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Source link: http://archive.mises.org/17508/nortel-patents-sold-for-4-5-billion-to-consortium-which-includes-apple/

Nortel Patents Sold for $4.5 Billion to Consortium Which Includes Apple

July 1, 2011 by

From Macrumours:


Nortel announced that they had concluded an auction to sell of its patents and patent applications to a consortium consisting of Apple, EMC, Ericsson, Microsoft, RIM and Sony. The final winning bid was $4.5 billion and includes over 6,000 patents and patent applications covering wireless, 4G, networking optical, voice internet, semiconductors and more.

“Following a very robust auction, we are pleased at the outcome of the auction of this extensive patent portfolio”, said George Riedel, Chief Strategy Officer and President of Business Units, Nortel. “The size and dollar value for this transaction is unprecedented, as was the significant interest in the portfolio among major companies around the world.”

We had previously reported that Apple had been interested in buying up the patents off Nortel Networks which had filed for bankruptcy in 2009. The interest in the portfolio was significant due to the broad reach of the patents, especially in the area of wireless networking and LTE technology. Google was also said to be one of the early interested parties by placing an opening bid of $900 million on the patents.

One research firm has estimated that there are 105 patent families deemed essential to deployment of LTE (4G) technology, with Nokia controlling 57 of those families. Ericsson is said to control 14 families, while Nortel, Qualcomm, and Sony are each reported to control about seven families. The companies that are part of the winning bid will presumably provide access to these patents to those companies.

A few things to note about this. First, this is a perfect example of the barreirs to entry patents can create. ((See Patent Cross-Licensing Creates Barriers to Entry; Apple vs. Microsoft: Which Benefits more from Intellectual Property?; Microsoft Copyrights –> Patent Dominance; Google’s Defensive Patent Acquisition.)) This will create a “walled garden” to outsiders, barriers to entry that help those in the club to form a quasi-oligopoly. I would not be surprised if the FTC scrutinizes this as anti-competitive; typical of the schizo state to grant monopolies and then to penalize their use on the other hand. ((See State Antitrust (anti-monopoly) law versus state IP (pro-monopoly) law; Antitrust vs. Trademark Law.))

Also, if I did my math right, the value being paid is $750,000 per patent. Let’s say Nortel spent say $30k on average to obtain and maintain each patent (for a big company like Nortel this may be about right; can be cheaper if you are more efficient). That is a ROI of 25x (2500%).

Update: See also Betabeat, $4.5 Billion Purchase of Nortel Patents is a Potent Reminder How Broken the System has Become. And in an odd twist, instead of bidding in round numbers, Google first bid “$1,902,160,540 — a reference to Brun’s constant — and later bidding $2,614,972,128 for the Meissel-Mertens constant, they ended up submitting a bid for $3.14159 billion“, or pi billion dollars (see Google Bid Pi Billion Dollars For Nortel Patents). Also: Google’s “Pi” In The Face, by MG Siegler, writing on TechCrunch.

[C4SIF]

{ 10 comments }

nate-m July 1, 2011 at 11:39 am

What a bunch of crap.

This is a serious serious problem. A total crime against the free market of epic proportions.

Andras July 1, 2011 at 4:56 pm

But look at the bright side! When these patents expire all this voluntarily disclosed knowledge will be public and noone will be able to monopolize them thanks to the current Patent Laws! And they will soon expire as Nortel has been quite disfunctional for some time.

nate-m July 1, 2011 at 10:27 pm

There was never any need to disclose any of those ideas via patents. Either they are worthless, would of been widely dispersed by Nortel’s business, or have been independently discovered by multiple other companies.

The only reason anybody would pay for these patents is because they use ideas that have been independently created and used in marketable devices.

Think about it.

There is no bright side to any of this. It’s not only a waste of resources of epic proportions, but also is directly attacking progress and crippling the capitalistic system.

Andras July 2, 2011 at 2:17 am

I believe you. I wish I could read over 6000 patents in a few hours like you.
What I don’t understand why do you care? A genius like you must be way ahead of all known technology. Surprise us and beat them at their game.

nate-m July 2, 2011 at 3:22 am

A genius like you must be way ahead of all known technology.

Well I am flattered. To a unfortunate person as yourself the overwhelming image of immense intellect must be very unnerving.

