Inside look at $4.5B Nortel patent auction reveals battle of wills between Apple, Google - Page 4

Originally, Schmidt wanted to bid in multiples of 666, but Page overruled him.

Ericsson has just become relevant again. One wonders however, what OS they will use.

Teach us all, genius.

"RIM and Ericsson paid $1.1 billion together" not "each".

You're right, I think it's misquoting by AI. If you look at Cringley's site he doesn't say MS and Sony put in a billion each.

After Intel tapped out it then joined Google's side. So the $4 billion probably included Intel.

Just because these companies have billions of cash doesn't mean they can spend whatever they want. Even though Apple has $66- $70 billion in cash, what they spend on these patents will need to be reconciled on the book.

Generally speaking these can either be recorded as one time item or amortized over time. There may be strict rules on which of these two the company must follow.

If recorded as a one time purchase then it will drag down earnings for that quarter significantly. But the up side is that investors generally understand that this is a one time event due to the purchase and it wont affect the stock price... hopefully.

On the other hand, if it is amortized over next 3-5 years then the impact on any individual quarterly earnings report will be quite small... but it would give the perception of lower earnings and growth.

So spending too much on this purchase can have long term financial consequences.
Furthermore with $4 billion, even if one were to put that into a low interest rate instrument with 3% yield, the interest on that would be about $120 million a year.

That still $5.5B. Apple $2B + RIM & Ericsson $1.1B TOGETHER + Sony & MS $1B EACH + EMC $400M = (2 + 1.1 + 2 + 0.4) = 5.5 not 4.5

However, it does look like it is a typo. It was probably Sony & MS put $1B together not each.

Interest rates on Apples investments are extremely low as they seem to prefer short maturity US treasuries. I believe I remember reading somewhere that their yield on their 'cash pile' was around 1%, and significantly lower than Google's. Anyway 3% would be quite high right now, you'd need to get out to the 10year bond to see it.

http://www.treasury.gov/resource-cen...spx?data=yield

In this case, there was a very early article that showed a fair amount of code that looked to be copied directly. I don't remember who wrote that, but I believe it was a developer.

That's all very true. But you have to look at a long term perspective, and why the patents may be needed. If it's thought that future devices may be restricted by someone else controlling these patents, then you might be very interested in making sure that doesn't happen.

Apple will be selling about $30 billion in iOS devices this year. As I said earlier, this will amount to hundreds of billions in sales over the life of many of these patents. Even if we just assume that Apple won't increase sales over the years, ten years worth of iOS related sales comes out to $300 billion. If we assume that sales will double over that time, then sales will be $450 billion, and if we make an assumption that sales will quadruple, a not ulikely assumption, then sales will have been $900 billion over the next ten years.

In light of that, whatever Apple had to spend to get control of the patents it needed, would have been trivial. We have to consider that Apple will generate at least $7 billion of free cash this quarter alone.

I had read that it was between 1.5% and 2%. but that's still low. But it's also reliable. Even a 3% interest rate those days can result in a less stable investment.

Theirs is a strange, privileged and self-referencing corporate culture.

This approach to betting was popularised by a young online player called Tom "Durrrr" Dwan. Look him up...

What about the explanation that the company name is a play on a math term, so by putting math constants in their bids they're kind of identifying them as a Google bid.

Well they are still arguably the coolest place to work for geeks, it's understandable that they'd be a bit self-regarding. Not that Apple isn't cool of course, Apple is really at the cutting edge of industrial design - but in terms of doing remarkable things with computer science nobody else compares to Google.

If they'd bid a google they'd have won :0

Google is never serious about Android. They put it out there just because. It is a stopgap until they are fully ready with Chrome OS and web apps. Google don't own mobile space. They rule desktop (ads). Read articles by DED (www.roughlydrafted.com) for side reading. That's partly why they don't very much care about Java's patent infringements or at least, being hasty about it. The one who will be more to lose by that is Android phone manufacturers. Google will let them pickup the tab when it all ends (reasonable for being cheapskates with fees or not owning in-house OS).




Hardly desperate measures by any mean. The auction was not the last or the one and only option. Perhaps you need to watch 'Desperate Housewives' for some insight of what desperate means. Apple suing Samsung and HTC because they are the one who infringed Apple's property and Google is just, well see above, they don't care. Also, these Android manufacturers were the one who producing questionable products in question.


