Nortel patent sale fuels uncertainty over LTE intellectual property

Big guns scrap for IP stockpile

Nortel sells its patents

One factor that could swing the balance of power is the huge pile of 4G-related patents held by bankrupt Nortel Networks, which are now coming up for sale. This is the last remaining asset of Nortel left to be sold, almost two years after the Canadian firm declared bankruptcy. It could be a major battle. The three firms fighting to define the new mobile experience – Apple, Nokia and Google – are all said to be bidding in an auction that could generate $1bn for Nortel‘s creditors, and others are sure to join in, probably including Ericsson, which has acquired the bulk of Nortel‘s other wireless businesses. RIM had expressed interest in Nortel‘s IPR last year, but is unlikely to be able to fend off the giants.

Nortel separated many of its formidable pile of intellectual property assets from the sale of other units, notably its 4G, CDMA and GSM businesses to Ericsson. At the time, there was controversy over the decision to keep many patents off the table, and Nortel was even considering keeping the IPR and retaining its brand as a licensing firm. However, with such high-profile companies now reported to be interested, it is unlikely the Canadian company could satisfy the requirements of its creditors, and generate more value by keeping its patents than by selling them.

Citing unnamed sources familiar with the process, news agency Reuters reports that final bids for the 4,000 patents are due within the next few weeks. The assets have been split into six groups in different technology areas, and these could presumably be sold separately.

The most valuable is likely to be the one for LTE. Nortel contributed significantly to both 4G standards, WiMAX and LTE, with R&D in key areas including OFDMA and MIMO. According to Reuters, Nortel owns seven of the 105 patent families likely to be essential to LTE. By comparison, Nokia holds 57 and Ericsson 14.

One of the largest companies building a business around wireless patents, InterDigital, told the new agency it was part of a consortium bidding for the LTE IPR. "It's unusual for an asset like that to come to market," the company‘s CEO William Merritt said. Usually, patents are traded in small numbers, not en masse.

Success for a non-traditional mobile player on the LTE front, such as Google, could be a catalyst for a change in 4G licensing norms. Google, like Intel, would be more interested in opening up patents to stimulate a massive base of devices that could use its services, rather than becoming a royalty business in its own right. If we do not see a change of this nature, time may be running short to create a new framework for LTE, despite the rising pressure from some important power bases, such as the CE sector and the manufacturers of Taiwan.

Taiwan demands a pool

The latter play a hugely important role in any device ecosystem and will enhance their place in the mobile world as a more open model, encompassing a wide range of wireless products, emerges. But the vendors‘ margins are thin, and they are concerned at the potential level of patent royalties that could be payable in LTE. The Taiwanese handset makers are calling for the LTE community to support a patent pool approach, rather than bilateral and secret agreements. And as the margins of the branded device makers get thinner too, they may find new allies.

According to DigiTimes, quoting local industry sources, the manufacturers are worried that, without a large patent pool supported by many of the IPR holders, the diversity of LTE patent ownership will make cross-licensing deals complex to negotiate and expensive to implement. The threat of being charged with patent infringement will deter investment and innovation in LTE products, argue the vendors.

Three patent pool operators – Sisvel, VIA Licensing and MPEG LA – have been trying to attract sufficient large numbers of patent owners to gain critical mass, but none has succeeded yet. They claim to have signed up 32, 14 and five companies respectively and the third of the pools is expected to back away from LTE.

Yung Hahn, president of the Open Patent Alliance (OPA) – which is seeking to build a licensing framework, based on the pool approach, for WiMAX – said he believes there is a window of opportunity for the same to happen for LTE. Since the OPA was formed in 2008, it has been argued that its WiMAX approach could form a blueprint for LTE, because of the similarities in the technologies. Hahn hopes to announce the WiMAX common licensing framework in the first months of the new year, saying that most major issues have now been resolved.

He said this week: "This would be an opportunity to get involved in the LTE ecosystem and develop a reference point there, but there is a finite window. It is not too late yet but there need to be moves in the first half of next year to create a transparent reference point."

Without successfully establishing a broad-ranging pool and framework, he believes there is the danger of excluding small innovators, which have little to bring to the table in bilateral negotiations, and also non-traditional mobile device makers, such as consumer electronics players. He favors VIA‘s pool, as he believes Sisvel is more tied into the big names and MPEG LA has a waning interest.

Note:

Ericsson has agreed to pay $50m for certain assets of GDNT (Guangdong Nortel Telecommunication Equipment), which has R&D, manufacturing and services operations in China, It has become an important supplier to Ericsson following the earlier acquisitions of Nortel‘s CDMA and GSM businesses, said the Swedish firm. About 1,100 employees, including 550 R&D engineers, will join Ericsson following the deal. GDNT started in 1995 as a joint venture between Nortel and Chinese companies and telecoms operators. As well as the LTE, CDMA and GSM activities, Ericsson has also bought up Nortel‘s stake in Korea-based LG Nortel, and the Canadian firm‘s multiservice switch unit.

Copyright © 2010, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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