For anyone who may have been away from an internet connection for the past couple of weeks, the auction was held last week in New York to sell off the now bankrupt Nortel’s 6000 strong patent portfolio. The patents covered LTE, Wi-Fi, Ethernet, social media, semiconductor, and a number of other communications and Internet-related technologies.
Due to the fact that the majority of bidders involved in this auction have not yet released official statements (perhaps because of next week’s approval hearing), this report may lack the juicy, blow-by-blow account of the auction that many of you are looking for, so if anyone fancies sending me a copy of the recording of the auction so that I can fill in any gaps, please feel free to do so…
It is believed that Intel opened the bidding in response to Google’s stalking horse bid of $929 million, with a $1.5 billion bid at around 9am on Monday.
The RPX-led consortium, which included Huawei, dropped out after only the first round, and apparently tried (unsuccessfully) to partner up with another bidder.
By the end of the second day, the Ercisson-RIM-Microsoft-Sony-EMC consortium stopped bidding and also began looking to partner with another bidder.
Apple joined the consortium as the auction headed into its third day. There are rumours that this consortium of six, Rockstar Bidco, only formed after the bidding exceeded $3 billion, implying that Apple had set its maximum bid at or just below $3 billion. This seems to be rather a modest figure for a company with $66 billion in cash reserves, although perhaps this reflects the maximum value of the portfolio to Apple.
According to sources of the Guardian, the bidding continued in “fast and furious $100 million allotments until they got to $3 billion, at which point Google asked for permission to bid more…”
By Wednesday, Intel had dropped out of the bidding, presumably because the bids had far exceeded the $3 billion mark.
Google and Apple both began heated negotiations over the next 24 hours in an attempt to convince Intel to join their respective teams. Rather unsurprisingly (and unfortunately for Intel), Intel chose Google.
This left the bidding war a virtually two-sided affair: Rockstar Bidco against Ranger Inc. (the entity through which Google made its initial stalking horse bid).
The Guardian has written a great article detailing the weird and wonderful bidding techniques employed by Google, which included figures relating to Pi, Brun’s constant, and The Meissel-Mertens constant (amongst others). This quirky technique has been described as either very strategic, an attempt by Google to show off its mathematical prowess, or simply an indication that Google was bored. (Those of you with some basic knowledge of mathematics may have realised that this does not quite fit in with reports that the bidding increased by $100 billion increments, but until more official documents are released it is difficult to verify the facts).
Nevertheless, the reason for this bidding technique is, as they say, academic.
Google bid through to $4 billion but then suddenly stopped. Sources apparently told Reuters that Google “…had set a ceiling of around $4 billion for the patents, despite having $36.7 billion in cash at the end of its last financial quarter. Intel, its partner in the bid, had about $4 billion in cash.”
If Google had set itself a limit of $4 billion, it is surprising that it did not continue bidding once it had joined forces with Intel, especially given that the portfolio in the end sold for ‘only’ $4.5 billion. To be fair to Google and Intel, the Rockstar consortium came to the bidding table with some $100 billion in cash reserves, but I can’t help thinking that Google missed out on a huge opportunity here, for the sake of half a billion dollars (which, let’s face it, is pocket change for Google).
In April, Google’s General Counsel, Kent Walker, blogged about using the Nortel portfolio to “not only create a disincentive for others to sue Google, but also help us, our partners and the open source community—which is integrally involved in projects like Android and Chrome—continue to innovate.”
Google is yet to release a statement, but has been reported as referring to the outcome of the auction as ‘disappointing’.
Either Google has missed out terribly by failing to walk away with at least a share of this portfolio, or it has something very strategic in mind to navigate its way through the mobile industry, which is now a patent minefield for Google and its Android.
The bidding came to an end after 20 rounds and four days, with Rockstar Bidco’s bid of $4.5 billion closing the proceedings.
It has been reported since the auction that Google will keep looking for patents to add to its artillery to enable it to ward off patent infringement suits in the smartphone arena, and to use as bargaining tools in on-going litigation (Google is said to be involved in 45 such lawsuits at the moment), but how easy this will be to do compared with the opportunity Nortel’s bankruptcy presented remains to be seen.
There is doubt amongst the technological and IP world that a portfolio of this quality will be so readily available again, at least not for a very long time, especially given that so many of the Nortel patents related to ETSI standards and core LTE technologies.
So for the time being, it would seem that Google’s weakness in the mobile technology field is set to continue: it has some 700 patents in its mobile portfolio, but few relating to the future technologies that make handsets more powerful and mobile networks faster.
For Rockstar Bidco, however, things have just got very interesting. In an article by the FT, Kasim Alfalahi, chief intellectual property officer at Ericsson, said: “The Nortel patent portfolio reflects the heritage of more than 100 years of its R&D activities and includes some essential patents in telecommunications and other industries. We believe the consortium is in the best position to utilise the patents in a manner that will be favourable to the industry.”
Exactly how they intend to use this portfolio we are still to find out. We do not yet know how the deal has been structured, who owns what and how, and what exactly this will mean for Google, Qualcomm, and other large players in the mobile and wireless industries.