Inside look at $4.5B Nortel patent auction reveals battle of wills between Apple, Google
A behind-the-scenes profile of this week's auction for a group of patents from Nortel revealed a "fast and furious" battle between technology giants Apple and Google.
According to people with knowledge of the situation, the auction saw last minute allegiances and alignments over four days of intense bidding that drove the cost up to more than three times the price expected by some analysts, Reuters reported on Friday.
The auction started with five parties, including two consortiums: Apple, Intel, Google, a consortium of Ericsson, Research in Motion, Microsoft, Sony and EMC, and a group led by defensive patent purchasing firm RPX.
Sources said Intel started the bidding on Monday with a $1.5 billion bid. The RPX consortium, which included Chinese handset maker Huawei, dropped out after the first round of the auction. RPX reportedly sought to partner with another company after withdrawing from the auction, but was unable to broker a deal.
"It did become clear to us very quickly that this was something that a bunch of big companies with humongous balance sheets had decided was strategic for them," RPX Chief Executive John Amster said. "Clearly at a price at this level it had to be strategic, and they could afford that."
On Tuesday night, the Ericsson consortium stopped bidding, eventually joining up with Apple. "When people drop out, you try to partner people," a source told the publication. "It is pretty common in auctions because you are trying to get together people who have reached their individual limits and they still have interest in the assets."
Intel backed out on Wednesday, prompting "heated negotiations" over the next 24 hours as each remaining party tried to convince the chipmaker to join them. The company eventually chose to team up with Google.
According to sources, the Apple-led consortium went by the name "Rockstar," while Google's side called itself "Ranger." Adding to the drama was the fact that Apple and Google hold some of the largest cash reserves in the industry, with war chests estimated at $66 billion and $37 billion, respectively.
"Then it was fast and furious $100 million allotments until they got to $3 billion, at which point Google asked for permission to bid more," a source said. "They bid through $4 billion and tapped out," conceding the patents to the "Rockstar" team, who placed a winning bid of $4.5 billion.
The search giant declined to comment when contacted by the publication, though it did call the auction results "disappointing." Google had hoped to substantially expand its patent holdings, which are smaller than the portfolios of older, more established technology giants like Apple and Microsoft, through the auction.
"Following a very robust auction, we are pleased at the outcome of the auction of this extensive patent portfolio" George Riedel, Nortel's Chief Strategy Officer and President of Business Units, said in a statement after the conclusion of the auction. "The size and dollar value for this transaction is unprecedented, as was the significant interest in the portfolio among major companies around the world."
Also worth noting are indications by sources that Google's bids were "mystifyingly precise" and often contained references to mathematics, such as Brun's constant and Meissel-Mertens.
"It was not clear what strategy Google was employing, whether it wanted to confuse rival bidders, intimidate them, or simply express the irreverence that is part and parcel of its corporate persona," the report noted, while one source suggested the company was either "supremely confident" or just bored.
The run-up to the auction had been closely watched, with analysts and legal experts characterizing the the patent trove as a "nuclear arsenal" of intellectual property. U.S. federal agencies scrutinized potential bidders over concerns that the patents could be wielded for anti-competitive moves.
The Department of Justice conducted an antitrust investigation into a $900 million starting bid from Google, ultimately approving the bid. Meanwhile, the FTC looked into whether Apple would use the patents offensively against competitors before granting the company clearance to bid.
Update: I, Cringelyreports that, according to people familiar with the matter, Apple paid $2 billion to for "outright ownership of Nortel?s Long Term Evolution (4G) patents as well as another package of patents supposedly intended to hobble Android." RIM and Ericsson paid $1.1 billion together for a license to the portfolio. In addition, RIM will receive Canadian tax breaks for shouldering some of Nortel's operating losses and could potentially break even on the deal.
Meanwhile, Microsoft and Sony reportedly together put up another $1 billion. Finally, storage maker EMC brokered a side deal for about $400 million that grants the company sole ownership of a subset of the patents.
"At the end of the day this deal isn?t about royalties. It is about trying to kill Android," the report noted.
