Photo provided by Global IP Law Group
The $4.5-billion winning bid in the Nortel patent auction was one of the most extraordinary business and legal events of 2011, one that moved the stock prices of some of the world's biggest technology companies and made the captains of corporate America take notice. It was also a stunning market debut for little known Chicago law firm, Global IP Law Group, which was founded in 2009 by veteran patent litigator David Berten, and his partner Steven Steger, a longtime in-house IP counsel for various technology companies.
“You have law firms that generally focus on litigation and non-lawyer brokers who advise companies on selling patents,” Berten explained. “We saw a real opportunity for a law firm organized solely on helping companies monetize their intellectual property.”
When Ragnar Olson, former director of Ocean Tomo's patent transactions group, joined the firm right after it opened its doors, Berten's vision of a patent-monetizing law firm was complete.
“Ragnar knew a lot of IP sellers and a bunch of buyers from his work at Ocean Tomo, and with our hold-over work from our previous firms, we got off the ground quickly as we brought all the extra pieces together,” Berten said
A few months later, the firm beat 15 law and patent-licensing firms for the coveted job of advising the bankrupt technology company on how best to monetize its substantial patent portfolio. From 2009 to 2010, the daunting, all-consuming task of cataloguing, analyzing and valuing more than 7,000 patents with over 11,000 claims set the stage for the hottest bidding war in patent history.
Pitting such tech giants as Google, Apple, Microsoft, IBM, Intel and Research in Motion against each other, the auction started with Google's bid of $900 million, raising the stakes higher for the rest of the field. The winning bid went to Rockstar Bidco LP, a consortium of purchasers that included competitors Apple, Microsoft and RIM. The final price tag for the entire portfolio eclipsed even the sale of Nortel's entire operating business units, which went for $3 billion.
“These are operating units that had billions of dollars in revenues and tens of thousands of employees and they all sold for $3 billion,” Berten noted. “I think when the price of the winning bid was announced everyone started paying attention to their patents.”
Lawdragon: How did your firm end up representing Nortel?
David Berten: In late 2009, Nortel started to sell off its operating business, and what was left was this mass of patents. The people looking at them were mainly bankruptcy lawyers and investment bankers who didn't have a lot of expertise on how to evaluate and value the patents. So the group put out a request for proposal. About 15 firms responded and that got whittled down to four firms. We didn't know whom we were competing against. But I heard that some of them were broker-type and others were general practice firms. We got interviewed and we were asked to put together a written request for proposal. The meeting was held in Chicago where our office was, and there were a lot of people at the meeting representing various parties. Nortel's bankruptcy was multi- jurisdictional – Canada, U.S. and Europe, and in each of those jurisdictions, there were a number of advisers. All told, whenever we would meet with people, there were frequently 20 or 25 professionals involved in trying to figure every decision.
Most of them didn’t have a lot of experience with handling patents. So we gave them a bit of a tutorial, instructing them what needed to be done in order to analyze and value the portfolio. Essentially, we told them that someone has to sit down and read every independent claim of every U.S.-issued patent that amounted to about 11,000 claims. We told them that all four senior partners at the firm would bring their high-level experience to review the entire portfolio.
We managed to convince them that we were the right firm to do the job. We started working on it and built a system that would allow all four of us to do it as efficiently and effectively as possible. We divided the work; each assigned several thousand claims. I read about 2,500 claims representing about 800 patents. In eight weeks, we got through the whole portfolio, and by that time we knew that the Nortel portfolio was valuable.
LD: Can you give us a behind-the-scenes look of those days leading up to the $4.5-billion bid?
DB: After we completed our review and got initial feedback, we then had to explore a couple of different ways of turning the assets into money. The first option was to keep the portfolio and license it, or to sell the patents separately or all the patents together. Once the decision was made to sell the portfolio, we worked with Nortel's internal team, and we started the process of marketing the portfolio in May 2010. That's where the hard work started. We had to put together a brief overview of the portfolio and create a detailed catalog of the patents and the technology they cover.
