Posted by: Ed Tittel
high value on high-tech patents established in Nortel portfolio buy, Nortel patent portfolio sells for $0.75M per patent
When the dust settled on Nortel’s auction of about 6,000 patents in its intellectual property (IP) portfolio last week, a consortium that included Apple, Microsoft, and RIM, among others, paid $4.5 billion to take title to that collection. Do the math: 4.5 billion divided by 6,000 works out to $750,000 per patent. That puts a pretty high average value on a technology patent these days, and definitely sends a warning as to where settlement negotiations are liklely to begin to those organizations that may find themselves accused of infringing any of these patents in future litigation.
As somebody who works occasionally as an expert witness in patent infringement cases involving Web development technologies and commercial Web sites, I have learned to find the economics and analyses involved in setting damages in such litigation both intricate and fascinating. Basic principles dictate that plaintiffs argue for the biggest damages they can “reasonably” collect, and defendents argue to limit damages to the smallest amounts they can “reasonably” assess. But the economics and details involved in determining running royalties, deciding licensing fees to inure against patent liability, determining lump-sum damages estimates, and establishing the dates, motivations, and amounts assigned to “hypothetical negotations” (an imaginary agreement between plaintiff and defendant that goes back in time to the date when the first assumed patent infringement might have occurred) remain endlessly argumentative and infinitely absorbing. (I should observe that in working as an expert witness myself, I don’t get involved in determining damages estimates, though I am occasionally asked to provide historical data about licensing fees, royalty rates, or product costs at the time of a hypothetical negotiation.)
What’s interesting about this acquisition of a large collection of patents is that the Law of Large Numbers also dictates that the average cost per patent that emerges ($0.75 M) provides a definite and tangible benchmark for the going value of a high-tech patent nowadays. This is a pretty big number, but if the settlements that my research work and trial participation have made me learn about are any indication, this kind of investment in IP is likely to pay off handsomely for consortium members. It is more likely to serve them as a bargaining chip to fend off lawsuits rather than as a body of work to mine for lawsuits, in the sense that members can offer cross-licensing of their patents in exchange for elimination of liability for other alleged infringements from other patents belonging to third parties.
However, given the multi-million dollar settlements that are so often awarded in these cases, an outlay of $4.5 B also suggests that consortium members may have expectations for generating revenue from this outlay, as well as for obtaining some degree of “insurance value” from the Nortel portfolio’s contents. Only time will tell!