According to people with knowledge of the situation, the auction saw last minute allegiances and alignments over four days of intense bidding that drove the cost up to more than three times the price expected by some analysts, Reuters reported on Friday.
The auction started with five parties, including two consortiums: Apple, Intel, Google, a consortium of Ericsson, Research in Motion, Microsoft, Sony and EMC, and a group led by defensive patent purchasing firm RPX.
Sources said Intel started the bidding on Monday with a $1.5 billion bid. The RPX consortium, which included Chinese handset maker Huawei, dropped out after the first round of the auction. RPX reportedly sought to partner with another company after withdrawing from the auction, but was unable to broker a deal.
"It did become clear to us very quickly that this was something that a bunch of big companies with humongous balance sheets had decided was strategic for them," RPX Chief Executive John Amster said. "Clearly at a price at this level it had to be strategic, and they could afford that."
On Tuesday night, the Ericsson consortium stopped bidding, eventually joining up with Apple. "When people drop out, you try to partner people," a source told the publication. "It is pretty common in auctions because you are trying to get together people who have reached their individual limits and they still have interest in the assets."
Intel backed out on Wednesday, prompting "heated negotiations" over the next 24 hours as each remaining party tried to convince the chipmaker to join them. The company eventually chose to team up with Google.
According to sources, the Apple-led consortium went by the name "Rockstar," while Google's side called itself "Ranger." Adding to the drama was the fact that Apple and Google hold some of the largest cash reserves in the industry, with war chests estimated at $66 billion and $37 billion, respectively.
"Then it was fast and furious $100 million allotments until they got to $3 billion, at which point Google asked for permission to bid more," a source said. "They bid through $4 billion and tapped out," conceding the patents to the "Rockstar" team, who placed a winning bid of $4.5 billion.
The search giant declined to comment when contacted by the publication, though it did call the auction results "disappointing." Google had hoped to substantially expand its patent holdings, which are smaller than the portfolios of older, more established technology giants like Apple and Microsoft, through the auction.
"Following a very robust auction, we are pleased at the outcome of the auction of this extensive patent portfolio" George Riedel, Nortel's Chief Strategy Officer and President of Business Units, said in a statement after the conclusion of the auction. "The size and dollar value for this transaction is unprecedented, as was the significant interest in the portfolio among major companies around the world."
Also worth noting are indications by sources that Google's bids were "mystifyingly precise" and often contained references to mathematics, such as Brun's constant and Meissel-Mertens.
"It was not clear what strategy Google was employing, whether it wanted to confuse rival bidders, intimidate them, or simply express the irreverence that is part and parcel of its corporate persona," the report noted, while one source suggested the company was either "supremely confident" or just bored.
The run-up to the auction had been closely watched, with analysts and legal experts characterizing the the patent trove as a "nuclear arsenal" of intellectual property. U.S. federal agencies scrutinized potential bidders over concerns that the patents could be wielded for anti-competitive moves.
The Department of Justice conducted an antitrust investigation into a $900 million starting bid from Google, ultimately approving the bid. Meanwhile, the FTC looked into whether Apple would use the patents offensively against competitors before granting the company clearance to bid.
Update: I, Cringelyreports that, according to people familiar with the matter, Apple paid $2 billion to for "outright ownership of Nortel?s Long Term Evolution (4G) patents as well as another package of patents supposedly intended to hobble Android." RIM and Ericsson paid $1.1 billion together for a license to the portfolio. In addition, RIM will receive Canadian tax breaks for shouldering some of Nortel's operating losses and could potentially break even on the deal.
Meanwhile, Microsoft and Sony reportedly together put up another $1 billion. Finally, storage maker EMC brokered a side deal for about $400 million that grants the company sole ownership of a subset of the patents.
"At the end of the day this deal isn?t about royalties. It is about trying to kill Android," the report noted.
Comments
If Google alone tapped out at 4 billion, why wouldn't Apple just bid for EVERYTHING at $4.5? Drop the consortium like they're hot (do people still use that?) and get everything for their money alone?
1. Less scrutiny by the gov
2. A lot less hassle if you are partners with others... it assures Apple that at least a few major companies won't be suing them in the future.
