From the category archives:

Nortel Auction

What Nortel means for IP and the IP Community

by Andrew Watson on 21 July 2011

I was out for a delightful lunch last week with Obi-wan Kenobi lookalike Ben Goodger (linked picture post beard) and two of his colleagues from EAPD’s London office, the excellent and charming John Olsen and a good friend David Ramm, a secret IP squirrel who is little known for having the vision to attempt to set up an IP trading exchange in around 2000.

Over lunch Ben described the Nortel auction as a Tipping Point for IP. The phrase Tipping Point comes from the intriguing first book by Malcolm Gladwell of the same name, used to describe the point at which a series of small and often unconnected events give rise to a seachange of attitudes towards something previously little recognised.

Gladwell uses examples like the Murder Rate in NYC and the rise of Hush Puppies to explain his theories on the stories behind the shifts.  It’s a good question. Is Nortel a tipping point for IP? Will it take IP out into the light, where business leaders, boards, financiers and generalist strategists will demand sight of the business’ IP strategy and take a good hard qualitative look at the IP owned by the business, and how it compares to best practice in its IP risk management processes?

I was described by another good friend in the IP world, Matt Dixon of HGF, as carrying the scars of being an entrepreneur in the European IP world, on my back. And that’s why instinctively I’m not so sure as Ben that Nortel is a tipping point all on its own. No doubt another milestone along the way, like RIM and NTP another good story to tell, but not to my mind the one great event that makes every CEO of even a telecoms or networking business put IP in its top ten list of must-dos for his or her business on return from Summer break.

On the positive side it is great to see insightful commentaries on the auction in pretty much all of the business press. The FT ran this very good piece the Monday following the auction result being announced and then this piece on Google’s patent weakness a few days later. The WSJ ran this piece, the Guardian this piece, the BBC this one and Forbes this one. Lots of good comment and lots of attention. I liked this sidebar piece on InterDigital’s share price rising as it emphasised its own patent stock by comparison to Nortel’s (overtaken by events as Google is now in talks to buy InterDigital).

But is this a mainstream press wave? Or is it IP’s latest 15 minutes of attention, before the World reverts back to what it knows and has learned at business school?  That is, not IP.

We, unfortunately for my own retirement planning, think the latter. It’s a milestone and there are many more of these to come before the business world wakes fully up. Which, if true, and I do sincerely hope that Obi-wan Goodger  (here with beard, very very similar as you’ll see) is right, means that we need to think about what the next milestone could look like?

For us there are two major events to happen. Event 1 is the adoption of common reporting standards and valuation standards for IP. We’re going to ask another old friend, Kelvin King at Valuation Consulting, to write us a guest post summary on the current developments in that field.

The second is the adoption by the IP world of a common language to make sure when we say IP we all mean the same thing. And, associated with that, the expansion of the definition away from the patent-centric US litigation style of IP monetisation as being THE way to view the IP world and to profit from IP. I heard of an anonymous but highly respected IP officer commenting at IPBC 2011 how this US view of the IP world is putting the US at a competitive disadvantage. I’d probably go a step further and say that the inability to widen the perspective and view of IP within the IP community damages and taints the view of it outside of the IP community in the real world.

We’ve blogged on this theme before, but a refresher on what IP really is, and what a good IP strategy looks like, will be the subject of our next post.

Thanks finally to Nortel. You gave Charlie and I some real fun over the last few weeks and we will not forget you. But you’re under new and obscure ownership now and we’re unlikely to see you out in public again any time soon. We’re moving on too, but we’re going to leverage you as much as we can as you’ll make a good starter topic for a year or two yet.

 

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What does Nortel mean for the winners and losers?

by Andrew Watson on 20 July 2011

Try these two tables. Who individually wanted it the most, that is, semi-speculatively, who put up the most individual money?

Amounts committed, or who wanted it most?

Company Amount
Google $2.5bn
Apple $2bn*
RPX consortium $1.5bn
Intel $1.5bn
RIM $770mn
MSFT (est) $500mn
Sony (est) $500mn
EMC $400mn
Ericsson $340mn

 * reported in Business Insider on 21st July to have been $2.6bn–not totally material in the context of what follows–what’s $500mn between friends?

