This past Friday afternoon, Judge Richard Posner issued the final word (for now) in the patent dispute between Apple (AAPL) and Motorola (MMI). The Wall Street Journal took a position squarely on the fence, running a story stating that "legal experts remain divided on whether the ... ruling will have much impact on other disputes involving smartphone combatants." It should only be a matter of time before the commentary turns to a discussion of how the ruling affects Nokia's (NOK) ability to rely on its patent portfolio.
After all, MIT's Technology Review recently wrote about how NOK's patents were its last line of defense. The MIT article quoted an IP consultant who claimed that, based on data-points like Nortel's patent sale, NOK's total portfolio could be worth more than the company's market value, which was $9.6 B at the time. Of course, the consultant didn't bother to explain how he arrived at that figure or how much more than $9.6 B the portfolio could be worth.
Another Seeking Alpha contributor, Ry Frank, recently put a price on the portfolio of $5.34 per share (just shy of $20 B), which seemed to be based on the Nortel portfolio auction and Google's takeover bid for Motorola. Frank speculated, based on the 'price per patent' metric from these two data points ($750,000 and $500,000, respectively) that a willing buyer would pay $500,000 per patent for NOK's reported 40,000 patents. But with other purchases of LTE-essential-rich portfolios, such as Acacia's acquisition of Adaptix, reaching nearly $5 million per patent, and InterDigital's (IDCC) likely non-essential patent sale to Intel (INTC) only reach $220,000 per patent, what is the real value of NOK's patents and how might it have been affected by the Apple-Motorola lawsuit?
For background, both companies argued that the other infringed various patents, but earlier, Judge Posner provisionally dismissed both companies' claims because neither side provided sufficient evidence of damages owing to the other's infringement. On Friday, Posner made the dismissal official by denying any recovery by either party and castigating Motorola's attempt to shed its obligations to offer only fair, reasonable and non-discriminatory royalties for use of its patents (so-called FRAND commitments) and, instead, obtain an injunction against Apple. Posner agreed that any such order would be entirely unjustified in light of Motorola's FRAND commitments.
Like Motorola, NOK also made FRAND commitments when declaring parts of its portfolio essential to various telecom standards. FOSS Patents blogger Florian Mueller previously documented how NOK balances FRAND commitments with its patent enforcement efforts:
Nokia made a clear distinction between FRAND-committed and unencumbered patents ... and used only such unencumbered patents at the ITC and in lawsuits in which Nokia requested unconditional injunctions. With respect to standards-related patents, Nokia asked the court to determine an appropriate level of FRAND compensation ....
NOK's large share of LTE-essential patents actually may work against the company if it tried to cash out its entire portfolio. First of all, FRAND likely limits the licensing value for a large segment of its portfolio, which potential buyers would take into account when making their bids. Second, the conditions leading to last year's Nortel and Motorola purchases are unlikely to be repeated. Fortunately for stakeholders, however, even a relatively low portfolio comparison (such as the $220,000 per patent from IDCC) would price the portfolio roughly equivalent to NOK's current market value.
Meanwhile, NOK remains open to arrangements similar to the one reached with Microsoft and Mosaid, in which NOK receives a significant share of the purchaser's licensing revenue. While technically patent sales, these types of deals should be thought of as more of a licensing play, with their potential to bring in more substantial revenue, albeit over a longer time period.
Thus, while Posner's ruling may temporarily chill the market for all-cash patent sales, NOK's strategy should remain unaffected as it has already demonstrated an ability to license patents directly, as well as by identifying partners like Mosaid to do the licensing work and share the revenue.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
