In the litigation-fraught wireless industry, patents are equivalent to both protection (from lawsuits) and profits (from licensing). Under those circumstances, identifying which technology companies have the most – as well as the most valuable – wireless patents is a worthwhile exercise.
The answers, as recently calculated by Jefferies & Co., are a mix of familiar and unexpected names. Working with industry experts, the investment bank screened thousands of patents, individually scrutinizing 1,400, according to analyst Peter Misek’s Sept. 21 note to investors.
The aim was to distinguish which companies owned what Jefferies terms “essential LTE patents”. Those are patents core to the 4G technology standard LTE (Long Term Evolution). Since most major wireless operators around the world are building out LTE networks, including AT&T and Verizon Wireless in the U.S., LTE patents are viewed as among the most valuable intellectual property in the mobile industry.
In a surprise finding, Jefferies named LG Electronics as the leader in essential LTE patents. Though the Korean electronics company is rarely mentioned as a patent powerhouse, it claims 23% of the pool of LTE patents that Jefferies analyzed.
San Diego-based Qualcomm ranked second on Jefferies’ list with 21% of the patent pool. Given its long-established business of licensing wireless technologies to gadget makers, Qualcomm is likely to be included on any roundup of wireless patent holders.
Four companies basically tied for third place by each claiming 9% of essential LTE patents. They are Motorola Mobility, InterDigital, Nokia and Samsung. The value of both Motorola Mobility’s and InterDigital’s patents has already been well-publicized. Motorola attracted an acquisition offer from Google in August, largely due to its patent holdings. InterDigital, a Pennsylvania-based wireless technology developer and licenser, is preparing to auction off its IP assets and is rumored to have attracted the interest of Apple and Microsoft, among others.
Next in Jefferies' ranking are two telecommunications equipment providers, one currently operating and one defunct. Jefferies says China’s ZTE has 6% of the LTE patents it examined while Nortel, a Canadian telecom company that filed for bankruptcy in 2009, owned 4%. Nortel’s LTE patents were sold in late June to a consortium consisting of Apple, EMC, Ericsson, Microsoft, Research In Motion (RIM) and Sony.
Two companies that bid in the Nortel auction consortium also made Jefferies list on their own: Sweden’s Ericsson, with 2% of the patent pool, and RIM with 1%. Jefferies’ appraisal of RIM’s patent holdings is particularly interesting since the BlackBerry maker is viewed as a potential acquisition target due to its recent struggles. Misek estimates the liquidation value of RIM's patents to be approximately $2.5 billion. RIM’s patent monetization value is lower – around $1 billion – because of its ongoing handset business, according to Misek.
Rounding out Jefferies' list is Chinese telecom equipment maker Huawei, which like RIM has 1% of the patent pool the bank studied. [My colleague Eric Savitz offers another look at Jefferies' list here.]
Assessing patents is, of course, a difficult thing. Misek points out that valuing patents is not as simple as counting the number of patents a company has. Deciding which patents are “essential” is equally complicated. Misek's note also includes a caveat that patents can be subject to special conditions that affect their worth, such as cross licensing agreements, foreign ownership and asset transfer restrictions.
This complex, fragmented environment points to ongoing tension and litigation over tech IP. To safely operate in the mobile industry, a company needs to have substantial portfolios in the three main patent areas involved in the design of smartphones: operating system and software, hardware and wireless patents. Very few companies meet that requirement, says Misek. Even mighty Apple “could be stronger” in wireless patents, though it is solid in hardware and operating system/software IP. All in all, “the patent wars are far from over,” Misek concludes.
