Nortel deal may be to boost RIM patent store

NEW YORK - Research In Motion looks like an odd suitor for Nortel Networks' mobile network equipment unit but the deal could help the BlackBerry smartphone maker plug gaps in its technology patent portfolio.

RIM said on Monday it wanted to bid $1.1 billion for the wireless assets of the bankrupt Canadian company but that it had effectively been blocked because it would not pledge to refrain from submitting bids for other Nortel assets for a year.

The announcement was seen as an effort to appeal again for access to an auction of the assets and raised questions about why RIM would even consider buying assets that would thrust it into a viciously competitive market as an underdog.

While many analysts were worried about the logic of a bid and the price, which is well above the stalking horse minimum bid of $650 million, others see such a deal giving RIM access to Nortel's large store of intellectual property (IP).

That could reduce RIM's royalty fees for wireless technology used in its smartphones. It may also offer the Canadian company some protection against patent infringement litigation or even to generate a new source of revenue.

RIM needs to bolster its IP position in wireless, as the company's legacy is in email, Goldman Sachs analyst Simona Jankowski said in a research note.

Telecom companies often pay each other large fees or enter swap agreements for licenses in order to use one another's patented technologies to develop products supporting agreed wireless standards. Some of these agreements come at the end of bitter legal battles over technology patent infringements.

As reasons behind RIM's need to bolster its patent store, Jankowski cited RIM's $612 million payment to privately held NTP in 2006 and its $267 million settlement agreement last week with Visto over technology patent lawsuits.

It may be disadvantaged from an IP perspective relative to its cellular competitors, both by having to pay higher royalty rates and being more exposed to patent litigation, she said.

But it was not immediately clear from RIM's announcement the specific assets it was looking to buy from Nortel and what exactly it expected to gain from buying those assets.

Genuity analyst Deepak Chopra said Nortel had roughly 3,650 U.S. patents and 1,650 patents in other countries as of the end of 2007 and estimated that its patents from just one technology could mean royalty revenues of $150 million a year by 2013.

Chopra cited previous Nortel estimates that its patents could bring in about 1 percent of global revenue for equipment based on Long Term Evolution (LTE), a new wireless technology that many of the world's biggest operators plan to use.

If Nortel's IP can generate that level of royalty from LTE, the patents could produce hundreds of millions in revenue per year, Chopra said. If the IP is the primary target, we could see RIM sell the network business.

While Goldman's Jankowski estimated that a $1.1 billion price tag for Nortel's wireless network gear business could still leave room to boost RIM's earnings, others worried about the distraction of owning a completely new business.

Several analysts expect RIM to hold onto the IP assets and sell the network equipment business to either a private equity investor or to another network gear maker.

Nokia Siemens, a venture of Nokia and Siemens, has already offered $650 million for the whole Nortel unit so it would be unlikely that it would be content with leaving the IP assets on the table.

MaitlinPatterson, a U.S. private equity firm and Nortel creditor, said on Tuesday it submitted a $725 million bid.

Deutsche Bank analyst Brian Modoff said it would be difficult for RIM to buy the whole unit and then separate the infrastructure business from the patents.

That's a messy deal, he said. There's a reason (the infrastructure and IP assets are) being bundled together. You need both elements.

Even if RIM does end up with just the IP assets, Modoff said it was still hard to decipher the benefits for the company.

If they're becoming an infrastructure provider that scares the heck out of me because you're going outside of your core competency in a big way, Modoff said.

And if RIM is solely looking to invest in IP, it still needs to clearly explain the value of such a purchase for investors, said Modoff, who complained that it had not explained recent deals involving intellectual property.

He cited RIM's purchase of security software firm Certicom for about $106.5 million in March as well as an IP deal with Ericsson, which was not publicly disclosed.

They've never explained the IP they've acquired, said Modoff, who estimates that RIM has already spent more than $1 billion on intangible assets in the last six quarters without disclosing details about those assets.

If you're buying the IP, you're spending a lot of your cash and you're not explaining the reasoning behind buying it, he said.

(Reporting by Sinead Carew; Editing by Frank McGurty, Phil Berlowitz)