Google Rivals Scoop up Nortel Patents in High Stakes IP Tussle

By
A A A
Share |

The smartphone industry is getting increasingly competitive with patents playing an important role in establishing an edge over competitors. In the recently held auction for Nortel's patents portfolio, Google (NASDAQ:GOOG) was outbid by a consortium of Apple ( AAPL ), Microsoft (NASDAQ:MSFT), Research in Motion (NASDAQ:RIMM), EMC ( EMC ), Sony and Ericsson. At root here is the strategic value of not letting Google hold these patents, which span the spectrum of wireless, data, optical, voice, Internet and other patents. After Google's initial $900 million bid, the club of Google rivals finally trumped the search giant with a $4.5 billion bid. Apparently along the way, Google's bid of pi - or $3.14 billion - was also trumped.

Our $576 price estimate for Google stock is about 10% above market price.

Implications for Google

The issue for Google is that if it doesn't agree to license the wireless patents held by competitors, it could find itself mired by patent lawsuits. Which ones and for what? We don't know because we are not exactly sure what patents are included in the portfolio that will not be divided among the winners.

According to Nortel, the portfolio is comprehensive:

The agreement includes the planned sale of approximately 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.

Clearly the winning group saw enough reason here to combine their balance sheets against Google to ensure it wouldn't win due to a combination of: 1) Google would have claims on patents that it could then use against some of these companies in the form of lawsuits or royalties, and 2) use for its own businesses which spans spectrum mentioned in Nortel's statement and thus make Google that much bigger and stronger competitor in the respective fields.

Just last week Oracle (NASDAQ:ORCL) cited in a claim that it is seeking $2.6 billion in damages from Google as part of its patent infringement lawsuit over Java, a key software used in Google's Android operating system. Apple and Samsung are suing each other in the Korea and the U.S. So clearly there are strategic motives at play as the IP wars are heating up.

In the event that Google is sued or forced to pay higher licensing fees and royalties, this could impact its profit margins. We don't know the outcome yet, but either way Google is not happy about how this auction turned out.

Drag the trend line below to see how Google's value is impacted by changes in profit margin.

See our complete analysis for Google stock



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AAPL , EMC

Trefis

Trefis

More from Trefis:

Related Videos

Stocks

Referenced

Most Active by Volume

124,680,717
  • $15.9899 ▼ 2.44%
65,530,628
  • $59.359 ▲ 0.46%
49,654,237
  • $36.25 ▲ 5.96%
42,146,590
  • $26.755 ▼ 0.06%
38,496,705
  • $3.17 ▲ 2.59%
32,171,965
  • $85.85 ▲ 0.94%
29,541,556
  • $13.341 ▲ 2.23%
21,962,209
  • $30 ▲ 0.37%
As of 4/16/2014, 02:48 PM