From the category archives:

Investing

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….

 

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Ignoring IP assets when the liquidator comes in…

by Andrew Watson on 1 April 2010

I’m a regular listener to the excellent Planet Money podcast by a team over at NPR that makes economics fun and engaging (or rather more fun and engaging).

Catching up today, I listened to their podcast: A Private-Equity Boss In Four-Inch Stilettos about Lynn Tilton, CEO and founder of Patriarch Partners. Patriarch describes itself as:

A vertically integrated distressed private equity firm with robust in-house operational turnaround expertise

Basically they are a $7 billion PE outfit that specialises in companies about to go bankrupt. The Planet Money team followed Lynn and one of her investments, catalog company Spiegel and listened to their experience about being rescued through private equity money.

It was down to the wire for Spiegel for getting the investment from Patriarch to save the company. The managing director was already at the stage of talking to their bank’s liquidators about selling the rest of Spiegel’s merchandise of clothes and accessories and closing things down.

To hear Speigel tell it in the story, it very much seems the bank’s only focus was on selling the remaining merchandise and not on the Spiegel brand or its other intangible assets, such as its long customer relationships and sales database or its e-commerce platform.

From an IP perspective, ignoring the intangible assets misses a HUGE likely chunk of the value of a company. For most companies these days, the largest part of their value will be their intangible and IP assets. It very much seems like Lynn and Patriarch saw the value of Spiegel’s IP assets where the bank did not and snapped up quite a deal.

The sad thing is that from what we hear, many times in bankruptcy or insolvency the true value of the IP gets lost and the focus goes back to calculations around the bricks and mortar physical assets.

Definitely worth a listen.

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Economist Article on IV

February 24, 2010

I see that the Economist online are running an article titled Brilliant Inventor or Patent Troll about Nathan and IV at http://www.economist.com/business-finance/displaystory.cfm?story_id=15570585 A view. To try to make this simple to understand. To call Nathan or IV a troll is incredibly simplistic. IV has built one of the Worlds most sophisticated businesses and it has the […]

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eBay and Skype-settled

November 9, 2009

It is reported overnight on the newswires that the Joltid and eBay dispute has been settled with the two former Skype founders taking a stake in the new Skype vehicle in return for dropping their claims. It seems like a common sense end to the disputes and Skype v2.0 (or is it 3.0) will no […]

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Reminder: EVCA webinar tomorrow

September 22, 2009

Just a quick note to highlight that our first in a series of webinars on IP and investing for the European Venture Capital Association with Bernd Geiger of Triangle Venture Capital Group is tomorrow, 23 September 2009 at 12 noon UK time (BST) or 13:00 CEST. The debut session will dive right in and tackle Best Practise in […]

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New EVCA webinar on IP due diligence

September 2, 2009

Just a quick note to say that we are really excited to be participating in a new webinar series for the European Venture Capital Association on IP and investing. Thank you very much to Bernd Geiger of Triangle Venture Capital Group and to Mineke and Ferhan of the EVCA team for thinking of us and […]

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IP ownership issues not just for Skype and eBay

August 27, 2009

The recent Skype / eBay story around ownership flags up all sorts of things in what we see in our line of work around IP strategy: IP ownership issues as a rule are always present, and can be very, very costly to fix (but very cheap to fix if caught early). A short Timeline 2001 […]

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Accounting, intangibles, and the balance sheet

May 19, 2009

We had a really interesting conversation with an accounting practice the other week about our approach to IP and their work on reporting within corporates on intangibles.  This was one of a series of conversations we’ve been having from people who see IP from the outside –> in,  while we here at ipVA are IP […]

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Patents as the wrong kind of signal

May 8, 2009

In an earlier post I discussed having patents as a signal to external (potential) investors and analysts about the quality of a company’s IP and that they take IP seriously. This is because: For some people, having a patent says: “We know about the IP system, we use it, and we are protected.” Conversely, if […]

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MIP Webinar: Catalysing the European IP market

February 9, 2009

Together with the team at Exponent IP, we’ve helped organise a webinar with Managing IP on the European IP services market on February 26 at 2pm GMT. Speakers in the hour-long web seminar will: Discuss where the global IP service market is heading; Ask why Europe lags behind the US; Explain the European perspective on […]

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