Google's Stalking Horse Bid for Nortel Networks Portfolio

Wed, 4/6/2011 - 12:00AM — OCEAN TOMO

 GOOGLE’S STALKING HORSE BID – ANOTHER EXAMPLE OF BEING ONE STEP AHEAD OF THE CROWD

CHICAGO, April 6, 2011 – As Scott Morrison reported yesterday in Dow Jones Market Talk, Ocean Tomo, LLC was involved in valuing a portion of the Nortel Networks Corp. patent portfolio specifically focused on “assets that pertain to LTE-enabled handsets and infrastructure – technologies relevant to Google's (GOOG) focus on high-speed networks that can support mobile entertainment and social applications.”

Following the announcement early this week of Google's $900 million stalking horse bid for the patent portfolio of Nortel Networks, public speculation abounds regarding both the value of the portfolio, as well as Google's strategic motivations. Much of the discussion was fueled by a post from Kent Walker, Senior Vice President and General Counsel for Google, who first advanced a litigation avoidance theory explaining, “In the absence of meaningful [patent] reform, we believe [the acquisition of the portfolio is] the best long-term solution for Google, our users and our partners [in order to maintain] freedom to develop new products and services [without the threat of litigation].”

Following Walker’s post, it was widely reported that Google is interested in the portfolio to boost their overall level of patents (approximately 800 U.S. patents in force), as well as to defend specifically against pending litigation over both the Google Chrome browser and the Android operating system. The community consensus is that bids approaching a billion dollars cannot be justified by litigation avoidance alone and that there must be a larger strategic view in mind.

Perhaps insight into Google's vision can be found in the writings of its Chairman, Eric Schmidt, found earlier this year in the Harvard Business Review article “Preparing for the Big Mobile Revolution”:

“We are at the point where, between the geo-location capability of the phone and the power of the phone's browser platform, it is possible to deliver personalized information about where you are, what you could do there right now, and so forth – and to deliver such a service at scale.”

Eric Schmidt noted that to prepare for the big mobile revolution, Google needs to focus on three imperatives, the first of which is “developing the underlying fast networks…which will usher in new and creative applications, mostly entertainment and social, for these phone platforms”.

There are roughly 114 assets, including both issued patents and applications within the Nortel portfolio of approximately 6,000 that pertain to LTE-enabled handsets and infrastructure. The U.S. issued patents studied by Ocean Tomo (58 in total) fall into six primary classifications, with the majority in three: Multiplex Communications, Pulse or Digital Communications, and Telecommunications. The 58 issued U.S. patents are of above average quality with an average Ocean Tomo PatentRatings® IPQ® score of 127 (with 100 being average).

Download the Ocean Tomo PatentRatings Analysis and IPQ Scores for a Representative Sampling of 58 Nortel Patents that Pertain to LTE. 

With the LTE connection market estimated to reach $109 million by 2014¹, “LTE will be the standard chosen by 80% of the carriers in the world².” Over 100 manufacturers have tested, tried and commercially announced LTE products in the market³. Considering the 4G/LTE portion of the Nortel portfolio, and the competitive intentions of the other market participants, the true potential value of the patent portfolio comes into focus.

By focusing first on 18 of Nortel’s highest rated and most relevant 4G/LTE patents, analysis shows the quality and relevance of the thirteen leading competitive portfolios. This study was based on Ocean Tomo’s PatentRatings® System (PatentRatings.com), a system designed for objectively assessing patent quality, relative value, relevant patents and technologies, competition, and competitive trends. 

The “X” axis, or Average IPQ, reflects the average quality of patents within the portfolio. The IPQ score objectively rates patent assets based on a proven statistical methodology. The IPQ Score has a median of 100. Patent assets with higher IPQ Scores are statistically more likely to generate economic returns. The further to the right the company is along that axis, the higher the quality of patents within the portfolio. InterDigital’s portfolio, though small in number, reflects the highest quality.

The “Y” axis or Average Relevance Score, represents the technical relatedness of any one patent portfolio to any other patent portfolio. Patents are created around a series of citations and this analysis essentially determines the degree of overlap between the network of citational relationships of the two portfolios. In sum, the closer the company is to the Nortel portfolio, the more relevant the portfolio is to that company. The above analysis shows all thirteen competitive portfolios to be closely rated.

According to James E. Malackowski, Chairman of Ocean Tomo, “Our analysis shows a patent landscape in a relatively concentrated quality and relevance range. This suggests others may also be equally interested in the portfolio as either a buyer or licensee.”

In either case, Google’s bid seems to be another example of the company being one step ahead of the crowd.

About the Landscape Map Chart

The chart includes a representative group of relevant LTE technology contributors related to high quality LTE patents owned by Nortel Networks. The results are based on Nortel’s OFDM/MIMO technologies, which underpins LTE. This analysis is a representative subset of evolving LTE standards and firms.

Ocean Tomo's Relevance Score is a proprietary patent-to-patent measure statistically derived from patent citations (as related patents are cited during prosectution). This metric is used by the world's largest and most sophisticated patent holders to identify closely related patents, technologies and companies. Given a particular wireless technology, Ocean Tomo's Relevance score can rank-order third party contributors to a general technology field and suggest multiple dimensions of business opportunities.

Ocean Tomo's IPQ score measures patent quality. Such scores are used to quickly assess patents as higher or lower in quality, which is used as a proxy for relative value. It is a statistically derived measure and is similar to FICO scores used in credit analyses where median value is set at 100 (above 100 indicates above average quality). 

Ocean Tomo PatentRatings uses more than 50 factors known to commercially correlate to patent value. A firm having an average IPQ score 120 would be considered strong with patents in the top quartile of all US patents. Portfolios within the 120-130 range have proven a reasonable chance of influencing and impacting margin structure within their industry. As with any analysis tool, a note of caution applies as overall quality rankings offer only one perspective and must be accompanied by a review of individual patents and claims.

About Ocean Tomo, LLC

Established in 2003, Ocean Tomo, LLC, is the leading Intellectual Capital Merchant Banc™ firm. The company provides financial products and services related to Intellectual Property, including expert testimony, valuation, research, ratings, investments, risk management and transactions. Ocean Tomo assists clients – corporations, law firms, governments and institutional investors – in realizing Intellectual Capital Equity® value broadly defined.

Headquartered in Chicago, Ocean Tomo has offices in Boston, Greenwich, Orange County, Paris, and San Francisco. Subsidiaries of Ocean Tomo include: Ocean Tomo Risk Management, LLC; Ocean Tomo Asset Management, LLC; OTI Data Networks, LLC; Patent Marking, LLC; and Ocean Tomo Capital, LLC – publisher of the Ocean Tomo 300® Patent Index family. Ocean Tomo is the founder and majority owner of the Intellectual Property Exchange International (IPXI), Inc. as well as the exclusive licensee and distributor of PatentRatings® system.

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¹“3GPP Mobile Broadband Innovation path to 4G,” p. 28
²Higginbotham, Stacey, “LTE vs WiMZX: A Little 4G Sibling Rivalry,” Gigaom, March 5, 2008.
³LTE: Long Term Evolution”, Long Term Evolution, technology, 3G Americas


Photo by Jorge Franganillo / CC BY-SA 4.0