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Apple Joins Microsoft, RIM in $4.5 Billion Buy of Nortel Patents

Apple Inc. (AAPL) joined with rivals Microsoft Corp. (MSFT) and Research in Motion Ltd. (RIM) to outbid Google Inc. (GOOG) for a patent portfolio from Nortel Networks Corp. and gain rights to technologies for mobile phones and tablet computers.

The group, which also includes Sony Corp. (6758), Ericsson AB and EMC Corp., agreed to pay $4.5 billion in cash for the assets, Ontario-based Nortel said in a statement. The companies aim to complete the sale this quarter pending approval from U.S. and Canadian courts, it said.

The purchase will give Apple, RIM and their bidding partners control over more than 6,000 patents and applications that cover wireless and Internet technologies. The winning offer came after several rounds of bidding and was five times the $900 million Google had offered before the auction for Nortel’s remaining intellectual property.

“This is by far the biggest patent auction in history, both in terms of number of patents sold and in terms of the price tag,” said Alex Poltorak, chairman and chief executive officer of Suffern, New York-based General Patent Corp. “Nobody expected the price to get this high.”

The deal brings together Apple, RIM and Microsoft, which compete against each other in mobile computing, and leaves out Google, which makes the Android software for handset makers such as Samsung Electronics Co. and LG Electronics Inc. The Android alliance has become the leading platform for smartphones.

“Everybody is vying for market dominance,” said Poltorak. “My speculation is that everybody else pretty much got together bidding against Google and Intel.”

Higher-Than-Expected Bid

The bidding process had multiple rounds with about 150 people in the auction room, according to David Descoteaux, managing director of Lazard Ltd., Nortel’s investment banker.

“It was around-the-clock negotiations,” Descoteaux said in an interview. “We went well into the night.”

The price and the bidding show that companies considered the patents vital to their strategic goals, including the need to defend themselves from patent lawsuits and to roll out future products, Descoteaux said.

“This has woken up the world to what IP means and how companies think about ways of monetizing intellectual property,” he said.

Nortel, which filed for bankruptcy in 2009, fetched more for the patents than the $3 billion it had previously raised by selling almost all its businesses. RIM, maker of the BlackBerry smartphone, will pay about $770 million for its share of the patents, the Waterloo, Ontario-based company said in a statement. Ericsson will pay $340 million, the Stockholm-based networking-equipment maker said. Steve Dowling, a spokesman for Apple, declined to comment beyond the Nortel statement.

‘Disappointing’ for Google

Google, which also runs the world’s largest search engine, had said it was bidding on the Nortel patents as way to protect itself and partners against lawsuits. HTC Corp. (2498), Sony Ericsson Mobile Communications AB, and Motorola Mobility Holdings Inc. also make Android devices. After the auction outcome, Google said it could lead to more patent litigation.

“This outcome is disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition,” Mountain View, California-based Google said in an e-mail. “We will keep working to reduce the current flood of patent litigation that hurts both innovators and consumers.”

Android share of the global smartphone market is estimated to be 38.9, compared with 18.2 percent for Apple and 14.2 percent for RIM, according a report from research firm IDC.

Chipmaker Intel Corp. (INTC) last month received U.S. antitrust approval to bid for the patents.

Protective Move?

Many of the bidders have enough cash to drive up the price of the patents. Apple held $29.3 billion in cash and short-term investments at the end of March, while Microsoft had $50.1 billion and Google $36.7 billion.

Patent disputes over smartphone technology are becoming more common. Apple and Samsung are in a patent dispute across several countries, including the U.S. and South Korea. Apple has alleged that Samsung’s smartphones using Google’s operating system are knock-offs of the iPhone. Samsung responded with its own patent infringement lawsuits against Apple.

“With all of the litigation that’s going on, this auction may be a pure protective move on the part of many of these companies’ platforms,” said Henry Dewing, an analyst at Forrester Research Inc. “It’s an unbelievable patent portfolio.”

Court approvals of the sale will be sought at a joint hearing expected to be held July 11, Nortel said.

The case is Nortel Networks Inc., 09-10138, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporters on this story: Steven Church in Wilmington at schurch3@bloomberg.net; Tim Culpan in Taipei at tculpan1@bloomberg.net; Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net; John Pickering at jpickering@bloomberg.net.

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