Nortel Networks To Choose Stalking-Horse Bidder For Patent Portfolio In 2-3 Weeks >NRTLQ 02/02 03:37 PM
(This story and related background material will be available on The Wall Street Journal website, WSJ.com.) By Stuart Weinberg, Anupreeta Das and Matt Wirz Of THE WALL STREET JOURNAL Canada'sNortel Networks Corp. (NRTLQ:$0.0406,$0.0236,138.82%) expects to select an initial bidder for a highly coveted portfolio of patents within three weeks, drawing from a pool of at least five potential buyers including Apple Inc. (AAPL:$344.30,00$-0.73,00-0.21%) and Google Inc. (GOOG:$612.00,00$0.96,000.16%) , people familiar with the matter said. Nortel filed for bankruptcy in 2009, and has been slowly shedding its assets in bankruptcy court, including the portfolio of 4,000 patents. This portfolio contains a set of key patents related to the emerging technology used in the increasingly dominant long-term evolution, or LTE, wireless phone networks. Wireless carriers, network-equipment firms and handset vendors are interested in the Nortel patents because they could be a critical defense against lawsuits in the ultra-competitive, and increasingly litigious, wireless industry. The deal, expected at around $1 billion, would be a preliminary "stalking horse" bid filed with the Delaware bankruptcy court, these people said. Stalking-horse bids are initial offers for an asset that help set a floor price for a broader auction. One bidder interested in a deal is a consortium that includes two patent- licensing companies, Intellectual Ventures LLC and InterDigital Inc. (IDCC:$49.36,00$-0.63,00-1.26%) , and hedge fund Fortress Investment Group (FIG:$5.94,00$0.2200,3.85%) . A second group includes RPX Corp., another patent-licensing company that recently filed for a $100 million public offering. These companies buy intellectual property and license them to others for a fee. Apple (AAPL:$344.30,00$-0.73,00-0.21%) and Google (GOOG:$612.00,00$0.96,000.16%) are also in the mix of buyers, as are Huawei Technologies Co. and ZTE Corp. (ZTCOF:$4.0500,$0.1500,3.85%) (ZTCOY, 0763.HK, 000063.SZ), two Chinese telecom-equipment makers, according to the people familiar with the matter. It is unclear if BlackBerry- maker Research in Motion Ltd. (RIMM:$61.10,00$0.70,001.16%) is still involved in the auction. Technology companies that are not part of the process right now, such as Motorola and Ericsson, could also swoop in with offers after the stalking-horse bidder is revealed, said people familiar with the auction. Nortel was a research leader in various wireless technologies with a spaghetti of complicated acronyms, such as orthogonal frequency-division multiplexing, or OFDM, and multiple-input and multiple-out, or MIMO, which form the foundation of LTE technology, said Lewis Zaretski, of intellectual-property strategy firm Hamilton IP Ventures LLC. All the companies declined to comment or could not be reached for comment. Telecom equipment supplier Ericsson (ERIC, ERIC-B.SK) bought Nortel's CDMA business for $1.1 billion in 2009, topping a $650 million stalking-horse bid by Nokia Siemens Networks. Avaya purchased Nortel's enterprise unit in 2009 for $ 900 million, almost double its stalking-horse bid, while Ciena bought the bankrupt company's metro ethernet in 2010 for $774 million, also well above its $390 million stalking-horse bid. Patent litigation has gotten more contentious in recent years, particularly in the market for wireless devices. Apple (AAPL:$344.30,00$-0.73,00-0.21%) is engaged in a patent fight against handset manufacturer Nokia Corp. (NOK:$11.350000,$0.500000,4.61%) , which alleged last year that the iPhone maker had infringed on its intellectual property. RIM, of Waterloo, Ont., has been an aggressive buyer of intellectual property in recent years, spending hundreds of millions to bulk up its patent portfolio. The company has also paid nearly $900 million since 2006 to settle two separate infringement suits, including a $613 million payment to end its high- profile dispute with NTP Inc. In 2009, when Ericsson purchased a Nortel business built around the CDMA technical standard, RIM urged the Canadian government to block the sale on grounds that the patents were a "national treasure." Ultimately, Nortel retained ownership of the LTE patents, licensing them to Ericsson. RPX is what is known as a "defensive-patent aggregator" that acquires patents so they cannot be invoked in lawsuits against its corporate members. RPX has 70 members, some of whom are believed to be contributing to its bid. Members include RIM, Taiwan-based HTC Corp. (HTCXF:$21.8434,$0.0000,0.00%) and Huawei. Other members include: Google (GOOG:$612.00,00$0.96,000.16%) , Samsung Electronics Co. (SSNLF:$448.0000,$0.0000,0.00%) (SSNHY, 005930.SE), Cisco Systems Inc. (CSCO:$21.63,00$0.16,000.75%) , Nokia (NOK:$11.350000,$0.500000,4.61%) and Verizon Communications Inc. (VZ:$36.169899,$-0.100101,-0.28%) . Unlike RPX, closely-held Intellectual Ventures and InterDigital use patents for offensive purposes, licensing them as broadly as possible and asserting them in infringement suits against companies that refuse to take a license. Nearly one third of Nortel's $450 million of 10.75% bonds due in 2016 have traded in the past week, lifting the debt to 88.50 cents on the dollar from 84.50 cents at the start of January, according to MarketAxess. Bondholders and Nortel's pensioners and suppliers remain locked in courtroom battles over how to split proceeds from the estate's various auctions and have been waiting for the results of the patent auction before cutting a deal, according to people familiar with the matter. --Ben Dummett contributed to this article.
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