Nortel shareholders’ case for IP mismanagement

The patent community has had its major story for months now: the Nortel patent auction. IAM and Joff Wild have been blogging about the auction process. They are surprised there has been no news yet on the outcome of the biding process. There is one aspect however that has not been dealt with in the discussions over the last months and which I raised earlier during the IPBC conference in San Francisco.  If – as is being rumored – the Nortel portfolio could make anything between 900 million and 1.3 billion US$, (if that is true at all, the IP community likes big numbers) this would certainly be the largest patent sale ever. Most commentaries have a jubilant tone, much in the style of “see this shows the value of patents, moreover if Google is one of the bidding parties it shows that techno giants finally acknowledge the value of patents”. It is mindboggling though. How come this huge sales price can be realized by Nortel in bankruptcy status? Why could this value not be made while Nortel was still an operating company? I would argue that the successful sale of this patent portfolio in bankruptcy shows that there is and was huge value in the patents, which could have been discovered and exploited by Nortel’s management while Nortel was still alive. Obviously they did not. Had they done the same analysis of patent strength and sales & marketing opportunities some years ago when Nortel was an active telecom company they could have saved the company from bankruptcy. Proceeds from the auctions fall in the bankrupt assets, run by administrators who have the obligation to satisfy creditors. Shareholders are in line after many other, sometimes preferred, creditors and the likelihood of any shareholder to get a return on their investment is very small, if at all. 900 million will most likely satisfy most creditors, but shareholders are the last ones in the food chain.

As Rob Sterne, Trevor J Chaplick and David J Berger wrote:

IP management is not often considered a primary issue for oversight by directors. The company management, rather than the board, operates the company on a day-to-day basis, and IP issues generally reach board level only when litigation is on the horizon. However, this situation may be changing, as the increasing importance of intellectual property and the growing scrutiny faced by the board require directors to revisit IP oversight policies.

It’s too late for the Nortel Board to pay attention, they had their chance but did not take it. Although not a big fan of litigation, in this case I would suggest that if the bankruptcy administrators are able to make the money the IP community expect this auction will produce, I suggest “shareholders unite” and get yourself a excellent attorney and sue former management for mismanagement of Nortel’s intellectual property.