Nortel Won't Be Licensing Patents

The cloud of confidentiality that surrounds the Nortel wireless auction is leading to a great deal of speculation over just what the bankruptcy trustees are selling and Ericsson is buying. One particularly contentious issue is that of their patents.

First, are these patents core to the wireless business's success (and value) and, if so, which of those patents are the truly important ones? Certainly they do not all have equal value. One article that lays it out fairly clearly is this one by Mark McQueen. Second, even though there is a value differential across the patent portfolio, does it make sense that they be prioritized in this particularly cut-and-dried way?

In my previous article, I stated that the patents will be allocated to and sold as part of the business-unit lots by the trustees. Is it instead possible that the patents will be retained by Nortel and instead licensed to the purchasers of the business units? I am very skeptical about the possibility of this outcome, and that is the subject of this article.

Once the wireless, MEN and enterprise businesses are sold, what will be left? Will there be a much-smaller Nortel that eventually comes out of bankruptcy with a viable business that is either free of its creditor obligations or in a position to deal with whatever debt load they are left to repay? More to the point, will Nortel become a patent licensing, non-operating company like (to pick other domestic examples) Mosaid and Wi-Lan?

If this were to occur, I would expect that the bankruptcy trustees, due to their first allegiance to making the company's creditors as near to whole as possible, would need a solid assurance that there is a safe, profitable way to license the intellectual property it would continue to own. They are not venture capitalists that are prepared to take a risk on an unproven royalty-based business model for those LTE patents. They are essentially bankers, and so they will (as they ought) take the certain and definitive path of a firm price in the present time frame. That is what the creditors will assuredly demand.

Then there is the matter of assigning value to each patent in the portfolio. This, too, is an uncertain process. There are patents that all will agree are either critical or of little value, but what of the majority between these extremes? One of the things I learned (I played a small role in one cross-licensing negotiation while at Nortel) is that there is bankable value in having a large stable of patents since, because the value of each is not always known in the present, numbers matter. Other large companies are in the same situation and are therefore more likely to enter into all-encompassing cross-licensing agreements to protect themselves without the dubious and expensive exercise of trying to quantify the future value of thousands of individual patents. Ericsson knows this.

I maintain my view that the patents will be sold along with the business units. That is the one path that makes the most sense to the sellers and the buyers. I do not expect a patent-licensing Nortel business to emerge from bankruptcy. Waving the flag will not change this.