But I want you to understand that I am but average intelligence other people reading this blog are not shocked in the least by my insights. In fact most of them are probably quite in agreement.

Surprise us and beat them at their game.

The problem you are having here is that you do not understand the game they are playing.

It’s not about gaining access to promising technology, it’s about using the government to create barriers to competition and punishing other companies for producing cheaper products then Apple/Microsoft et al are willing to produce.

You see this is very simple:

If the patents were really worth something and the ideas in them could be produced into actual marketable products then Nortel wouldn’t be up shit’s creek without a paddle. That is in the process of trying to survive Nortel would of already exhausted the potential for profitability from licensing them.

You tell me.

Does this look like the financials of a network technology company with winning network technology?

http://finance.yahoo.com/q/is?s=NRTLQ.PK
http://finance.yahoo.com/q/is?s=NRTLQ.PK&annual

People often have this myth in their head that great inventions are the result of great thinkers and, like great thinkers, they are unique and innovative. Also they have the delusion that in order to get a patent you actually have to have a unique invention.

This is what patents claim to do, but in fact fail in such a consistent manner that anybody claiming that patents protect only unique inventions can be easily accused of using Orwellian double speak.

If you give engineers the same raw materials, the same history of electronics, the same goals, and require them to create devices that are required to use the same protocols… then guess what? They are all generally going to create similar solutions.

And if one of groups of engineers works for a gigantic entrenched corporation descended from a exceedingly wealthy, much larger, corporation that got wealthy from decades of government-granted monopolies and is willing to spend billions of more money on lawyers and government payments in the hope of more government monopolies on markets, rather then producing actual useful goods and services are the ones versus their closest competitors they will:
A) Get a huge number of technology patents.
B) Go out of business because they are spending money on lawyers and government payments rather then producing competitive goods and services.

This company is Nortel. The result is that they have lots of patents and shit products. So they go out of business.

Apple and friends are purchasing patents not because of the value of the ideas they contain, but because they represent government monopolies that they can use to cripple their competitors.

In this case they are turning to soft-fascist business practices in order to combat Google and Android.

This is because Google gives away software for free for cheaper and faster phones then what Apple and friends want them to be sold at. They want to hurt consumers and limit the progress of technology through the use of government monopolies in order to protect their profits.

This way if they cannot convince people to pay more then the market price for smart phones then they will use the government to force people to pay more then the market price for smart phones and have those extra profits get sent to them completely regardless who actually produced the phones or the software running them.

Andras July 2, 2011 at 11:32 am

Dear Nate-m,
Your logic seems totally circular. What I fished out of it is that your main concern is that these patents were granted to technologies that had not been unique and novel at the time of filing. Is that true?

noel July 2, 2011 at 6:05 pm

learn the difference between “then” and “than”

Bob Roddis July 1, 2011 at 9:24 pm

With Nozick’s Wilt Chamberlain argument in the news, what evidence do leftist even have that the free market leads to these allegedly unfair and unjust outcomes in the distribution of income and wealth that they so fear? We certainly know that crony capitalism and IP lead to such results but the leftists cannot wrap their tiny brains around such differences to even acknowledge their existence.

Ohhh Henry July 2, 2011 at 8:50 pm

$4.5 Billion for a few thousand patents, yet this was a company which collectively could not tell sh_t from sh_nola and which died an ignominious death because of it. Kind of a joke, eh?

Insiders have told me that working for Nortel was really nice, like a holiday compared to other hi-tech companies. It was like a government department, with (for the most part) little attention paid to deadlines, the bottom line, or any other line except the line for Tim Hortons coffee which was right inside the building. Profitability was distant dream that was never achieved except in pro-forma La La Land, but every single silly, government-initiated “green” program was seized upon and trumpeted throughout the company, such as “bicycle to work day” and recycling everything under the sun.

“Keep cranking out those patents, boys, someday they’ll going to really be worth something!” (to US companies that actually have a chance of getting a judge and jury to respect them in a US court).

patent litigation July 4, 2011 at 10:15 pm

Considering the company’s bidding strategy on the Nortel patents, one has to wonder whether Google was ever very serious about its bid. If so, hopefully it learned its lesson: next time, instead of Pi, go with Feigenbaum’s constant ($4,669,201,609).
http://www.generalpatent.com/media/videos/gpc-ceo-alex-poltorak-interviewed-about-nortel-patent-auction

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