Google Bids $900 Million for 6,000 Nortel Networks Patents
April 04, 2011, 4:51 PM EDTBy Brian Womack and Susan Decker
(Adds lawyer’s comment in ninth paragraph.)
April 4 (Bloomberg) -- Google Inc. offered $900 million in cash for the rights to Nortel Networks Corp. patents as the world’s biggest Internet-search company seeks to stave off lawsuits by bolstering its portfolio of intellectual property.
Nortel, a Canadian phone-equipment maker that filed for bankruptcy protection in January 2009, selected Google for a “stalking horse” agreement, a starting point against which others bid prior to an auction, Toronto-based Nortel said in a statement today. The planned sale includes about 6,000 patents and patent applications for wired, wireless and digital communications technologies.
Google is moving into areas such as mobile and desktop operating systems to broaden sales, a strategy that has spurred patent lawsuits from companies including Oracle Corp. The agreement with Google follows multiple rounds of bidding involving several interested companies, Nortel said.
“One of a company’s best defenses against this kind of litigation is (ironically) to have a formidable patent portfolio, as this helps maintain your freedom to develop new products and services,” Google General Counsel Kent Walker said today in a blog post. “Google is a relatively young company, and although we have a growing number of patents, many of our competitors have larger portfolios given their longer histories.”
Google, based in Mountain View, California, fell $4.12 to $587.68 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have declined 1.1 percent this year.
‘80-Pound Weakling’
International Business Machines Corp., the world’s biggest computer-services provider, was issued 5,896 U.S. patents in 2010, followed by 4,551 for Samsung Electronics Co. and 3,094 for Microsoft Corp., according to data from IFI Claims Patent Services. Google was issued 276 patents last year, the research firm said.
Nortel’s patent portfolio would boost Google’s efforts in mobile software as the industry moves to so-called long-term evolution networks, which include more video capabilities, said Peter Conley, a managing director with MDB Capital Group LLC in Santa Monica, California, an investment bank specializing in intellectual property. The portfolio also gives Google a bigger war chest of patents to contend with lawsuits, he said.
‘80-Pound Weakling’
“It turns them from the 80-pound weakling into an entity that’s more in line with its industry peers,” Conley said. “If you don’t buy them, someone else will and it will lead to all sorts of unintended consequences. You need to look at this with a 360-degree view.”
A purchase of such a large number of patents could bring Google both more lawsuits and settlements, said Paul Devinsky, a partner with McDermott Will & Emery in Washington. The purchase price of $900 million is “breathtaking,” he said.
“If they are all really good patents, that number wouldn’t be too off the wall,” said Devinsky, who specializes in both patent licensing and litigation. “It looks like mutually assured destruction time, assuming they just got armed with the right missiles.”
Oracle filed a patent and copyright infringement lawsuit against Google last year over its mobile Android software, citing technology Oracle gained from its acquisition of Sun Microsystems Inc.
Android Suits
Often, Google’s partners -- not just Google -- have faced Android-related legal actions. Apple Inc. filed a complaint with the U.S. International Trade Commission last year against HTC Corp. for alleged patent infringement with its Android-based phones. That case is scheduled for a trial in Washington beginning April 18. Microsoft also has sued Android partners, including Motorola Mobility Holdings Inc. and Barnes & Noble Inc., saying that any company using Android owes patent royalties to the Redmond, Washington-based software maker.
Google gives away Android software for free and then makes money selling mobile-based advertising.
The patent portfolio “touches nearly every aspect of telecommunications” and others markets, including Internet search and social networking, Nortel said. The sale, subject to Canadian and U.S. court approvals, is expected in June, the company said.
The patent portfolio is the last significant asset the company has to sell. Since filing bankruptcy in the U.S., Canada and the U.K., Nortel has sold almost all of its businesses, raising about $3 billion to distribute to creditors. Creditors of the company’s main U.S. unit, Nortel Networks, claimed they were owed $16.3 billion, according to bankruptcy court documents the company filed in Wilmington, Delaware.
Nortel has said shareholders aren’t expected to get anything back after creditors have been paid. Nortel hired Global IP Law Group to either sell the patents or create a new company that would license the telecommunications technologies.
The case is Nortel Networks Inc., 09-10138, U.S. Bankruptcy Court, District of Delaware (Wilmington).
--With assistance from Steven Church in Wilmington, Delaware. Editors: Romaine Bostick, Lisa Wolfson
To contact the reporter on this story: Brian Womack in San Francisco at Bwomack1@bloomberg.net; Susan Decker in Washington at sdecker1@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
