Apple and Google are two companies that may be involved in an auction of former telecom giant Nortel’s patent assets, a portfolio that contains more than 4,000 patents, including key “4G” patents in the Long Term Evolution (or LTE) branch that could play a role in future competition between smartphone makers. Other likely participants include Research In Motion and Motorola, with Moto already involved in a patent dispute with Apple.
Context & Background
Nortel is a Canadian telecom that was once considered a giant in that industry, and the firm’s market cap ballooned to US$250 billion during the Internet/tech bubble of 2000. In fact, we’ll note with some irony that the company was considered an outside suitor for Apple during the 1990s when then-CEO Michael Spindler was looking for someone…anyone…to buy the company during its darkest days.
The firm fell on hard times, however, and filed for bankruptcy in January of 2009. It was then decided that Nortel would sell off its assets, and many parts of its business have already been bought by companies like Ericsson, which bought its North American wireless operations. Reuters noted that Chinese firm Ciena already bought Nortel’s optical networking and carrier ethernet business.
It’s Nortel’s patents, though, that are the story of the day as far as Apple watchers are concerned. Nortel owns more than 4,000 patents, and unnamed sources said that the firm broke those patents up into six buckets, and that final bids for the private auction are due within weeks.
All told, the patents are estimated to be worth up to $1 billion, but these kinds of patent portfolios rarely come up for sale. In addition, the sale is a private one, and Nortel isn’t under any obligation to discuss the process, and Google and Apple declined to comment on whether they were involved in the affair.
Apple might be interested in any patents that cover handsets or the wireless technology that goes into those handsets. In particular, Nortel owns patents related to both 3G and 4G technologies. Nortel was among the first firms involved in the WiMax branch of 4G, but the company dumped those plans in favor of developing LTE-related technologies, with LTE being the flavor of 4G that Verizon said it will be unveiling in 2011.
Apple, Nokia, Motorola, Google, and other players in the smartphone market have already begun suing each other over various aspects of smartphones (like Apple’s iPhone) over everything from the way chips are used to the touch interfaces that are used to operate the devices. It is thought that Apple wants to be able to beef up its own patent portfolio as it wages these patent battles over the iPhone, iPod touch, and iPad.
“I think it makes a lot of sense for Apple to get as many patents as possible in the whole wireless space,” Kaufman Bros. analyst Shaw Wu told The Mac Observer. “They don’t need to own every single patent, but more patents gives them a better defense.”
“People forget that they’re still a relatively new player in the wireless handset space,” he said, adding that a broader portfolio gives Apple more opportunities when it comes to “horse trading” with other large patent holders, and for other kinds of cross-licensing deals.
From a Wall Street perspective, he believes that buying some of Nortel’s patents would be a good use of Apple’s vast war chest of more than $51 billion in cash.
Many analysts and investors have questioned Apple’s policy of holding on to its cash, which has become one of the largest war chests in Corporate America. Apple executives, including CEO Steve Jobs, have steadfastly maintained that having so much money lying around makes it possible for the company to make strategic acquisitions when it sees an opportunity.
It could clearly be argued that a rare patent auction such as this would be just such an opportunity, though it’s doubtful that winning even half the lots Nortel is selling would cost Apple more than a small fraction of the cash the company is likely to be adding this very quarter, let alone the amount already on the books.