Now that’s what I call a break fee!

by Andrew Watson on 23 August 2011

Widespread reports over the past 48 hours that Google must pay a $2.5bn break fee to MM if the deal does not proceed. It is reported to be the largest break fee negotiated. It surely is a monster. It does appear that whatever Google finds in the coming months it is still half pregnant with this purchase. Hope there is no member of the Google legal team wondering about whether he/she should have asked for copies of the cross licenses. Or someone in MM’s licensing group wondering if maybe those files marked highly confidential, only for disclosure in the licensing group, should have been requested and wondering if Google really knows what is doing. Or maybe I don’t hope for that.

Ps for those not familiar, there is no such thing as half pregnant. You are or you’re not.

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All join in–the mainstream press are piling into talking about IP

by Andrew Watson on 21 August 2011

Lots and lots and lots and more lots of press comment focussed on the great IP debate. Maybe Ben Goodger was right in saying that Nortel could be a tipping point. The truth is that we’ve never had more work or more enquiries. Something is stirring!

I like the Guardian Online and this piece on Google’s acquisition of Motorola Mobility caught my eye today.

I added a comment as follows, the context being that the poor journalist was getting panned in the comments section for not investigating his story carefully enough.

The Internet is such an amazing instrument. Poor Mr Naughton has been shown up as lacking in his research. Such is the problem with insight stories from anyone a little too distant from the IP market.

Read any blog or comments on stories in the financial press and the first thing you’ll notice is that around 50% of the comments come from the anti patent lobby. Lots of generalisations about patents stifling innovation and a real dislike for software patents. I’d like more than 5000 characters to try to explain why we at ipVA think this is misconceived. But with only a limited number try this. Apple in 2004 filed a series of patents around some of the game changing technologies that now are accepted as a norm in any smartphone, but in 2004 were revolutionary. The magnifying glass feature is one of our favourites. The iPhone then changed the rules of the smartphone game, blowing RIM and Nokia away. The innovations in the product, only some of which were patentable, needed protection somehow, many were software enabled. How else in the IP system could Apple achieve protection? Hmm?

But the bigger picture in this story is how Google can achieve an essential for Googles success in what will be a 1 billion unit market by 2015, smart phones or frankly any mobile device. And that is freedom to operate. Google cannot guarantee this for Android especially in it’s largest geography the US, where there is no right to a license. So, essentially, patents could stop Android, a core part of Googles ad revenue growth, in it’s tracks. No Android, limited growth outside of the PC market.

That therefore justifies a large gamble. And Google has gambled in a large way. It has gambled that not only has Motorola designed excellent products but has excellently protected them. And whenever we’ve experienced Motorola, they have done both. The latter is likely more important here than the former.

We’ve pointed out one possible flaw in the plan, that is the extent to which the Motorola patents are already out or cross licensed. See more on Tangible IP blog.

There is much more to come on this IP related patent binge. Watch Apple take Inter Digital and MSFT take Nokia. Which other fallen giants have good patent assets for other targets? RIM……yes, let’s predict them to be bought by…..HTC! more speculation to follow, this could be fun.

Maybe there is room for more activity in this sector. Google has made a large move this week in raising the game stakes. It does feel like MSFT’s turn, don’t you think.

Nokia or RIM? I might buy stock in both. Nokia has a great IP history, as a product company it my be suffering but as an IP play, if MM is worth $12.5bn, what price the Nokia portfolio, and people? RIM did buy the Philips 3G eIPR and related patents. Another good target surely. The world is changing fast, and for all the right reasons.

 

 

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Google-we really really hope that you know what you are doing!

by Andrew Watson on 17 August 2011

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.

 

 

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IP Strategy (Post 1-What Exactly is IP?)

by Andrew Watson on 15 August 2011

What is an IP Strategy?

In this series of posts we wanted to give the ipVA perspective of what is an effective IP strategy?

To back up these posts we are going to post a white paper on the ipVA main site at the end of the series. This explains in fuller terms the ipVA viewpoint of key questions in this area, including one fundamental that we really should begin with—what exactly or even roughly is IP?

A community apart

In and of itself the IP community cannot seem to agree on this quite simple question. Some call IP terms that seem sensible when understood but by being proprietary, lack universal appeal and therefore adoption. Suffice to say, Intellectual Assets (IA), IP assets, intellectual capital (IC) and other such terms are designed to mean some or a part of the mix. But this small community does itself a disservice by failing to adopt a common definition.  

