After Buying 1,000 IBM Patents, Google Eyes InterDigital Licenses

After losing the bidding war over Nortel Networks patents, Google Inc. (NASDAQ: GOOG) has purchased more than 1,000 technology patents from International Business Machines Corp. (NYSE: IBM). In addition, Google is eyeing on InterDigital's broad portfolio of more than 18,000 patents (awarded and pending). There were also reports that Apple Inc. (NASDAQ: AAPL) is also considering a bid for InterDigital's portfolio.

Google in mid-July recorded the acquisition of more than 1,000 patents, which was reported earlier by the blog SEO by the Sea, with the U.S. Patent and Trademark Office to bolster its portfolio and also to protect itself from patent litigation.

The patents from IBM covers a broad range of technologies, including fabrication and architecture of memory and microprocessor chips, server and router design, and software programming such as relational databases and object oriented programming.

"Like many tech companies, at times we'll acquire patents that are relevant to our business," a Google spokesman told Wall Street Journal.

Google is facing lawsuits, in the midst of patent deals, for many of its services, including Android mobile operating system. Google is also facing a patent suit from Oracle Corp. (NASDAQ: ORCL) over Java.

Following the surprising Nortel Networks patent auction price of $4.5 billion for 2 percent to 5 percent of 4G patents, Google and Apple are about to enter a patent war at the InterDigital auction, Jefferies said in a note to clients.

Currently, original equipment manufacturers (OEM) representing 40 percent of handset shipment license from InterDigital. LG and Nokia, neither of which is a current licensee, have paid fees to InterDigital in the past.

This indicates that InterDigital's patent portfolio is broadly accepted. Its owner would likely easily be able to sign cross-licensing deals with other patent holders, Jefferies said.

Earlier this month, InterDigital said it has initiated a process to explore potential strategic options, which may include a sale or other transaction. InterDigital has about 180 engineers, more than 18,000 patents (awarded and pending), and about 16 percent of the essential LTE patents versus 3 percent held by Nortel.

"InterDigital’s patent filings picked up significantly in the last ten years, meaning that the bulk of their patents (and especially the core 3G patents) do not expire until 2020 and later. In addition to the core wireless patents, InterDigital is testing a video compression technique that requires only a fraction of the normal bandwidth but does not degrade video quality. This would be of high interest to Apple and Google," said Peter Misek, an analyst at Jefferies.

Misek said InterDigital's patents could save Apple $3 to $10 per handset and could substantially increase the price of the low-cost Android phones launching in second half of 2011.

Assuming a 5 percent unit compound annual growth rate thereafter and a 10 percent discount rate, the InterDigital portfolio could be worth between $3 billion and $10 billion to Apple.

After losing the Nortel bidding war, will Google outrun Apple in the InterDigital auction? It remains to be seen who emerges as the winner.