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The Nortel Auction: Microsoft pays for Microsoft v. i4i

by Orlando Lopez

While most of us were getting ready for the Fourth of July weekend, Microsoft and Apple, unlikely co-conspirators, led a gang of six, also including RIM (the Blackberry people), EMC, Ericsson and Sony, in generating the winning bid (a mere $4.5 billion) for the Nortel patent portfolio, outbidding Google.  The amount paid for the patent portfolio is record-setting, being greater than what was obtained from the sale of all other of Nortel’s assets.  The outcome of the Nortel auction underscores the value of intellectual property and it is welcome news to entrepreneurs using intellectual property to lure investors.  It should also be welcome news to those that are hoping for the generation of new jobs that usually comes from new enterprises.

Just about a month ago, some of us were trembling at the thought of the possibility that the Supreme Court, in a decision on Microsoft v. i4i, would send us back to pre-Federal Circuit days and reduce the standard of proof needed to invalidate a patent to more likely than not (or in technical jargon, preponderance of the evidence); however, in Microsoft v. i4i, the Supreme Court retained the higher standard of proof (clear and convincing evidence) needed to persuade a jury of patent invalidity.  A consequence of the Microsoft v.i4i decision is that patent valuations did not decrease.  Another possible consequence is the positive impact on the economy of the preservation of the process by which entrepreneurs obtain funding.  The Kauffman Foundation has shown that young companies are responsible for the lion’s share of job creation and startup companies use patents to facilitate obtaining investments.  Given the potential for job creation, many could benefit from the Supreme Court’s Microsoft v. i4i decision.

“In contrast to the majority of patent owners, as a result of the Supreme Court’s Microsoft v. i4i decision, Microsoft found themselves the subject of double jeopardy.  Not only did they fail to obtain the outcome they desired at the Supreme Court, but a month later, they are forced to pay more than four times Google’s initial bid of $900 million for the Nortel patent portfolio.  Ouch!  While the Nortel patent portfolio will be useful as trading stamps in negotiations with those that hold patents related to smartphones or to support a smartphone platform other than Google’s Android, the price set a record for patent portfolios.  For investors in small companies, the outcome of the Nortel auction and the Supreme Court’s Microsoft v. i4i decision indicate that the investors can obtain value from the intangible assets, in this case, the patents.  So, unlike for those buying patents, the present climate is pleasing to patent owners and their investors.

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One Response to “The Nortel Auction: Microsoft pays for Microsoft v. i4i”

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