From the category archives:

Standards

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.

{ 1 comment }

We reported some months ago on the German case concerning the relationship between patents and standards for recordable CDs.CD-R Logo.jpg In that case, the German Federal High Court decided that the so-called “FRAND defence” could apply to patents relevant to standards. In other words, it is possible for a company implementing a standard to obtain a licence as long as it sets aside a reasonable licence fee.

Court - Hague.jpgThe Dutch Court in the Hague explicitly rejected this defence and noted that its decision was different to that drawn by the German Federal High Court. The Dutch Court noted that there was no concept of “compulsory licence under cartel law”. Dutch law (like German law) has a specific provision in its patent code for the granting of compulsory licences. Such licences only come into effect when they have been granted by a court. The Dutch Court states that this is reasonable as nobody would otherwise understand the conditions under which the licence had not been granted.

There’s an implicit criticism of the defendant in the case that it had apparently never attempted earlier to take a licence to the technology from Philips. Philips Logo.jpgThe Court clearly stated the defendant should have attempted earlier (on starting sale of the goods or becoming aware of the need) to obtain a licence under FRAND conditions and, if this attempt had not been successfuly, the defendant could have asked for a compulsory licence to be granted. The Court points out that at least a preliminary licence could have been granted in summary proceedings.

The decision highlights two issues of European Patent Law.

Firstly the need for a uniform patent litigation system to harmonise the decisions of the different national courts. The different decisions in the German and Dutch courts are based on different legal traditions and codes of civil procedure (and contractual law). The Dutch have traditionally granted complusory licences more readily than the German courts and so it’s not surprising that the Court in the Hague suggested this route, whereas the German Federal High Court suggested an alternative option.

Secondly the need for clarity under which licenses to patents required to implement standards can be granted. Most Standards Setting Orgnisations have a clear policy on intellectual property – licences will be granted on Fair Reasonable and Non-Discriminatory (FRAND) conditions. There are, however, difference on how to interpret these conditions – there’s little or no case law to enable a market entrant to assess its risks and It’s clearly impractical in a single European market to have to go to multiple courts to obtain compulsory licences (as the Dutch want) or post multiple bonds (as suggested in Germany).

The case has also been discussed on the EPLawblog here

Technorati Tags:
, , , ,

{ 0 comments }

W3C investigating Apple’s patent

June 24, 2009

There’s a rather interesting report on the UK ZDNet website about Apple’s refusal to licence royalty-free a patent for use in a proposed web standard. US Patent No 5,764,992 relates to a method for automatically updating software programs on a computer. Web standards are set up by the World Wide Web Consortium. Their website states […]

Read the full article →

The Orange Book: The relationship between patents and standards

June 11, 2009

The relationship between patent protection and standards is fraught with problems. Most standard setting organisations require participants in standards development to either renounce their rights to patent protection or, more commonly, to agree to license any intellectual property on a FRAND basis (fair, reasonable and non-discriminatory) basis. But what happens when a company produces a […]

Read the full article →

Standards and Intellectual Property

November 24, 2008

This is the first post from Rob Harrison — Rob will become a regular contributor to Tangible IP. You can also follow Rob and issues of IP and money at the IP Finance blog, where he also posts. – JH One of the issues that we deal with on a regular basis is the interrelationship […]

Read the full article →