Information & Communication Technologies

Nortel Patent Sweepstakes: And the winner is...

by Ronald Gruia 01 Jul 2011
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A consortium led by Apple, EMC, Ericsson, Microsoft, RIM and Sony won the Nortel IP portfolio auction with a bid of $4.5B The announcement certainly surprised some who expected the proceeds to be more in the range of $1.5B. Moreover, the final price tag reflects a 5x multiple on the initial stalking horse bid made by Google. While companies will be committing different amounts (RIM has a $770M contribution while Ericsson's contribution is $340M, and RIM probably won't be getting any of the semis patents), the announcement at least represents a silver lining for Canadians, as some of the patents will be staying home with RIM.

Rationale for the $4.5B valuation

This is the most widely asked question - is it indicative of the current frenzy within the patent and IPR industry? Perhaps, but some quick back-envelope calculations might suggest that the winning bid might not have been as exuberant as some pundits believe. For instance, W-CDMA phone unit volumes in the first seven years of their introduction were in the range of ~ 1B units; within the first 10 years, in the range of ~ 2B units. Assuming LTE handsets follow a similar pattern, then this deal cost the consortium ~ $2.25 / handset (= $4.5B / 2B)

So this means it's more or less within 1% of the price of an LTE handset that is pegged to cost between $200 to $250 on average. Which means that this price is really at the high end of that valuation (i.e. within a 1% royalty range). Of course this does not take into account other intangibles that are hard to factor such as potential windfalls such as improved competitive positioning, successful patent infringement lawsuits, patent infringement lawsuit avoidance, and possibly the spin-off of some patents to patent holder players such as Mosaid Technologies, among others.

Happy Canada Day!

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