Nortel Patent Sale Could Have Major Impact On Apple, Google And Microsoft

Brent Randall is a JD candidate at the University of Ottawa.

In the biggest sale of technology patents in history, a consortium of Apple, Research In Motion, Microsoft, Ericsson, Sony and EMC, was the highest bidder for 6,000 patents from Nortel at a price of $4.5 billion.

A bankruptcy court in Delaware on July 11 still has to review the sale, which will see the new patent owners securing the rights to license a wide range of technology that is used in smart phones and other wireless devices as well internet searching and social networking, among others.

At the beginning of June, the United States Department of Justice was reportedly looking into the bidding on the sale of more than 6,000 patents by Nortel Networks due to concerns of what such a transfer may do to competition.  The Wall Street Journal reported that while the DOJ looked into the $900 million opening bid by Google, no “major competitive issues” were found.  Those companies who had originally licensed Nortel’s patents, such as Microsoft, voiced their concerns over what a sale to Google may mean for their use of the properties.

Microsoft, along with Hewlett-Packard, Motorola, and Nokia, among others, claimed perpetual royalty-free licence of all Nortel’s patents.  When the June 13 deadline for bids arrived, Microsoft felt that the terms of the sale agreement with Nortel could give Google the right to terminate existing license agreements, including those with Microsoft.  Microsoft was not necessarily arguing that Google should not have owned the patents, but rather wanted to ensure that they could continue to license them.  In an e-mail to ZDNet, a Microsoft spokesperson said that they wanted “any new owners of the Nortel patents to be subject to Nortel’s existing commitments to Standards Setting Organizations and to Microsoft.”

Microsoft now appears to have no reason for concern, as Google did not put forth the highest bid, despite opening the bidding.  Google’s loss is also notable for the strange strategy the company employed, including bidding various mathematical theorems, and when the opportunity arose, pi at $3.14159 billion.

Nortel Networks Corp., a Canadian telecommunications manufacturer, was forced to file for bankruptcy protection in January 2009, mostly due to the economic downturn.  At the time of its filing, it was the largest telecom equipment maker in North America, with a stock that peaked at $1,231 a share but eventually plummeted to just over $0.38.

Relative newcomers to the wireless industry like Google and Apple were particularly attracted to purchasing Nortel’s patents as a way to significantly improve their standing in the market.  Technology covering optical and data networking, internet advertising, voice and personal computers are all said to be covered by the Nortel patents.  It is “unusual for an asset like [this] to come to market” and the patents represent “a very significant stockpile of potent weaponry, and whoever lays their hands on it is going to gain significant advantage.”

The consortium of successful bidders will now have a major portfolio to draw from, with the potential to dramatically shift the landscape in telecommunications.  The stage appeared to have been set for a battle between Google and Apple over the patents after Nokia and Apple agreed to settle all patent litigation between the two companies.  The settlement was said to “free up resources” for Apple, and one analyst anticipated that Apple would do whatever it could to keep the patents out of the hands of Google, their direct competitor in smartphones.

The value of the patents had been generally viewed to be about $1 billion, with analysts expecting the winning bid to hit a maximum of around $1.35 billion.  The final bid of $4.5 billion is significantly higher, and as such, the risk for the winning consortium is greater.  However, some of the risk has been offset by having so many parties involved in the purchase.  It will be interesting to see the impact the ownership of the patents will have on the winners, who often compete with each other in many markets, as well as what the loss will mean for Google’s expansion into those same markets.