Google couldn't care less. They're putting that out next as their latest pet project (which wouldn't last long given their past history). Owning important patents where uptake/stake is high can only mean two things:

1. As a revenue
2. As a defensive measures

They are fragmented. See how many projects they have at Mountain View. They want to be the Jack-of-all-trade but not one is significant enough. The sole purpose and the reason they are what they are is to gather data for paid-advertising. That's where the money comes from.

That's googol.

Google could have paid the 4.5 billion. They could have paid 10 billion, so why drop out? They needed the patents more than apple to cover android from what I understand. Or is google betting they won't be sued by anyone? Im a bit confused on why the accepted defeat.

Maybe they couldn't and they just don't want us to know that.

Well, sir, I'll be happy to knock on your door tomorrow to confiscate your electronics & seize your bank accounts for money laundering and financing of terrorists. Have a nice night.

</joke>

Really, with all the automated crawling that goes on by the US gov't these days I won't say such things unless you don't value your time and sanity.

Google isn't going to make as much on Android as Apple will be making on iOS. Google gets money two ways from Android. The first is by licensing some apps to the carriers, such as maps. Those aren't free as is the OS itself to the manufacturers. But that's small beans. The second is in advertising. But both together are not huge cash flow machines. Google made a billion last year on these two sources. If there are two times as many Android devices, they could make twice that, and if Ads increase, as they are doing, they will make more.

But contrast that to Apple, which will sell a good $30 billion in iOS devices this year, likely twice as many next year, and increasing from there. Indeed, iOS device sales for Apple equal all of Googles sales for the year, from everything.

This is why Apple was so interested. I also wonder if those bids from Google, later on, were just their money, or that from Intel and whomever else was with them? Apple got theirs for $2 billion from what we read, and whether that was all they bid, or there's more we don't know about is something we MIGHT find out in the quartly report, as it just squeaked under the end of the quarter.

Because they don't actually need those patents. Samsung needs them, Moto needs them, HTC needs them - but Google itself doesn't need them. Ultimately Google doesn't care about the profitability of the handset OEMs, and it doesn't care if OEMs can't compete with Apple for the high end of the market, all it cares about is ensuring that 50%+ of mobile handests come with Google services.

The handest OEMs thought Google was their boyfriend, but in fact it's their dealer, and practically their pimp. At this point there choice is to stay with Google or try to switch to MS, they don't have any other options - and MS is the bluebeard of tech - there's a room in Redmond with the bodies of their former industry partners.

The name Google is obviously an outright copy of Apple... a double letter and "le" at the end...

You seem to have some personal experience with that show. Is that your recommendation?

I guess its worth a try to get in touch with my feminine side.

This was something I thought to be very strange. Sony was involved, and ended up being on the winning side. But except for Huawei, as part of the RPX group, none of those big companies seem to have bothered to show up. I would have expected them to be there. LG wasn't there either. Neither was Sharp.

Mel, AppleInsider reported that some of this cash (how much exactly???) is also offshore, which apparently the US government is concerned about. ( http://www.appleinsider.com/articles...ash_to_us.html )

Any thoughts on this? What currencies would these be stored in? USD? Other currencies?

Keep in mind some currencies still offer comparatively huge yields, like the Australian dollar which gives 4.75% on extremely liquid savings accounts alone, it goes higher for term deposits.

Ok, but what is the plural form of platypus?

Platypi, of course.

The government isn't concerned about this at all. it's a matter of taxes. When money is earned offshore, the tax is paid there. But governments want to do double dipping, so some large companies that earn a large portion of their income offshore want some tax relief to bring that money here.

It's a complex question, but I agree with what they want to do. For the US, better the money is here then there.

The currencies would be whatever they would be expected to be wherever they are. They aren't in US dollars. I certainly don't know what the earnings are specifically. We just know what has been estimated.

I do like Platypussies though.

People were Google-plexed, until the pi was served. The result was a Google-flop.

One might rightfully look Google-eyed upon any effort to block the deal. That would be a Google-plex-flop.

The sequence of event is as follows.

5 Bidders in total, consisting of 2 consortium and 3 single company bidders
1) Consortium One: RPX which represents 20 small, mostly asian companies
2) Consortium Two: Microsoft, RIM, Sony, EMC, Ericsson
3) Apple (Rockstar)
4) Google (Ranger) --> likely in reference to stalking horse bid?
5) Intel


Google starting bid was $900 million
Intel bids $1.5 billion
RPX dropped out after first round of bidding.( 4 bidders left)

Tuesday Microsoft, RIM etc consortium reached its limit and tapped out, stopped bidding
Intel reached its limit and tapped out at unknown amount, stay as observer for possible alliance.