The compelling Craig Opperman (yes he does look like my older brother) has, to my mind, given the best explanation of why this is the case in one of my favourite expressions. I’m not sure whether this emanates from Craig’s native South Africa but this does seem to fit:

“If all you have is a hammer, all your problems look like nails”.  

So when your patent attorney says he is an IP strategist, he probably isn’t. He may be a very good patent attorney, maybe even a patent strategist if you’re really lucky, but that doesn’t mean he is an IP strategist. Surely that’s obvious isn’t it? Equally your IP lawyer (sorry USA, in Europe we have split professions between patent attorneys and commercial lawyers) are likely to be very good, if not excellent, at contractual IP law but won’t cover patents, at least not in Europe. Do I need to go on—trade mark attorneys cover trade mark filings and maybe trade mark strategy (but not somewhat confusingly brand strategy, though brand strategists will pretend to be able to manage trade mark strategies), knowledge management experts cover…I’ll stop should I? You get the general idea.

The true definition-in our bold but humble view

In ipVA we have gone as wide as we dared in defining IP. To us, IP is a colloquial term that means all of the business assets that are not tangible. Below I’ll explain why without I hope giving away too much of our own IP in the process. Why we adopted this came from looking at over 200 companies from our project experience. We came to realise that without the widest perspective, very important bits were missed out of the equation and from the responsibilities of what needs to be managed by a smartly managed IP company with a Chief IP Officer or Head of IP. At least if we pitch into a company on a project to build an IP strategy, the average CEO or fund client will put us into a box believing that we want to manage one of three things, Intellectual Property, Insolvency Practitioners or Internet Protocol. Ask for a meeting to help him/her to manage the business Intangible Assets or IC and I’ll guarantee from experience that the meeting, if obtained, will be very short.

In our perspective therefore IP means all of a business’ intangibles. To repeat it means all of a business’ intangibles.

I can’t remember where I was when I heard Jon Dudas, at that time Under Secretary of Commerce for IP and Director of the USPTO (and somewhat similar in looks to a pre body building Arnie) come out with this belter:

“IP represents 75% of the value of the S&P500”.

At the time having heard Ocean Tomo spin that self-serving line for a couple of years I thought to myself, that can’t be right can it? And after reflection I thought it might be better expressed so:

“Of the total value of the S&P 500, and indeed of any company or index nowadays, most of the value is represented by assets which are not tangible”.

A bit less sexy and reduced marketing spin (well this was I’m sure an Ocean Tomo event and those boys knew how to serve up very good champagne) but more accurate I’m sure.

The wider definition of IP

585 words into this post I hope that you’re still with me. All of the above is meant to explain that IP really means all of a business intangibles.

Which then begs the question of what are intangibles.  Now that is a good question. In our view, there are three parts to intangibles:

  • Humans—individually and collectively. These things are the creative spirit in a company.
  • Intellectual assets—the five formal IPRs which in and of themselves allow choice as to what to protect and how, formally, sometimes by registration and sometimes only by agreeing with each other not to tell somebody something.
  • Relationships—the external manifestation of intellectual assets, in the form of corporate and consumer relationships both individually and in groups.

You’ll have to wait for the white paper to see the detail. This has taken us several years to perfect so it doesn’t come free of charge.

Why is this important as a distinction, and why you should avoid the hammer-only sellers?

On a strategy assignment in 2010, the head of R&D of a client which has been a major patent filer asked an excellent question, posing this scenario—I quote:

“I’d like to run a scenario where the business has no patents—what difference would it make?”

That question took a good 24 hours to think through. It is a very good question isn’t it? After all, patents done well take an awful lot of management and people time and effort, and no small amount of cost. And, the smartphone and other inter-galactic wars aside, do they really make that much difference?

The answer we came out with was something along these lines:

“ intangibles are a soupy mix of a lot of fuzzy assets*, all of which together make up a measure of competitive advantage or sustainability. At some point in the future someone may be able to formulate the relative value of each category for each company, but for now removing one probably important ingredient has an unknown impact on the overall taste of the soup. Better express it the other way round, if patent processes and patents are perfected, are there ways in which these  can be used to add to competitive advantage?”

*soupy mix and fuzzy assets are words and word combinations all of my own, I did sense Rob squirming at the hearing of them but, language difference aside, I think they convey the right message.

