Selling Nortel's Patents

Nortel appears to be the company that just refuses to disappear. Now it's RIM jumping in to muddy the waters on the sale of Nortel's wireless division, which Ericsson recently won in a private asset auction. The Ericsson bid is problematic in itself, but let's look at RIM's interests first.

Nortel's wireless division is in the network infrastructure business. RIM is in the software, services and personal wireless device businesses. The overlap is, to be generous, minimal. This makes the fit very questionable. However I think the following quote from a Reuters news report sheds some light on what RIM wants:

By trying to buy the LTE patents still held by Nortel, RIM is aiming to future-proof its business and avoid having to license the technology later from another company, said Research Capital analyst Nick Agostino.

That is, RIM wants Nortel's patents, not the equipment business. This is far more believable, especially in light of the massive patent litigation RIM has suffered, and continues to suffer. If the patents go to Ericsson or Nokia-Siemens, not only does RIM lose the defensive measure of having more patents in its portfolio, it will have to achieve patent cross-licensing deals with the winner of the auction, which is far from assured.

Considering Ericsson's winning bid of well over $1B, this may seems like an expensive way for RIM to acquire a patent portfolio. However, recall the nearly $1B payout it had to make to NTP alone after losing in court. NTP's patents are now almost completely invalidated, yet the money is gone for good. And that case was not the end of RIM's woes. No matter what you think of the patent legal "industry", if the Nortel patents give it some measure of protection, even for a billion dollars, perhaps it is worth it to them. You can bet that Nortel's patents would stand up to scrutiny far better than those of NTP.

However it is not that easy for RIM to buy only the pieces of Nortel they want. First, the patents themselves are assigned to Nortel Networks, not any one division of the corporation. In the cataloguing of assets, the thousands of patents Nortel has in its portfolio would have had to be apportioned to the separate asset lots for sale through the bankruptcy process. Those lots cannot be broken down to be bid on piecemeal by RIM or anyone else. My guess (and it is only a guess) is that's where RIM ran into trouble with the auction process: they could not get at the patents they wanted without the burden of also taking the infrastructure business. If my surmise is correct, the trustees are right to have done things as they have. The value of the business is critically harmed if it does not include the patents that are encapsulated within the current and planned products of that business; separating out the patents, even if only those of interest to RIM, would reduce the proceeds of the sale, or scuttle it entirely.

In response to their failure to skew the process to their advantage, RIM jumps up and down, waving the flag. This gets the politicians alarmed and wondering how to respond. While there is no shortage of advice, I expect that in the end the government will sensibly stay out of the fray except as they are required to by law. The $300M financing promised by the government stirs a degree of public outrage, even without knowing what conditions the government would impose on Ericsson. Perhaps it's to guarantee that jobs stay in Canada? It isn't likely they'd disappear anyway because, first, the core of the wireless business is the skilled workforce, not the extant hardware and software products, and, second, they already have a long-standing presence in this country (Montreal). What would kill the deal for Ericsson is if the patent portfolio is pulled from the package.

I expect that those patents will stay right where they belong, part and parcel with the wireless business. If RIM's objective is to cherry pick what they want, they'll lose. Until then, expect more political noise that will fail to enlighten.