Shareholders are Biggest Loser in Nortel Patent Sale

Where Was Nortel Management Before Bankruptcy Filing?

Significant patent value was not something that Nortel senior management apparently believed it was sitting atop when it filed for bankruptcy reorganization under Canadian and U.S. laws.

Could management have sold, borrowed against or otherwise leveraged the value of its vast patent portfolio and prevented the bankruptcy that will leave shareholders with pennies on the dollar?

What ever happens in the Nortel patent auction this week, whether reported contenders Google, Apple, Ericsson, RPX or Research in Motion win it, and for how much, Nortel shareholders will be getting the short end of the stick.

Common stock holders are typically the most subordinated party in a bankruptcy. They are the last to get paid, behind secured debt holders, trade and other creditors and lower on the totem pole than even unsecured junk bond holders. But with a family of some 6,000 timely mobile and telecom patents worth at least $900 million and as much as $1.5 billion, one has to wonder: Where was management regarding the IP value when equity holders needed them?

If Canadian bankruptcy laws are anything like the U.S.’s in a best case scenario expect investor to get a few shares in a new entity which may or may not succeed going forward.

A summary of the Nortel patent scenario can be found on paidContent.

According to AmLaw Daily Nortel lawyers have reported that: “Previous Nortel patent sales have yielded a combined total of some $3 billion for the bankrupt company’s estate.”

The publication also stated that “As of April 30, (law firm) Cleary had billed $128 million in fees for its work on the Nortel matter, with a bankruptcy court filing showing some 300 lawyers from the firm racking up hours on the effort.”

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Although thought to be the frontrunner it will be a surprise if Google wins the auction. It certainly has the cash and could make use of the huge portfolio, but it has other exclusivity issues to deal with at the moment, including an anti-trust investigation that resembles Microsoft’s. Last week Google bought Admeld for $400m.

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  1. Hi,

    Although I do agree with the concept presented that patents can prevent companies from going bankrupt (look at what Kodak is doing – For Nortel while the portfolio spans across technologies majority of the interest comes from the LTE portfolio (A technology which was yet to be rolled out in 2009, let alone the proven behemoth on these firms see licensing, and defensive strategies can be built upon).

    In hindsight it is easy to question the intelligence of the management but given the information available to them it was a defensible position. We should not ignore that this is the first time a patent portfolio is going for such a price. Something which given the financial situation of 2009 would have been hard to expect.

    There is a big difference in the environment of 2009, and 2011. And that is the major reason for this valuation.


  2. Considering the company’s bidding strategy on the Nortel patents, one has to wonder whether Google was ever very serious about its bid. If so, hopefully it learned its lesson: next time, instead of Pi, go with Feigenbaum’s constant ($4,669,201,609).


  3. HI, I am a nortel stock holder, Couldsome on advise the name and Phone # of the Trustee
    so that I could conract him or her in order get some thing out of the loss,


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