Apple & non-Android allies' $4.5b outbid Google for patents

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By CAF | July 3, 2011 12:03 PM EST

A consortium comprised of entities like iPhone maker Apple Inc., Blackberry vendor Research in Motion Ltd., operating systems giant Microsoft Corp. is paying $4.5 billion in cash to buy 6,000 residual patents belonging to Nortel Networks Corp., outbidding Google Inc. and others.

Apple, Microsoft and RIM are competing with Google in the smartphone market.  Google's Android operating system is already the world's number one operating system used in smartphones.  Apple's iPhone and RIM's Blackberry have their own operating systems while Microsoft is teaming up with Nokia to put Windows Phone 7 on future Nokia mobile phones.

The winning consortium also included Japanese electronics giant Sony Corp., information technology services provider EMC Corp. and Swedish provider of 2G, 3G and 4G mobile technologies Telefonaktiebolaget LM Ericsson.  RIM said it would pay $770 million and Ericsson is contributing $340 million, according to The Wall Street Journal.

The closely watched private auction at the offices of law firm Cleary Gottlieb Steen & Hamilton LLP in New York, began Monday, June 27, and only concluded Thursday.  Top chip maker for desktops Also participating in the auction was a group led by patent-buying firm RPX Corp., of San Francisco.  Intel Corp., which is also eyeing the tablet and the smartphone market, was reportedly also considering a bid -- or may have participated -- at the auction.

The significant interest from tech firms for the patents of defunct Canada-based Nortel Networks Inc. raised the price to five times Google's opening bid of $900 million.  As stalking horse-bidder, Google is receiving at least $25 million as "break-up fee".

Canadian telecom-equipment maker Nortel Networks' assets that were bid at the auction include 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, Canada-based Nortel said.

Kasim Alfalahi, chief intellectual property officer at Ericsson, part of the winning consortium, said in a statement, "The Nortel patent portfolio reflects the heritage of more than 100 years of its R&D activities and includes some essential patents in telecommunications and other industries.  We believe the consortium is in the best position to utilize the patents in a manner that will be favorable to the industry long term."

Google, operator of the world's most popular search engine, was aiming to buy Nortel's patents to further boost its stronghold in the smartphone market.  Google and other tech heavyweights have set their eyes on the patents as these can be used to defend against intellectual property lawsuits, ward off competitors and have headway in for future generations of smartphones and other devices.
Google's defeat at the auction is a blow for the search giant and other phone manufacturers relying on the Android OS.  Manufacturers that have released Android-based phones include Samsung, Motorola, HTC, LG and ZTE.

"This outcome is disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition," said Kent Walker, Google's general counsel, according to a report by The WSJ.  "We will keep working to reduce the current flood of patent litigation that hurts both innovators and consumers."

Carolina Milanesi, head of research at Gartner, said this is a case of making sure that one company alone wouldn't get these patents and be at a strong advantage. "It also seems to be that it is about competitors getting together to make sure that one company was not Google," she added.

Prior to the auction, Nortel Netwoks, once North America's largest communications equipment provider, raised $3.2 billion by selling its operations during the past two and a half years.

A joint hearing before courts in the United States and Canada is set to be held on July 11 to formally approve the sale.  Google and other parties have until July 6 to file objections to the sale.

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