So beware your average hammer seller. He may well only have one tool whereas your machine may need someone with many more tools to build you a perfect IP machine. Somewhat cynically, watch in particular for the patent hammer seller—this is a very honourable profession but by definition the patent hammer seller only makes money if you file patents, and then take those patents to remote geographies. You may need one of these, and very good ones are hard to come by, but our advice is to be well informed yourself. Know what you want and what you need, as with all professional advisers, including IP strategists like us.

But I digress. Can’t help myself. I could and do regularly bore poor housewives at dinner parties about this.

To finish therefore on question 1, let’s summarise:

  • IP is best treated as a colloquial term,
  • In its true definition, it should be viewed as meaning all of a business’ intangible assets,
  • All of these assets can be managed, and should be managed, indeed they are secretly managed by all of the best companies,
  • If managed for competitive advantage, that is heading towards the direction of strategy.
  • For which you will need an advanced hammer supplier, preferably with a multi-tooled toolbox.
  • And these I’ll assure you are in very short supply worldwide.

And the quicker the business world moves to understanding this, the better for all of us.

In part 2 we will move on to defining the second question—what is strategy and what are the components of IP strategy and tactics that should be considered in your strategy discussion.

 

 

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This is not at all funny….but sh*t it shows that Apple know how to make cash

by Andrew Watson on 29 July 2011

From the BBC website. Apple has more cash than the USA.

http://www.bbc.co.uk/news/technology-14340470

 

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Oracle v Google: The gloves are off?

by Charlie Rothbart on 27 July 2011

Having had to finally leave the excitement of the Nortel patent auction behind (sort of), I have turned my attention to another big IP story which also managed to grab the attention of the mainstream press.

As many will already know, there is currently a high-profile fight going on between the biggest players in the smart-phone arena, Apple, Google and HTC being the most publicised of the group. In August 2010, we saw Oracle enter the ring and take its first swing by issuing proceedings against Google over its Android OS.

Oracle claims that Google not only copied Java code (assigned to Oracle through its acquisition of Sun Microsystems in 2010) but also knowingly and wilfully infringed patents relating to the Java technology. The claim relates to a third of Android’s Application Programming Interfaces (APIs) — which Oracle says are “derivative of Oracle’s copyrighted Java API packages.” Specifically, there are seven patents in question.

At first, Google hit back by denying outright any infringement. The USPTO then issued non-final rejections against four of the claims. Two of the claims are up for re-examination, and one claim has already been validated by the USPTO.

Sun Microsystems offered to license its Java technology to Google for $100 million prior to its acquisition by Oracle, but Google graciously declined. More recently, Google has been hinting that it is considering settlement negotiations. This is hardly surprising given that the estimated damages payout, if Google is found to have infringed, is suggested by the lawyers to range from $1.4 to $6.1 billion. Whether in reality this figure would be realised is another matter: in a hearing on 21 July the judge is said to have told the parties that they were both “asking for the moon” and “should be more reasonable” when calculating the damages award. The parties have now been ordered to go back to the drawing board to come up with a less dramatic figure. Dramatic or not, this case helps to highlight to the world the actual and strategic value of  IP.

Oracle arrived at its figure of $6.1 billion on a per unit basis, and given that Google makes less than $10 per HTC Android device, according to Florian Mueller, (which is, by the way, only twice the amount made by Microsoft on each HTC Android handset sold! – more on this later) a damages pay out structured in this way will have a substantial impact on Android’s bottom line.

This will be an interesting case to follow for many reasons:

  1. We learned recently that Google heavyweight, Larry Page, has been asked to appear in court to give a deposition on the basis that he was instrumental in Google’s acquisition of Android when it was only a start-up.
  2. Further revelations this week have presented some interesting legal questions surrounding the history of Sun Microsystems and Android: when Android first hit the market, Sun Microsystems CEO Jonathan Schwartz apparently waxed lyrical on his blog about Android’s launch, offering his “heartfelt congratulations” to Google. The blog has since been taken down by Oracle, but thankfully it has been reproduced here for our reading pleasure.
  3. Google is known to be a lightweight as far as its IP portfolio is concerned, a fact which was highlighted through the recent Nortel patent auction (I’m trying to leave it alone, I really am). Google failed to acquire any of Nortel’s assets, and has since been rumoured to be in talks to acquire InterDigital (more on this later, too). If Oracle succeeds in this case, which, for what it’s worth, I doubt it will, Google will have a substantial chunk taken out of its cash reserves. Not that this will be enough to hurt Google, a company with cash reserves so large it would most likely wipe out third world poverty, but it will weaken further its position in the IP arena, especially given the fact that HTC and other Android customers are currently embroiled in patent litigation. I’ll come back to this point in another post as well.

