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.
Google’s widely reported acquisition of Motorola Mobility is continuing the run of the prominence of IP and specifically patent reporting in the financial press. The FT runs a very good insights piece here, though you’ll need to activate an account to read it.
I’ll come back to the financial reporting of this when back from my break. For now I wanted to focus on one item that should be expected to be part of Google’s thinking in making the acquisition, but if you’re reading this Mr Page, make sure you double check.
The FT and many other articles state that around $6bn of the purchase price is attributable to patents. The figures are arrived at, it sems, be trying to calculate the value of Motorola’s loss making MM business and then using the premium to justify the positive impact on Google’s patent assets. Seems sensible so far.
But one glitch that Google should be factoring in, and if you’re a shareholder of Google, you should feel justified to ask, is the extent to which the MM patent assets are already subject to cross licenses, that is very private and never publicied licenses that bite on the patents and will continue to do so in Google’s ownership. Licenses to and with third parties (for example MSFT) that will or at least could limit the portfolio’s ability to renegotiate and initiate negotiations of licenses that Google will anticipate are possible as a key assumption in making the acquisition.
The sheer size of this purchase, with the price representing over 35% of Google’s cash reserves (WOW!!) shows the stakes of the high poker game are being raised and re-raised between the smartphone players. Google quite clearly needs the heavily ad-friendly Android to be at least a good size of the market to meet its strategic aims. In MM it seems that they’ve seen something worth a large gamble.
Do your diligence very carefully Google. That is a very large chip you’ve laid down and to make it worthwhile you’ll need to review all of the cross licenses to which the portfolio is subject. Don’t miss those quirky clauses that allow fellow cross licensees to select a to be specified and identified 5-10 other patents that can be nominated as part of the license. And also make sure you understand FRAND principles really well.
All in all I’m not convinced for now that this will 100% go ahead. Diligence may just throw up one negative assumption too many.
In all the melee, very few comments so far on Google’s transition in part to being a hardware player. From search to hardware, there is a story there in and of itself. Expect, and I stronglypredict, that Nokia will be the next to fall, to MSFT. Expect the announcement very soon.
Back posting & time to draw a line under 3 months of troll posts
We’ve been out of blog action for two and a bit months, what with holidays and project commitments. It was busy pre-holiday but post-holiday has been a particularly hectic time for us. More below on new people to welcome to the team, but for now I wanted to draw a line under what has been a blog focus on trolls and NPEs pretty much since IPBC in June. I also wanted to thank Melissa Louckes, daughter-in-law of Ted Louckes, one of the Paice founders, for helping me with one final bit of perspective on my (its not the last one no doubt!) troll debate. I’m still a learner in blogging terms and I’ve realised in myself a tendency to be very opinionated and a capacity for shooting from the hip without checking the facts—opinionated is good, I think, that is after all what free blog speech is about, but if this site is to be taken seriously then the genuine merits of lone inventors need more research.
So where do we stand on trolls and NPEs:
But for now that’s us and trolls over and out. They’ve taken up enough of Tangible IPs airtime in 2010 and we, and the great IP debate, need to move on. So expect a different constructive and expansive discussion from us with our next post, which is cooking now.
New talent at ipVA
Apparently it was Walt Disney who first coined the phrase “if you want to be successful, surround yourself with people more talented than you”. As with most things in my life, this has happened partly by chance than design, but the last 3 months has seen us adding people sizeably more talented than me, to an already very talented team.
We’ve added Richard Buttrick, ex of Philips. Another (our fifth) member of the IAM 250, Richard has already shown his IP talent. And we’ve added Tim Jackson, former head of IP at Renishaw. Tim’s focus on precision engineering and software control systems is a new technology specialisation for us and already we’re seeing a return on this investment. And we’ve added Kevin Nash, ex of McKool Smith and Timet, an experienced litigator and IP strategist who will help our European client base to manage the disruption of US IP litigation.
Thanks for all three for their faith in us. Adding to a team that has over 300 man years of business IP experience and expertise, I see us very well placed for the 9 months of work we have in our pipeline.
We did say goodbye to Jordan in September. Jordan’s gone to ARM as corporate counsel in their strategy team. I wanted to say a large and very public thanks to Jordan for his counsel and discipline in the two years we worked together. Take good care of him ARM, he is quite a talent.
Jordan’s replacement is Charlie Rothbart, our first trainee, and first girl. Welcome to Charlie who seems to be having a lot of fun and is learning fast.
We also brought in our new PR team, Gill and Gina from Gill Sainsbury PR. We have lots of good news coming out but we’re too modest to shout about it. Watch out for Gill’s impact, I don’t see us being accused of modesty too much going forward.
Another of my favourite expressions (I heard this first from Humphrey Nokes) is “you don’t know how far you’ve come til you look behind”. In any entrepreneurial venture, it’s worth always taking a breath and looking back. Even from September 1st I have to pinch myself with the progress we’re making.