As a proportion of cash reserves, or who needed it most though, the story is quite different. We accept that this is a highly rudimentary analysis but telling nonetheless:

Company Proportion of Cash Reserves
Intel 37.5%
RIM 26.6%
EMC 7.5%
Ericsson  7.4%
Google 6.4%
Sony 3.9%
Apple 3%
MSFT 1.4%
RPX Consortium  N/A we think, special bid situation

 

We can only idly speculate about the others in the auction. Huawei seemingly joined up with RPX (odd combo though RPX’s larger members are listed above). Nothing much known or reported about ZTE, Qualcomm, IV and others. We’ll have to hack a few phones (joke I promise) or keep our noses close to the ground to find out.

In summary, Google, in terms of gross cash, probably wanted it most badly but couldn’t find enough friends to play with. Apple wanted it second most but allied even with old foes to be able to win.

Intel and RIM were prepared to commit the largest proportion of their cash reserves to win it suggesting that both needed it most.

Intel ended up choosing what looked like the wrong partner, but when viewed against the ability to negotiate the IP rights it needed in a consortium of what would have been seven, probably took the right decision to partner with Google.

RIM is a standout for us. With a meagre (relatively) $2.9 bn of cash reserves and a rapidly declining market share and (so they say) future, this is a staggering amount of money to commit. RIM really really needed it, and we wonder whether this would have been authorised but for a rather rapid ROI in the form of relief from license out-payments.

And, equally interestingly, who do we think is most affected by having to renegotiate its cross license agreements? We believe that Nokia and Qualcomm should be expecting knocks on the door in the coming weeks from Apple and RIM seeking to renegotiate their current cross license terms. Nokia is likely the largest loser unless and until it can benefit from a license to the Nortel portfolio from, most likely being acquired by, new best friend Microsoft.

In short, lots and lots of behind the scenes dynamics, both direct and indirect.

Winners

Company  & Executive Summary of Auction Performance Benefits
A very smart move. Played the auction very cleverly. Was not willing to bid as much as Google on its own but won by finding friends and foes with similar motivations or maybe a common motivation to stop Google winning.Is there any truth in the rumour that Bill Gates personally holds a large share in Apple? A bigger and more influential seat at the Standards tables.The opportunity to renegotiate its current cross license deals with (probably and immediately) Nokia and others.The opportunity to redefine the way that Standards bodies operate. Less cartel, more collaborative.The opportunity to increase its cash pile, should it desire by seeking out its own license deals for the Nortel portfolio, to the extent that it is currently unlicensed.
Another very smart IP move by MSFT. Knows that product revenues alone will likely not maintain its market position. Has made the shift to high margin IP contribution inside a technology generation by hiring some of the best IP minds. Its first seat at the Standards tables.The hedge of knowing that whichever way the markets go, it will be a net IP winner. From all product revenues to partly and growing IP revenues, MSFT will be a net winner. It has learned very very fast.The ability, unless constrained by the private agreements, to sub-license to its mates, including new friend and M&A target Nokia.
Under extreme product pressure and risks becoming another Psion, loved by a few but not loved enough by the masses. We believe that its primary motivation was financial and immediate, to relieve some of the out-payments it makes under cross licenses.  An immediate ROI in terms of its ability to renegotiate several of its cross license deals.We also believe an increased seat and influence on the Standards bodies.

Seems to have got what it wanted. We would be surprised if Ericsson didn’t get a defensive license to the Nortel portfolio through its acquisition of the Nortel business units. If so, this was strategic and value-adding
A larger seat at the 3G, 4G and LTE Standards tables. Moving it away from the over-dependence on the now becoming legacy 2G essential patents.
Seems to have been a combination of IP strategic and product strategic. IP strategic like its investment in Intertrust with Philips. Product strategic as known to be due to release a folding tablet device, its first 3 &4G enabled tablet, in Q1 of 2012. Product defence from being subject to new cross licenses when its folding tablet comes out.IP strategic in giving it a first time seat at the Standards tables.
With EMC, we can only take the reports on faith that EMC has acquired a part of the Nortel portfolio dedicated to data storage. Not a known IP aggressor but has committed a sizeable amount of cash to being part of the victory parade. More to follow. Really not known.

