News

Nortel Sells Patents to Microsoft, Apple, Others for $4.5 Billion

• By Kurt Mackie
• 07/01/2011

Nortel Networks Corp. announced on Thursday that its patent assets were purchased in an auction bid for U.S. $4.5 billion in cash.

The Toronto-based telecom and networking giant indicated that the winning bidder was a consortium of companies, including Apple, EMC, Ericsson, Microsoft, Research In Motion and Sony. The consortium companies paid different amounts toward the final $4.5 billion price, which involves more than 6,000 patents and patent applications.

RIM announced that it was contributing approximately $770 million as part of the coalition. Ericsson indicated in a press release that its contribution was $340 million. Ericsson also was involved in earlier transaction with Nortel, purchasing Nortel's CDMA and Long Term Evolution Access business assets for about $1 billion.

Microsoft indicated through a spokesperson that it "isn't commenting on the Nortel patent purchase," and there apparently is no indication on what it paid as part of the coalition. Apple, EMC and Sony similarly did not release any information about the deal.

Nortel offers a list of patents it held as of May 2006 in this PDF file. At press time, Nortel did not provide a list of the purchased patents, which was requested today.

Google had initiated a "stalking horse" bid (or initial bid) in April, which The New York Times reported as a $900 million offer. The rationale for Google's bid at that time was explained by Kent Walker, Google's senior vice president and general counsel, in a blog post. He argued against the proliferation of low-quality software patents that stifle innovation. One defense for Google was to grow "a formidable patent portfolio" to combat such litigation.

Google expressed regrets about the Nortel patents sale in statement released this week.

"This outcome is disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition," Walker said in a statement released by Google. "We will keep working to reduce the current flood of patent litigation that hurts both innovators and consumers."

Florian Müller, an intellectual property analyst and blogger based in Starnsberg, Germany, expressed surprise in an e-mail that Google did not attempt to outbid other companies for the Nortel patents. However, in the case of Google's Android mobile operating system and the 45 intellectual property claims on it, not much might have been changed by the Nortel patents purchase.

"By purchasing Nortel's portfolio, Google couldn't have solved all of Android's patent issues in one fell swoop," Müller wrote. "There are many entities asserting rights against Android whose calculus wouldn't have changed if Google had bought those patents. Oracle is a good example. Its lawsuit would have continued at any rate. But Google lost an unprecedented opportunity to acquire a major bargaining chip that would strengthen it at the mobile industry's intellectual property negotiating table."

Müller described Android as a "suit magnet" in a January blog post.

Android is being partly attacked by Oracle because Oracle has initiated a $6.1 billion lawsuit against Google. Oracle claims that Android infringes the Java patents that Oracle acquired after buying Sun Microsystems. Those patents are now undergoing review at the U.S. Patent and Trademark Office at Google's request, according to a recent blog post by Müller.

Nortel's patents sale to the coalition is still subject to Canadian and U.S. court authority approvals before going ahead. However, the deal is expected to close in the third quarter of this year. Nortel has said that common shareholders and NNL preferred shareholders will not get anything of value from the sale. Nortel is operating under creditor protection proceedings in Canada.

Nortel was originally founded as Northern Electric and Manufacturing in 1895, supplying equipment to Canada's nascent telecom industry, according to a company timeline. Microsoft and Nortel had formed a strategic alliance in 2006 that was conceived as a transition into a "software-centric approach" for Nortel, as well as advancing Microsoft's unified communications efforts. That alliance now appears to be defunct.

Several other companies and coalitions had been involved in bidding for the Nortel patents. Those companies included patent-licensing companies Intellectual Ventures LLC, InterDigital Inc. and RPX Corp., as well as hedge fund company Fortress Investment Group, according to an article published by The Wall Street Journal.