Returning for a second to Schwartz’s blog post (posted online on 5 November 2007), there is no doubt that he was not only endorsing Google’s Android, but also supporting the platform with development tools. This is where things get very interesting, and potentially, rather uncomfortable for Oracle.

It cannot be said that a blog post can represent a licence, by no stretch of the imagination. Blog posts, after all, are not enforceable legal instruments. But… and this is such a big but that it could knock Oracle clean out of the ring… can Schwartz’s endorsement be taken by Google as a statement that it will not be pursued for infringement of Java-related IP? And if so, can this statement be relied upon by Google, and go on to bind Java’s new owner, Oracle?

If the answer is yes to the above, and Google acted to its detriment in reliance on Schwartz’s statement, then it is possible that the legal doctrine of estoppel could apply. This is a very fragile argument, and one which is likely untested in the courts as the statement was made in a blog (which, it should be noted, was Schwartz’s personal blog, not that of Sun Microsystems)…

But it is an interesting question nonetheless, and as many would like to see this case binned (let’s face it, Oracle does not have too many fans when it comes to litigation), one that may well be thrown into the mix. It could also be said that if Sun Microsystems was supporting Android with development tools that this activity alone eradicates the potential for Android to be found to infringe on Java’s IP. I would imagine that a counter to this argument would be that Google subsequently declined Sun Microsystem’s offer of a licence to Java, implying that a licence would be needed in order to use the technology in the development of Android.

But who knows.

What is clear from this set of questions, however, is that more prominence needs to be given to IP at times of product development and throughout the M&A process. Contracts should stipulate what IP exists, who owns it, what is to happen to jointly-created IP, who is to own it and what is to happen upon assignment. As these cases unfold and attract more and more mainstream press attention, hopefully this message will spread.

For Oracle, whose motivation is likely to be money, this case is opportunistic. For Google, this case is a pain. Google is trying to navigate its way through a crowded smart-phone market, and so far has been doing rather well despite its lack of IP weaponry. If Oracle succeeds in this case, all sorts of implications arise for Google’s Android and its customers (not to mention the fact that Apple is suing HTC for patent infringement relating to Android – more to come on this in a later post).

For IP, this case could be instrumental, when viewed together with the smart-phone patent wars, the Nortel auction (it keeps coming up), and activity surrounding InterDigital (whose share price shot up a massive 50% upon news that Google would be bidding for it), in grabbing the attention of the masses and focusing it firmly on IP.

Alternatively, maybe it won’t be, and those of us who advocate an IP focus will be left to await the next big IP story that has the potential to convert the unconvinced majority.

Only time will tell.

 

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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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Google (and Apple apparently) not hanging about-InterDigital link (s) surface(s)

by Andrew Watson on 20 July 2011

With $2.5bn of unspent Nortel auction cash seemingly burning a hole in its pockets and the market overall critical of its quirky auction performance, Google has moved quickly to start talks with InterDigital, known in the trade as a mini-Qualcomm. Impressive. InterDigital has been talking up its portfolio since the Nortel auction.

http://online.wsj.com/article/SB10001424053111904233404576457842513189166.html

And with a reported and truly whopping $76bn of cash, Apple is reportedly today going head to head with Google for InterDigital. Wow! this is hotting up.

According to reports this afternoon:

InterDigital (NASDAQ:IDCC) can now count both Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) among its suitors. The two tech giants are considering bidding for the company and its patent portfolio. InterDigital has designed and developed many digital cellular wireless products and networks, and owns about 1,300 U.S. and 7,500 non-U.S. patents related to wireless communications technologies. The patents would save Google and Apple billions of dollars royalties for Android and iPhone. InterDigital has a market value of $3.1 billion.

I do like this spot from Florian Muller on Twitter of an article from BusinessInsider which quotes a new way of valuing at least telecoms based businesses, on a per phone basis across the portfolio. Weird science:

“It is reportedly bidding on Interdigital, a mobile tech company with ~18,000 patents (awarded or pending). Jefferies analyst Peter Misek thinks Interdigital’s patent portfolio could be worth $3-$10 per iPhone, or $3 billion to $10 billion overall.”

The fun supposedly continues. Might need to blog again about who will win this spat!

