Patent News | "Transforming Nortel’s patents into gold"

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Category : Patent News

OTTAWA — Now comes the hard part for the engineers at Rockstar Consortium in Kanata. The region’s newest patent licensing stars are busy searching for evidence that the technology industry is using Nortel Networks’ patents without payment.

Rockstar paid an unexpectedly large sum — $4.5 billion — for 4,000 Nortel patent assets last June in a deal that transformed the intellectual property industry.

It is still early days for Rockstar — it won U.S. anti-trust approval just six weeks ago — and the company doesn’t have the usual corporate signs in new offices next to the Brookstreet Hotel.

But the team was happy to celebrate when we visited. Like 20-somethings at hot startups, the engineers played with music industry symbols to celebrate the emergence of their new company and Nortel’s rich patent legacy.

They are industry veterans, each with 10 to 32 years at Nortel.

“We have some very good patents and we’re doing the reverse engineering,” said Dan Lingman, who worked for Nortel for 14 years. “It’s going to make buckets of money.”

It is deadly serious beneath the exuberance.

With huge patent sales involving Google, AOL, Microsoft and IBM and the legal wars between Apple, Google, Oracle and others, their work will be watched closely.

The Rockstar name is improbable for a company immersed in hardware and software design and the once deadly-dull world of patent law. The label was dreamed up by Ericsson, the Swedish wireless giant, for one bidding vehicle in last year’s hectic auction war for the Nortel prize by industry giants in a Manhattan law office.

Apple, after bidding independently for several rounds, emerged to bankroll the victorious Rockstar group, including Microsoft, Research in Motion, Sony and Ericsson, in 20 rounds of bidding.

The final bid — more than three times initial expectations — thwarted a consortium led by Google and Intel. The price was 60 per cent more than Nortel got during previous auctions for all its operating businesses.

The patent auction set off a tidal wave of high-priced deals in which Google, Facebook and other companies paid rich premiums for patents owned by IBM, Motorola and Mosaid. Smaller patent-licensing companies watched their stocks soar.

Rockstar thinks it has an edge.

“We are different from some patent licensing companies,” director of operations Vicki Carver said. “We don’t just acquire patents, we have the people in our reverse-engineering labs who developed some of the original technology.”

Rockstar now has 32 engineers, lawyers and other employees in Ottawa and Richardson, Texas. About 75 per cent worked for Nortel.

The chief executive officer of the operation is John Veschi, a one-time U.S. military officer and patent lawyer for California chip giants LSI and Agere. He took over the Nortel Intellectual Property division in 2008 and was deeply involved in the auction. He divides his time between Ottawa and operations in the U.S.

“The entire industry has benefitted from Nortel’s groundbreaking innovations,” he said in a company mission statement, “and we are eager to work with them to establish licenses enabling the continued use of this technology.”

Rockstar is talking to potential companies about licensing deals but, not surprisingly, isn’t disclosing the status of negotiations or potential lawsuits.

However, David Smith, director of Rockstar patent sales and acquisitions, said the company is not providing evidence in the Apple suits. In addition, the U.S. anti-trust approval of the Rockstar takeover contained conditions requiring open licensing to prevent unfair competition.

Rockstar is busily assessing the 6,000 patents to determine their value now and in the future. Smith said Rockstar could sell small groups of patents that are not critical to its plans — a strategy that could exploit the current high price of patents.

Many new successful companies like Google and Facebook, which have relatively few patents, are willing to pay lots to acquire them because they are vulnerable to lawsuits. The acquired patents are valuable as much for intrinsic value as for ammunition in counter-suits or negotiating cross-licensing deals to stop court actions.

The average price of patents sold has jumped from $750,000 each for the Nortel patents to $1.3 million in the Microsoft-AOL deal earlier this month.

Smith, a native of Belleville where Nortel had roots that predated the Ottawa operation, said a welcome benefit of the $4.5 billion Rockstar is the opportunity to replace some of the losses that thousands of Nortel pensioners suffered a year ago in the elimination of benefits and reduced pensions.

Smith said the Nortel patents are likely more valuable than some held by established giants. The reason, he said, is that Nortel allowed many border-line patents to lapse rather than pay maintenance fees during the tough times.

Even more significantly, Nortel made little effort to license the vast array of patents.

That means there are no existing agreements based on the weaker market prices of the past to prevent Rockstar from getting higher prices now.

Finally, he said Rockstar could benefit from inventions that Nortel was never able to exploit because they were too advanced for the markets of the day. Some involve traditional Nortel strengthens in wireless and optical products while others involve unrelated fields like computing, social networking and electronic commerce.

While it was alive, Nortel was frequently criticized for designing over-engineered products when the market was happy with stripped-down competition. Now the Nortel legacy may finally pay off for Rockstar.

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