Google Inc. plans to bid $900 million for Nortel Network’s patent portfolio scheduled to be auctioned during a bankruptcy proceeding in June. Nortel’s patent portfolio includes more than 6,000 patents or patent applications and covers technologies ranging from wireless, data networking, to semiconductors.
Nortel announced that it has selected Google’s bid as the starting point in the bidding process, i.e., the “stalking horse bid.” This only means that the final price of Nortel’s patent portfolio, now tagged at $150,000 per patent, will likely go even higher. In his blog, Google’s general counsel, Kent Walker, presented Google’s case for making the astonishing bid as a defense technique. Kent Walker reasoned that a company’s best defense against patent litigation is to have a formidable patent portfolio as this helps a company maintain its freedom to develop new products and services. Google foresees that Nortel’s patent portfolio will aid Google’s Android and Chrome projects.
While the deterring effect of Google’s patent portfolio acquisition against litigation remains to be seen, two immediate effects are discernable.
First, the price tag of $900 million will serve as a reference point in the marketplace of patents and related intellectual properties. Traditionally, intellectual properties are more difficult to value than tangible properties, not that evaluations of tangible properties are significantly more reliable, as demonstrated by our currently broken housing market. The number of competing bidders for Nortel’s patent portfolio in June will tell whether there exists a buyer’s or seller’s market for patents in the mobile telecommunications field.
Second, Google’s $900 million bid for Nortel’s patent portfolio suggests that a well-structured and well-positioned patent portfolio probably is worth more than the value of the individual patents. Google’s bid also seems to affirm the business model pursued by Intellectual Ventures, LLC. of Seattle, WA.
Intellectual Ventures is viewed by many as one of the so-called non-practicing entities (NPEs) – those that accumulate but do not practice patents. Unlike some of the NPEs that acquire patents and then assert them for large-sum settlements or damage awards, Intellectual Ventures has not brought any patent infringement lawsuit so far. Instead, Intellectual Ventures boasts that it owns one of the world’s largest and fastest-growing patent portfolios. According to Nathan Myhrvold, CEO of Intellectual Ventures, suing somebody to defend intellectual property rights is expensive, unpredictable, and takes years. In an article published in Harvard Business Review (March, 2010), he writes that “one way to extract the full value of patents is to aggregate them intelligently so that the whole is worth more than the sum of its parts.” He also points out one upside potential associated with a diversified portfolio is that one successful patent in a portfolio of , say, 2000 patents, can generate enough return many times the cost of the entire portfolio. He predicts successful patent portfolios could be the financial underpinnings of a new class of investment assets: patent-based securities.
Google’s bid seems to support his statements. Google’s $900 million bid for Nortel’s patent portfolio might attract more players to this emerging invention market, where inventions can be bought and sold.