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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

by Andrew Watson on 19 July 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 the winners divided the spoils between them?
  • What the auction result means for the winners, and the losers or non-bidders?
  • What the business prominence of the auction could mean for the future of IP in the mainstream business world, rather than the quirky and legally focused micro world in which the IP community now lives and works?

In this first post, we wanted to deal with the shares of the spoils.

In our view, one large item missing from the posts and insights so far is an assessment of the likely private arrangements between the six winners as to how the Nortel patent assets could have been shared.  We do I believe know that the $4.5bn pot was contributed something like this:

  •       Apple $2bn
  •       Microsoft and Sony $1bn between them
  •       RIM $770mn
  •       EMC $400mn
  •       Ericsson $340mn.

This seems to establish some sort of hierarchy between the players, Apple leading and, according to some reports, getting first dibs at the Nortel 4G and LTE assets. But, looking behind the scenes we wondered if the Cringely on Technology post is entirely accurate, and whether the private arrangements between the bidders needed a second speculative glance. There are likely a series of highly complex contracts in place between the new owners, details of which will not surface for a long time, if ever. These arrangements would likely have to deal with terms including:

  • Who owns what outright? Reports indicate that Apple would own all of the 4G/LTE assets outright as the largest contributor, but we’re not so sure that the terms will be as absolute as this.
  • Who owns what on a shared basis? We think that this is the missing link in the success of the consortium, the factor that drove the price up so high, as the new owners were able to obtain equivalent offensive and defensive benefits from common ownership of the same assets.
  • Who obtained a license to what? It’s likely that anyone in the consortium who didn’t obtain outright ownership of any of the portfolio would have been granted a license by those who took ownership. Don’t under-estimate the value of a defensive license to these assets in persuading consortium members like RIM to increase their stake in the auction pot that was ultimately successful.

Looking at the second issue of co or shared ownership is the most intriguing to us. Co-ownership of IP and patents is a little hard to comprehend as it doesn’t operate much or anything like other assets. In a nutshell co-ownership rules and principles are determined by the country in which the patents concerned are to be “commercialised”.  And there is no global common framework. In the UK for example, co-owners can only commercialise patents with the consent of both owners. Contrast the US where both co-owners can freely commercialise without consent from the other (s). And then contrast again Germany and (I think) China where either party can commercialise as long as it pays a reasonable royalty to the other party.

Now all of these local country-specific rules can be overridden by a contract between the co-owning parties. When I was General Counsel of Thirdspace, Oracle invested in the company and transferred ownership of a half share in their IPTV patent portfolio to Thirdspace and nCUBE in “equal and undivided shares”. In February 2002 a co-ownership agreement allowed both companies to freely exploit the portfolio without the consent of the other and without having to account for royalties. As Thirdspace ownership and patent portfolio went to Alcatel in 2003, so did the benefit and the obligations under the co-ownership contract. Ditto with nCUBE, transferred along with its co-ownership share of the patents to C-Cor and then to Arris Corporation.

We think something similar may have played into Rockstar Bidco’s structure. It would make little sense, we think, for RIM to contribute over one third of their slow-growing cash reserves (compared to Apple who, according to our calculations donated just over 3% of their rapidly escalating cash pile) unless the auction success would give them not only short term relief from out-payments under cross licenses but also long term strategic benefit from having some offensive rights in the 4G and LTE assets. We’re pretty sure that RIM would have an immediate relief ROI from its current cross license agreements with the likes of Nokia, Qualcomm or Motorola, maybe even Ericsson, but we also believe for that amount that they should have negotiated joint-ownership of part of the portfolio. Ditto Ericsson, who likely took a license to the Nortel portfolio when acquiring some of the Nortel trading divisions. Why then donate three hundred million dollars more without a tangible and positive benefit?

If right, this puts a different perspective on the motivations of the bidders and what the victory may mean for Rockstar BidCo and for the losing Ranger consortium. Again we’re not so sure that this is all or even mainly an anti-Android strategy. That’s not the way the IP world is learning to operate. To us, it is far more about gaining from the success of other’s products in the market, not preventing them from operating but, a la Microsoft with HTC, making sure that a slice of the successful pie comes in the patent holder’s direction even if the market is turning away from Microsoft’s products.

All of course speculation, but we’re of the view that, as all of this is eminently legally possible, why would it not play into the thinking of the very sophisticated players who make up the Rockstar Bidco consortium.

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