If Google alone tapped out at 4 billion, why wouldn't Apple just bid for EVERYTHING at $4.5? Drop the consortium like they're hot (do people still use that?) and get everything for their money alone?
Likely Apple agreed not to go headhunting if they acquired the portfolio. However, with a consortium any member can attack with the under the table backing of the rest.
If Google alone tapped out at 4 billion, why wouldn't Apple just bid for EVERYTHING at $4.5? Drop the consortium like they're hot (do people still use that?) and get everything for their money alone?
Because even for Apple $4.5 billion dollars is a LOT of money -- essentially for the right to sue people (and be less likely to be sued).
Also worth noting are indications by sources that Google's bids were "mystifyingly precise" and often contained references to mathematics, such as Brun's constant and Meissel-Mertens.
"It was not clear what strategy Google was employing, whether it wanted to confuse rival bidders, intimidate them, or simply express the irreverence that is part and parcel of its corporate persona," the report noted, while one source suggested the company was either "supremely confident" or just bored.
Google was just trying to remind everyone how smart they think they are.
Google was just trying to remind everyone how smart they think they are.
They used WolframAlpha to get those calculations right.
...Ipads... ...this fall.
The result was a sale price that was four times the expected amount. Apple may have bought some important patents, but they paid far more than they should have. And I've got fifty bucks that says they don't go after anyone with these, and if they do, they won't win. The US patent system is broken.
This is great that Apple owns the LTE patents. I hope the A-team rips Samsung a new A-hole. I hope Google gets hit with a huge anti-trust lawsuit. Then I hope Apple releases a Liquidmetal battery and puts every other computer maker out of their misery.
Correct me if I'm wrong, but even if Apple owned all LTE patents because of this purchase, couldn't Google or Samsung or whomever just license the technology through Microsoft or one of the other "partners"? The patents are more than likely just for defense.
Correct me if I'm wrong, but even if Apple owned all LTE patents because of this purchase, couldn't Google or Samsung or whomever just license the technology through Microsoft or one of the other "partners"? The patents are more than likely just for defense.
i don't think that's how a consortium works.
i don't think that's how a consortium works.
I honestly don't know how to say this without sounding like a smartass, but I'm really not trying to be; but please, enlighten me.
Google is a bunch of luser f*cks.
Ironic, to be sure.
The vast sums involved in the litigation and auctioning should be enough to suggest that there is a lot at stake for all involved in the near, mid and long term that could beneficially or adversely affect their fortunes.
For instance, there are many technologies for which Apple or Microsoft are currently paying license fees per unit sale which can now be brought in-house, and cross-licensing deals torn up, getting rid of parasitic patent trolls and reluctant bedfellows (also starting new rounds of litigation unfortunately).
Now people criticising Google, Microsoft and Apple's retention of such large war-chests of cash will begin to appreciate the wisdom in the strategy of keeping their "irons in the fire" for precisely this purpose.
The "bean-counters" in their corporations would have analysed the situation, estimated as accurately as possible what savings (and earnings) could be made by such acquisitions and calculated a maximum price beyond which it would not make sense to bid.
In short, this is no ordinary game, folks...
Google knew Apple really wanted these patents, so their "odd" bidding was their way of showing they weren't really serious. They just worked to artificially inflate the price, then dropped out when it looked like they were reaching the end of where Apple and the others would go.
The result was a sale price that was four times the expected amount. Apple may have bought some important patents, but they paid far more than they should have. And I've got fifty bucks that says they don't go after anyone with these, and if they do, they won't win. The US patent system is broken.
Google was bidding for a Group so please stop hypothesizing.
It's amazing and amusing how many infantile minds in various forums (fora actually) including this one view the patent wrangling and auctions as some kind of football game and come out rooting for one side or the other.
Whats wrong with backing a side? All sides are not equal. I think the outcome is good for the progression of technology as a whole. I could not say the same if the likes of Google solely won the patents.
Correct me if I'm wrong, but even if Apple owned all LTE patents because of this purchase, couldn't Google or Samsung or whomever just license the technology through Microsoft or one of the other "partners"? The patents are more than likely just for defense.
No. The Ericsson group partnered with Apple under Apple's terms.