The Nortel Auction House Rules

by Charlie Rothbart on 23 June 2011

The auction of Nortel’s patent portfolio was due to be held last Monday but was postponed for one week due to the huge amount of interest from potential bidders (according to Nortel).

Coincidentally, there have been a number of objections made to the court in Delaware regarding the procedural rules of the auction and the terms upon which a sale will be made. These objections have come from the likes of Motorola, Oracle, Microsoft, AT&T and EADS, and relate to the definitions and permissible transfers of existing licenses. (The original terms of the Sale Agreement state that the patents would be sold subject to all “Commercial Licenses, certain Intercompany Licenses, and all licenses under known Outbound License Agreements and Cross-License Agreements”. It was also agreed that “Unknown Licenses” would not be transferred)

But I digress…the purpose of this post is not to analyse and dissect the definitions of these licenses, nor the implications of these terms; it suffices to say that the majority of the objections raised relate in some way to the transfer of licenses. (AT&T’s objection concerned patents involved with Industry Standards)

In this post we reveal what we know about the auction’s rules and procedures.

Unfortunately, there is not a great deal of information online, but we have fastidiously ploughed through the court documents and can now reveal the following:

  • The auction will be held in private at the New York offices of Nortel’s legal advisors, but will be transcribed or recorded on video. We wish it was being shown live and the rights being sold but they seemingly chickened out of this
  • Only the ‘purchaser’ (Ranger Inc. – a wholly owned subsidiary of Google) and Qualified Bidders will be entitled to bid
  • The portfolio may be sold in a single sale to a single purchaser, or in parts to several purchasers. This probably reflects that like most portfolios the Nortel portfolio will have some beautiful gems, specifically those patents declared essential to Standards (one of which would be worth an awful lot to a player who had little IPR, and probably even more to a troll like IV) and a lot of almost worthless patents
  • Companies must bid in excess of $929million under the rules approved by the Court, to top Google’s stalking horse bid. We have not been able to determine how this ties into the ability to bid for part—if I bid $500m for a part, I don’t top the stalking horse bid but the total sale may be more if others bid for part. We can only assume that in this instance a bid for part would be approved by the Court on a pro rata basis
  • Each incremental bid at Auction shall provide net value to the estate of at least $5,000,000 over the starting or leading Bid, although this figure is subject to modification by the sellers
  • Full disclosure is required regarding the identity of the bidders (and any other entities involved with the bid, including entities sponsoring, financing, participating in or benefiting from the bid, including benefits accrued through licensing) and all material terms of the bids will be disclosed throughout the auction. Why this is important is not really clear: we suppose that the sellers want to ascertain with whom they are truly dealing but it would seem more important just to maximise the sale value. How many auctions bother with knowing who is bidding? Whether this information can be provided confidentially to the seller and therefore not be disclosed outside of the bid process is unknown
  • A round of bidding will conclude after each participating Qualified Bidder has had the opportunity to submit a Subsequent Bid with full knowledge of the Leading Bid. Like very high stakes poker, this should ensure optimum returns
  • Qualified Bidders and their equity holders have to confirm that they will not and have not colluded with regards to the bidding and/or the transaction. How this will work in practice we have not quite ascertained. Colluded is an interesting term; RPX, we’d suggest, would have to inform its co-ordinated efforts with its members, though how an RPX member like Intel bids alone and via RPX without somehow colluding is intriguing to think about. Think also about this scenario: I’m RIM and most likely unable to financially outmuscle say Apple or Google—could I decide to call Apple and offer to stand aside in return for a license if Apple succeeds? Is this collusion?

Once the bidding has concluded, Nortel and their advisors will select the highest “or otherwise best offer or offers” to determine which Qualified Bidder(s) is/are successful.

Watch this space. Tomorrow we will be discussing the runners and riders, and will make our predictions as to who the successful Qualified Bidder(s) might be….

 

{ 1 trackback }

Nortel’s legal fees hit $128 million | Tangible IP
06.27.11 at 4:46 pm

{ 0 comments… add one now }

Leave a Comment

You can use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>