Here’s why Google’s bid for Nortel’s patents is far too low

On Monday, former Ottawa telecom giant Nortel entered into a “stalking horse” agreement with Google for the sale of all of Nortel’s remaining patents and patent applications, for the negotiated price of $900 million. Some, however, believe that the patents are worth much more, perhaps as much as $15 billion.

Talking to the CBC recently, former Nortel director Sorin Cohn, said “People are talking about $900 million, but Google stands to make anywhere between $5 billion, $10 billion, maybe $15 billion out of these patents that Nortel is putting up through the auctions.”

A stalking horse bid is a tool used in the sale of assets by a bankrupt company. It is often used to ensure that subsequent bidders won’t low ball the purchase price. The term is an old hunting one; hunters noticed that their presence would often frighten away game birds, but the birds would tolerate the presence of horses. Hunters learned to walk alongside their horses, keeping their upper bodies out of sight.

So what, exactly, is the Mountain View search giant hunting for? For years, Google has been a staunch proponent of patent reform. As Michelle Lee, Google’s Head of Patents and Patent Strategy pointed out in 2009, lawsuits by patent trolls have become endemic. “Of the 20 patent lawsuits filed against Google since late 2007,” she noted, “all but two have been filed by plaintiffs who don’t make or sell any real product or service.” Kent Walker, Senior Vice President & General Counsel said Google sees building its own patent portfolio as a deterrent against lawsuits it considers frivolous.

There are still more than 6,000 Nortel patents remaining, including many for wireless, wireless 4G, data networking, and semiconductors. Nortel says “The extensive patent portfolio touches nearly every aspect of telecommunications and additional markets as well, including Internet search and social networking,”

After a decade of debt downgrades, missed reporting deadlines and financial restatements, Nortel declared bankruptcy on January 14, 2009. At its peak, in 2000, the company had a market value of $350 billion. At one time, Nortel represented 36% of the entire value of the Toronto Stock Exchange.

The June auction is expected to bring out the big boys, including Apple, RIM and Ericcson. Late last year, after buying a large part of Nortel’s American GSM Busines Multi-Service Switch business, Ericcson reported a relatively weak quarter, with overall revenues up just two per cent to $7.2 billion. But as The Ottawa Citizen’s Bert Hill reported, without the Nortel products, the quarter would have been absolutely miserable.

Google, it seems, will have stiff competition from at least one bidder. Research in Motion Co-CEO Mike Lazaridis has called Nortel’s fourth generation LTE or Long Term Evolution technology a “national treasure.” RIM today owns approximately 1,300 patents, nearly 10% of these cite Nortel patents.

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