For intrigue, we also wondered if the consortium has thought about how it will use its new and respective Standards seats collectively? Or indeed if this is allowed?

And the losers?

Company  & Executive Summary of Auction Performance Benefits lost
Could not find enough friends. Wanted it badly, probably the most, but its terms of joining together were either unattractive or it is not trusted enough. Once in a business cycle lifetime opportunity to join the IP grown ups by acquiring a portfolio. We do wonder though whether, doing the maths, Google simply maxed out the benefits it could see from the portfolio and carried out a simple cost-benefit analysis to calculate that it simply wasn’t worth it. Does anyone know by the way if Google indemnifies Android adopters against IP risk in using the platform as part of the license terms? We doubt it but it is fascinating to know. 
Not enough of a cash heavyweight to win solo despite really wanting it, and probably really needing it as the world migrates from Intel chip-enabled devices such as PCs. Not able to negotiate what it really needed with the Rockstar consortium so took its chances with Google. A credible effort and well played. Taking Eduardo Sanchez on faith, really wanted it and probably really needed it. But not weighty enough to get it.
The Chinese didn’t appear to take this opportunity seriously enough. Huawei and RPX appear to have combined but Huawei should have combined with ZTE and the Chinese government to bid.  An opportunity lost. Will now find RIM, Ericsson and even Apple knocking on their doors to negotiate old or new licenses. Should have bid seriously. Maybe did but the truth is yet to come out.
A loser despite not even being a player in the auction. Does this add even greater motivation to find itself a new home within MSFT?  Either immediately or over time will be the recipient of calls and approaches to renegotiate license deals.

 

Of the patent aggregation funds, we don’t see RPX as either a winner or loser. It played and played seriously enough but its members had larger strategic interests than in backing a co-bid via RPX.

And, finally, what of IV? Strangely mute throughout. Is this heavyweight losing its sparkle?  A rare opportunity to bid for Standards essential patents seems to have gone begging without a thought or even a bid. Very odd.

To reiterate a question, one I’ll post on Twitter too:

Does anyone know by the way if Google indemnifies Android adopters against IP risk in using the platform as part of the license terms? We doubt it but it is fascinating to know.

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Nortel Post Mortem

July 19, 2011

Allowing a couple of weeks to go by after the end of the Nortel auction has given time to think and to add a few insights beyond the facts. Plus a week’s camping holiday in incredibly sunny Cornwall which it would be hard to beat.  Three themes have been intriguing us at ipVA: How have […]

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Behind the Scenes at the Nortel Auction

July 6, 2011

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. […]

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Rockstar Bidco reigns supreme at the Nortel Patent Auction

July 1, 2011

We now know that the auction which has grabbed the attention of not only the IP world but the technological, legal and mainstream press for some time now, took a total of four days to reach its conclusion, and realised a whopping USD 4.5billion for Nortel’s creditors. The size and monetary value of this auction, […]

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And the Winner Is….

July 1, 2011

After days of patiently waiting for updates from the Nortel Auction, news has just come in that Nortel has sold its 6000 strong patent portfolio for $4.5 billion. The portfolio has been sold to six of the bidders: Apple, Microsoft, RIM, EMC, Ericsson and Sony, according to another source, but details of the terms of […]

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Rockstar Bidco: The Speculation Continues

June 28, 2011

In our previous post, we speculated that the hidden force behind this unknown entity is likely to be an IV-type company, or another troll. Having pondered this some more, we wonder whether Rockstar Bidco is in fact a shell set up to bid at the auction on behalf of a well known company with a […]

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Nortel’s legal fees hit $128 million

June 27, 2011

  Nortel’s legal advisers, Cleary Gottlieb Steen & Hamilton are doing rather well out of Nortel’s bankruptcy. As of 30 April 2011, Cleary had billed Nortel $128 million for their services so far, with reports that some 300 of the firm’s lawyers have been involved with the proceedings. And with the auction only being held […]

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Rockstar Bidco

June 27, 2011

It was revealed just before the weekend that two more companies have gained approval from US antitrust regulators to bid for the Nortel patent portfolio: Intel Corp. and Rockstar Bidco LP. Since the news broke we have been trying to find out as much as we can about Rockstar Bidco LP, but have unfortunately managed […]

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