As someone who once wore a Nortel employee badge, and who counts many ex-Nortel employees among friends and family, watching Nortel’s descent from the peak has been hard to watch. Those, with better visibility into the decision-making than I, will ultimately dissect all of the wrong turns.
Financial mismanagement, ill-conceived M&A deals, and strategic missteps have, unfortunately, landed Nortel where it is today – in bankruptcy protection and actively divesting entire businesses; its enterprise business possibly to Avaya, its wireless business to Ericsson. But like the Black Knight in Monty Python’s “The Holy Grail”, they’re “not dead yet”, despite hacking off multiple limbs.
When Nokia Siemens Networks’ bid was announced for Nortel’s remaining wireless business (CDMA and LTE roadmap), the decision to exclude wireless-related patents was a very strong indicator of intent. Under the terms of the announced transaction, NSN received a license to Nortel wireless IP, while Nortel retained ownership of said IP. According to reports, the Ericsson deal construct is very similar, with ownership of Nortel patents remaining with Nortel.
Once NSN’s stalking horse bid was announced, others emerged as suitors for the wireless business, including most notably RIM and the eventual winner of the auction, Ericsson.
Why would RIM pursue Nortel’s wireless business at the 11th hour? Is it because it aspires to get into the CDMA/LTE base station business? I’m guessing not. Could it be that RIM saw Nortel’s moves signaling a fundamental shift in its future business model? Rather than remaining in the messy business of actually producing and selling product, why not sell off the operating businesses for a bunch of cash, throw in non-exclusive licenses to Nortel’s IP, and re-emerge as Nortel, the Non-Practicing Entity (aka Patent Troll)?
Few companies have been as badly burned recently, by NPEs, as has RIM. With its $612.5m settlement with NTP, for what ultimately amounted to the assertion of just a couple of claims (the validity of which was being seriously challenged), and more recently, its settlement with Visto for $267.5m, I’m sure RIM can see a day when Nortel, the NPE, asserts claims against RIM’s LTE products, at a cost to RIM that makes its $1b pseudo-offer seem reasonable. No doubt this is why RIM is rumoured, already, to be pursuing licensing discussions with Nortel for LTE patents.
A key here is that Nortel, as an NPE, would no longer be constrained by the usual rules of engagement that make the assertion of claims, by practicing entities (PEs), so rare. As a going concern, and even with an impressive patent portfolio (reportedly 5,500 patents), it would be highly unlikely for Nortel to assert its patent position against its main competitors. A kind of détente exists with patent holders, who understand that an assertion here will bring a counter-assertion there. The worst fear of PEs, however, is the NPE (or Troll), for which this détente is irrelevant, and where the business model is uniquely about asserting and monetising IP rights.
So Ericsson gets a pass on LTE patent assertion by Nortel, a key US customer committed to LTE, and a team capable of enhancing the CDMA to LTE migration story. Not a bad deal for $1.13b. And while one is tempted to feel sorry for NSN, its original bid of $650m turned out to be woefully miscalculated. One can only guess at what losing the deal with Nortel will end up costing NSN; in legal costs, eventual royalties and market share. Conversely, Ericsson will have gained in all of these areas. Kudos to its management team for realising this.
So what of Nortel? Can it make the transition from multi-billion dollar equipment vendor to NPE/licensing company? There certainly are precedents, even in Nortel’s backyard. Wi-LAN and Mosaid are two companies that have gone done this path, each of which has developed IP licensing as a core competency. Keep an eye on key Wi-LAN or Mosaid employees. If they start to leave, perhaps it’ll be to take on the challenge of monetizing Nortel’s patent portfolio. And if I’m Jim Balsillie, I’d be super pissed.
That’s my .02!
(martin.suter at iplicensing.net)