Last weeks auction of the Nortel Corps patents was a clear indication of exactly how valuable companies believe that Intellectual Property will become in the not so distant future. A consortium lead by Apple (NASDAQ:AAPL) that includes Sony (NYSE:SE), Research in Motion (RIMM), Ericsson (NASDAQ:ERIC) and EMC (EMC), bid $4.5 billion for Nortel's (OTC:NRTLQ) patent portfolio. "The size and dollar value for this transaction is unprecedented," said George Riedel, chief strategy officer of Nortel. This was five times higher than the initial bid of $900M made by Google (NASDAQ:GOOG) only a few months ago. Not that Google did not continue to raise its bid during the auction before finally bowing out after some rather scientific bidding as the company bid $1,902,160,540 and $2,614,972,128, better known by mathematicians as Brun's constant and Meissel-Mertens constant, respectively. Funnier still, Google decided to offer $3.14159 billion (you know, pi) when the bidding reached $3 billion. What exactly did Apple and its consortium buy with its winning bid?
Below: Nortel's description of the patent portfolio the consortium has agreed to buy.
"The agreement includes the planned sale of approximately 6,000 patents and patent applications spanning wireless, wireless 4G, data networking, optical, voice, internet, service provider, semiconductors and other patent portfolios. The extensive patent portfolio touches nearly every aspect of telecommunications and additional markets as well, including Internet search and social networking."
Several times I have mentioned VirnetX (NYSEMKT:VHC) and Augme Technologies (AUGT.OB) as two companies I believe own some very valuable intellectual property. Both companies have staked their claims in the mobile space and both are aggressively pursuing the prosecution of their patents against a wide range of cited infringers. VirnetX is represented by McKool Smith and Augme is represented by Goodwin Proctor, two of the top firms that specialize in IP related matters. Ironically, both have relied on respected IP Capital Group to assist the creation of monetization and license strategies.
Since the news of Nortel’s patents sale hit the wires, both companies have seen increasing investor interest. Even analysts like Matt Hoffman at Cowen recently increased his price target on VirnetX to $53 based on the conclusion that following the Nortel patent auction, Intellectual Property valuations are only likely to increase. Ironically, it wasn't that long ago that VHC was trading at a mere $3.50, just like AUGT is now.
Considering the protracted time and cost involved in creating new technologies and procuring patents, it remains far easier for companies like Google, Microsoft (NASDAQ:MSFT), Apple and others, to simply acquire strong IP from those in a first to market patented position. It may be wise for investors to now acknowledge what these big players are telling us, IP is going to play a dominant role in the changing of the guard from the old leaders to the new.
Disclosure: I am long AUGT.OB.