term", Ericsson said in a statement. The company said it would contribute US$340 million to the transaction which is expected to close in the third quarter.
The big loser was Google, which is increasingly involved in wireless through its Android operating system for equipment makers but came away empty-handed. Google had started the bidding at US$900 million, but faced a gang of opponents determined to keep the patents out of its hands.
The 6,000 patents cover wireless, wireless 4G, data networking, optical, voice, Internet, service provider and semiconductors.
Gruia pointed out that if the offer is approved by the courts, the consortium will not only be able to use the patents in their products, they will also be able to discourage competitors from using similar approaches through the threat of lawsuits. “It’s almost like insurance,” he said.
The price the winners paid was slightly more than the US$4 billion bidders paid over the past year and a half for its enterprise, carrier VoIP, wireless and Metro Ethernet products.
In previous auctions Ericsson paid just under US$2 billion for Nortel’s CDMA wireless and data switching divisions, while Avaya Inc. paid just under US$1 billion for its enterprise networking business. Ciena Corp. paid US$770 million for Nortel’s Metro Ethernet business, while Genband paid just under $300 million for Voice over IP products.
Pricing the assets for auction – setting the floor for initial offers -- was a challenge as intellectual property asset sales of this size are rare, according to one participant.
“We found it to be very difficult because there were not many comparable transactions that had happened before,” said David Berten, partner and founder of Global IP Law group, Nortel’s counsel in the sale. “There was nothing of this size ever transacted. You let the market essentially set the price.
The winning bid still has to clear Canadian and U.S. courts, which will review it at a joint hearing on July 11. After that, Nortel will essentially exist in name only.
Google's failure to win anything raises doubts about Google's commitment to Android and its large community of developers and device manufacturers, one prominent analyst said Friday.
Florian Mueller, an intellectual property analyst and blogger, said by email that it was surprising Google, which is rich with cash, didn't outbid the consortium.
"Google lost an unprecedented opportunity to acquire a major bargaining chip that would strengthen it at the mobile industry's intellectual property negotiating table," Mueller contended. "I'm afraid it won't get a similar opportunity in quantitative and qualitative terms anytime soon."
According to Mueller, there are already 45 patent infringement lawsuits surrounding Android and makers of Android devices. "In light of Android's patent problems, it's surprising that Google didn't outbid everybody else," he said. "It could have afforded more than $4.5 billion, but it doesn't appear to be truly committed to Android."
Mueller has contended in his blog and in articles he has written for the UK-based Guardian newspaper that Google has generally been too weak in terms of patents it owns to protect Android and a huge evolving ecosystem around it. That ecosystem now includes more than 300 smartphones and tablets made by several prominent manufacturers and supported by thousands of developers large and small.
Google's senior vice president and general counsel Kent Walker issued a statement that the outcome of the Nortel bidding was "disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition." He vowed that Google would "keep working" to reduce the "flood" of patent litigation.
Walker had blogged in April that Google was bidding for the Nortel patents in hopes of creating a disincentive for groups planning to sue Google, its partners and the open source community.
Even if Google has its heart in the right place, Mueller said it will now be left with the option of buying up smaller quantities of patents "from failed startups and similar kinds of sellers" offering patents with little bearing on Android or evolving technologies such as Long Term Evolution wireless, expected to be critical to the growth of Android.
The winning consortium for the Nortel patents, made up of Apple , EMC , Ericsson, Microsoft , Research in Motion and Sony, appears to have purchased the portfolio as a "defensive" move to "clear the market and prevent the patents from being used in the wrong ways."
With Google left out, its patent position is shaky, Mueller contended. "No major industry player is as needed in terms of patents as Google," he said.
(From stories by Jim Duffy, Network World U.S.; John Ribeiro, IDG News Service and Matt Hamblen, Computerworld US)