Nortel Considered Licensing Firm Before Selling Patents

Nortel Networks Corp., the defunct telecom company, considered forming a patent-licensing firm before it auctioned off a trove of intellectual property for $4.5 billion in 2011, a company official said in court.

Google Inc., the initial bidder at the auction, was so worried Nortel would back out it demanded protection in case the sale was canceled, Nortel’s chief restructuring officer, John Ray, said yesterday in federal court in Wilmington, Delaware, where U.S., Canadian and European creditor groups are fighting over billions of dollars raised in the asset sales.

Ray countered claims by the Canadian creditors that the patents were of no value to the U.S. unit. That unit, which is fighting for the cash on behalf of its bondholders, held valuable licensing rights to the patents, he said.

His testimony could be used to show that the U.S. creditors deserve the lion’s share of the money from the patent sale. Google might not have been so worried about losing access to the patents if it didn’t think the U.S. licenses weren’t valuable. The U.S. creditors have argued that most patent revenue would come from Nortel’s U.S. unit.

Google “had a massive concern about pulling the bid off the table,” Ray said.

Nortel’s U.S., Canadian and European units are in a six-week trial over the division of $7.3 billion in cash, including the patent money, that was raised in a series of auctions after the company filed for bankruptcy in 2009.

Canadian Pensioners

Canadian creditors, including about 20,000 Nortel workers and pensioners, say they deserve almost all the money from the $4.5 billion sale of patents because Nortel was based in Ontario and its main holding company owned the intellectual property. In 2011, Google lost the patent auction to a group that included Microsoft Corp., Apple Inc. and Sony Corp.

The proposed licensing company, known as IP Co., might not have been able to collect fees related to the patents, Sharon Hamilton, who is overseeing the bankruptcy of the Canadian units, said in court last week. The Canadian units were concerned about the “viability” of any IP Co., she said.

Canada deserves $5.8 billion of the $7.3 billion, Canadian creditors said in court papers. The U.S. unit claims it should get $5.3 billion. Sheila Block, a lawyer for the U.S. creditors said the U.S. unit made up on average 70 percent of Nortel’s total revenue from 2001 to 2009.

Should the U.S. win, Canadian creditors would collect 10 percent to 11 percent of what they are owed, they said in court papers.

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

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