Nortel sells its patents to Ericsson

I am indebted to Joff Wild who reported on his IAM blog the recent developments on the Nortel asset sale. A few weeks back we discussed the bid by Nokia Siemens Networks on our post and significantly noted that the LTE patent rights were not included in the bid for USD 650 Million. Swedish company Ericsson pipped them with a massive USD 1.13 billion offer which included apparently the patent rights.

This apparently has upset Canadian company RIM and a number of politicians in Canada would like to see the bid overturned on grounds of national security. The Dow Jones Newswire reports, however, that the Canadian industry minister has yet to make a decision.

Our post quoted JPMorganChase who apparently had valued the patent rights at USD 2.9 billion - although a more realistic value might be USD 950 million. If we look at the USD 480 million difference in Ericsson and NSN bids and do a net present value analysis it does look as if those LTE patents would be worth around USD 950 million over their lifetime.

Ericsson have, of course, got their own portfolio of LTE patents. So they probably don't need any more to "swap" with other players. A cynic might suggest that the main reason for purchase would be to ensure that the IP rights remain in safe hands and don't get snapped up by a "troll" who wishes to extract cash from the telecommunications companies.

More on Licensing in the Mobile Telecommunications Space

Eric Stasik of Avvika in Stockholm was kind enough to follow up my recent blog entry of licensing rates in the mobile telecommunications sector with the following additional comments:


On the matter of telecom royalty rates, even more interesting than the announcement by Nortel is the recent revelation by Qualcomm:

"Qualcomm COO, Len Lauer revealed on the occasion of a Merrill Lynch Global Technology Conference on June 03 that the company normally charges 4%-5 % as royalty for 3G shipments. The COO further revealed that the company had put royalty rate at 3.25 % when it was asked by European standards group to submit a rate for LTE."

(http://www.telecomtiger.com/Corporate_fullstory.aspx?storyid=6478&flag=1&passfrom=topstory&section=S162)

The European standards group referred to is NGMN presently under the auspices of ITU.

In addition to Nortel's 1% we have Ericsson (http://www.ericsson.com/technology/licensing_programs/index.shtml) who earlier announced an LTE royalty rate of 1,5%.

If you take 3,25% + 1% +1,5% you're already at 5,75%.

Now add to this Nokia + Motorola + InterDigital + another score (or more) of essential patent holders and you arrive at a number much larger than the "single digit royalty" which Ericsson and Nokia are talking about with regard to LTE. I would be surprised - indeed stunnned - if any ex ante exercise on 4G/LTE produced a number less than 20-25%. A "single digit royalty" is simply not credible.