Nortel's LTE patent nears, will Google come out on top?

Lynnette LunaNortel announced this week that it has received orders from the U.S. Bankruptcy Court for the District of Delaware and the Ontario Superior Court of Justice approving the "stalking horse" $900 million asset sale agreement with Google's (NASDAQ:GOOG) subsidiary, Ranger Inc., for the company's LTE patents.

That means an auction, scheduled for June 20, will ensue for the patents. And it should be an aggressive one that could push the price of the patents, which cover wireless video along with LTE, well over $1 billion.

It seems no one wants to see Google in control of the 6,000-some patents and patent applications. That's because Nortel's patents would reportedly allow the new owners to control and license technology used in handsets running rival operating systems. Google could try to use the patents to gain influence and premium patent royalties. In announcing the patent auction, Nortel said its IPR "touches nearly every aspect of telecommunications and additional markets as well, including Internet search and social networking."

As such, it's likely that technology companies will come together and bid on the patents. One key member of such a group could be patent company InterDigital, which raised $200 million from a private offering last month. It's focusing on buying more LTE patents as it aims to charge incrementally more for them than its 2G and 3G patents. For instance, "a rate increase of just 0.1 percent would result in an additional $1.2 billion in revenue on a net present value basis, based on sales of 3G and LTE enabled handsets over 10 years," said Bill Merritt, president and CEO of InterDigital, during the company's first-quarter conference call, according to transcripts from Seeking Alpha.

"...We believe if we can purchase the right patent portfolio with meaningful size or the right company with such assets, it can quickly translate into higher rates and deliver substantial value to shareholders. We believe such assets are on the market and more will come," Merritt said. "One such asset, of course, is the Nortel patent portfolio."

Merritt added that InterDigital is interested in participating in the Nortel auction "through the right partnership. Those opportunities continue to exist and it may provide us the opportunity to secure a meaningful portion of the Nortel asset."

One the other hand, Nortel's LTE patents are the be all, end all. Merritt said he believes the supply of LTE patents coming to market will increase. If the demand for patents increase, many companies could decide to sell them off. "We are seeing that now, as many companies are evaluating their patent assets and deciding whether they should sell them," Merritt said.

It will be interesting see just how serious Google is willing to be in bidding for Nortel's patents. Since Android is now a central part of the company, it could be very aggressive. --Lynnette

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