RIM's quest for LTE patents complicated

RIM continues to play the nationalist card in its fight for bankrupt Nortel's LTE assets. In an emergency meeting on Friday with the Canadian House of Commons Industry Committee, RIM co-CEO Mike Lazaridis proclaimed that Nortel's LTE patents and assets are a national treasure and should stay in Canadian hands. Apparently he's not so concerned that Nortel's CDMA infrastructure business, which generated some $2 billion in revenues last year, is headed into Ericsson's foreign hands.

Lazaridis said RIM and Nortel were close to a deal for Nortel's LTE R&D workforce and patents both before and after Nortel's bankruptcy filing. But the discussions fell apart when RIM wouldn't sign the non-disclosure agreement that Nortel wanted it to sign because it had already signed two different NDAs as part of earlier deal making. Signing a new NDA would have kept RIM from obtaining both the LTE assets and the IPR it wants because, under the terms of the new deal, RIM would have been banned from bidding on more than one Nortel asset for a year.

Canadian regulators are now looking into the particulars of the transaction that saw Ericsson emerge as the winner of Nortel's CDMA and LTE assets, sans the LTE patents.

Given RIM's strong desire to get its hands on Nortel's LTE patents, they have to be pretty valuable right? But it's hard to gauge their value because the LTE licensing process is in its infancy. While JP Morgan analyst Ehud Gelblum pegged the royalty figure as high as $2.9 billion in a research note earlier this summer, Stuart Carlaw at ABI Research has said he believes that figure is overblown since the $2.9 billion number is based on the assumption that Nortel's IP could get a royalty rate of 1 percent of every LTE device sold.

TechIPm, a professional research and consulting company specializing in technology and intellectual property mining, notes that Nortel's IPR for LTE baseband products--what RIM likely is most interested in--listed on the ETSI IPR Online site shows 24 issued patents, 13 published patent applications and two pending patent applications. According to the firm, Nortel is ranked fourth in IPR shares (10 percent) among the 14 LTE IPR licensing contenders for the U.S. LTE baseband product market. Apparently the number of patents Nortel holds altogether in LTE isn't quite clear--estimates range from 1,300 to more than 5,000.

Suffice to say that owning Nortel's LTE IPR and knowhow not only will generate royalties for RIM but also will help it gain a competitive advantage early on in the LTE market and leverage in a red-hot smartphone market.

But things are complicated. Ericsson won Nortel's CDMA and LTE assets, while Nortel holds onto the patents. Could the Canadian government be convinced to block the results of the bankruptcy auction when RIM wants only the LTE assets that Ericsson has? The main reason Ericsson is willing to pay $1.13 billion for the CDMA and LTE businesses together is to gain that valuable expertise in migrating CDMA customers to LTE (Ericsson is one of Verizon Wireless' LTE vendors). It's seems pretty clear RIM doesn't want the CDMA business. And it's not clear that Nortel plans to sell off its LTE patents.

During testimony on Friday, Nortel executives said they were unsure of the fate of Nortel's LTE patents, which come with a "small" R&D staff in Dallas. The company is weighing its options when it comes to selling them off or keeping them. Executives also said the reason the LTE patents weren't included in the asset sale to Ericsson was that Nokia Siemens didn't want them when it made its stalking horse bid.

My guess is that a big auction for the LTE patents is coming up--one in which RIM doesn't want to find itself competing heavily with a number of deep-pocket giants, like say Qualcomm. --Lynnette