Only Google and Apple left bidding
24 hour negotiation took place for alliance forming

Google convinced Intel to join, bidding reached over $3 billion
Apple's(Rockstar) joined by Microsoft, RIM consortium

Google/Intel tapped out at around $4billion
Apple's Rockstar (now including Microsoft, RIM, Sony, Ericsson, EMC consortium) continued bidding until $4.5 billion.

Apple (Rockstar) wins

Base on prearranged agreement of the new consortium
Apple contributes $2 billion
Microsoft and Sony together $1 billion
RIM $770 million
Ericsson $340 million
EMC $400 million

Apple ends up owning LTE and other key smartphone patents
RIM and Ericsson gets fully paid license to cellphone related patents but do not own it
Microsoft and Sony .. not sure but likely some indirect protection for makers of WP phone
EMC owns subset of patents unrelated to smartphones

I think we're missing something here, because the numbers don't make sense. Nortel made telecom and networking equipment, so Ericsson had the closest overlap with their business. Yet Ericsson is paying less than RIM and less even than Sony.

The presumption has been that Sony and Ericsson were in this auction together to support their joint venture, but that just doesn't seem to hold water - if that was the case they'd be paying the same, or Ericsson would be paying more.

Microsoft has a very deep cross licensing deal with Apple, so why did they even need to stay in once they saw that Apple was determined?

Why the heck are Sony and Microsoft being lumped together in this way? Why didn't it get reported as 500mil each?

Ok - I'm off to make a tin-foil hat, and drink a coffee - because there's something interesting up here.

The reason why you are confused is because you appear to misunderstand how these consortium works.

These members are not equal partners. They don't pay the same going in... and they don't all have equal rights to all the patents at the end. Apple was able to keep bidding so it was the leader of the group. All the other members joined Apple once that group reached their limit. So Apple probably has the most power in dictating the terms.

Ericsson may have the most overlap with Nortel but it doesn't have the money to buy the patents on its own. So it must settle for what it can get base on how much it was willing to pay. It's unclear exactly what $340 million bought for Ericsson but base on information available it seems like it got Ericsson fully paid license to some of the patents. In other words, it doesn't own them but it has license to use them.

As for why they didn't report Sony and Microsoft as $500 million each...
It's because it may not have been $500 million each... could be $800 mil an $200 mil split. Could be $600 mil and $400 mil. We don't know.

The available information is limited because details of the arrangement was not meant to be public. So someone who was there is speaking to some journalist and giving some bullet point highlights.

You guys keep using the term "tapped out". I'm getting images of Jon Ives having Otellini in a headlock using just his legs, MMA style with the blood smears on the cage floor. Google of course is running around the outside of the cage in circles screaming "The mean prime third of an n-dimensional torus is pi to the power of negative light speed wooooo!"...

Nice wrap-up

Microsoft believed they had access to use the patents regardless of who purchased them.

Impossible to say why they were there but I would guess...

1. To keep the patents from Google and
2. To make it easier to squeeze further licensing from Android manufacturers.

I'm not sure they actually believed that. They certainly said it, and loudly - but if it was likely to end up in litigation it would be suicidal for them to admit there were doubts in public, so that doesn't really mean anything.

Cross licensing agreements are effectively contracts and when a firm declares bankruptcy their contracts are frequently torn up, especially where those contracts materially reduce the value of an asset.

It would take a bankruptcy law specialist to say whether Microsoft's rights over those patents were really as secure as they were claiming, but I'm willing to bet there was at least some risk of blowback - and given that MS has made a big point of the fact that it protects its customers from IP issues unlike those evil free folks pushing Linux they really couldn't run the risk.

Edit: A bit of detail on this from wiki

The term executory contract assumes a specialized meaning in some areas of law. In bankruptcy law, an executory contract is a contract in which continuing obligations exist on both sides of the contract. In this context, a debtor may assume or reject any executory contract or unexpired lease subject to court approval.

Casual reading would seem to indicate that this part of the law is in flux after recent court decisions regarding trademark licenses and bankruptcy- so perhaps MS could have carried the day, but it's definitely not a slam dunk. It probably also would vary between jurisdictions, so possibly MS could have found itself licensed in the US, but not in the EU.

So now not only Google copied iPhone, copied facebook (Google+), they also copied this Tom guy? Never see a more creative company in my life.