We certainly spent a lot of time analyzing the portfolio, working with the Nortel team to understand it, to be able to demonstrate quickly to buyers how the patents applied to a whole bunch of different technology areas, not just handsets but a whole host of technologies. Not only did we need to identify and contact parties who may be interested in buying the patents, we had to ensure that purchasers understood the depth and breadth of the collection, and that required having many in-person meetings with them, both with high-level management and deep-level personnel, and talking about the different aspects of the portfolio and how they strategically apply it to their businesses. It wasn't clear if we were going to be able to sell the whole portfolio at once. Once the issue was resolved, we went back to the bidders and negotiated a stalking horse agreement, where Google agreed to pay $900 million.
After that happened, there was a period of time we had to wait for the bankruptcy court, and we had to encourage other bidders to show up at the auction. Cleary Gottlieb ran the auction itself, but it's not like a regular auction at all. It lasted four days, and it was held in a large conference room in Cleary's New York office that holds 300 people.
Mostly it was really just hard work where you have 25 or 30 professionals who would start their day at seven in the morning and leave at 11:30 or at midnight, all the time trying to make sure all the documents were correct and that any decision that we made was truly designed to get the highest bid for the estate.
There was a brief announcement, and everyone in the room went to their own conference rooms. The team for Nortel had a big room and then new bids would get submitted via email and evaluated in five or six hours. And then the new lead bid got announced. There was more negotiation on the document. It started on a Monday and ended on a Thursday. By Thursday morning we were down to two bidding groups, and the new lead bidder was announced. All the documents were once again resolved, and then we were down to the last two bidders. People didn't leave the room, and people just said here's the bid and the bidding permit. In the end it took about another hour to exhaust all of the bids.
LD: What was your reaction when you found out the price of the winning bid?
DB: I personally thought it kind of had to be a record. When we were first looking at the portfolio, we were struck by the unprecedented number of patents. At that time, there was no portfolio of that many patents that was shaken loose from any operating company. I have not seen a portfolio like this with almost 7,000 patents. But it wasn't surprising because the company had spent about $40 billion to develop the portfolio in the first place. When you have that all together we were pretty convinced that whatever number it was going to be it would be one of the largest.
We were hopeful given the number of bidders that the auction would be robust. To have five bidders to start was a good sign. When the auction unfolded, the bidding really had to move in the particular direction it did, and it was anybody's guess when the bidding was going to end.
There was a lot of hard work involved in the whole process, and there certainly was a sense of professional pride by the entire team. It wasn't just Cleary or us. There was a large number of professionals from Norton Rose in Canada, Ernst & Young in Canada and the UK, a bunch of advisors from Lazard, who took pride that they had handled this asset in such a way that it yielded a winning positive number for the estate.
LD: What law firms were represented at the auction? Were they general practice firms or IP specialty firms like yours?
DB: There were a whole bunch of different firms involved. Google was represented by Wachtell and Bingham McCutchen. Primarily it was Cleary on the one side and Wachtell on the other side. Nortel was supported by its in-house people and us. Apple was represented by Weil Gotshal, and a whole host of other professionals were there. Herbert Smith represented the UK unit of Nortel, and Allen & Overywas involved for the clearance. Paul Weiss, Covington & Burling and Dewey & LeBoeuf were there too. A large number of big firms were represented there. It's safe to say we were the smallest law firm.
LD: Some people have described the Nortel auction as the tipping point for how corporate America values IP. Do you believe that?
DB: The announcement of the winning bid caused a lot of companies to look at their IP assets again, and some of those are well known and public. Companies like InterDigital, Kodak and RIM were widely publicized to be looking at possible patent sales, and they are not the only companies that are looking at their patents. John Veschi, the head of Nortel's patent team, had a pretty astute observation about the trend. He said he thinks this rises to the level of a corporate governance issue. Usually when there's a board member opening, a lot of people emphasize the need to get people with finance background. He said now it's imperative to have some IP expertise on the board to advise the company on the value of its IP and how to extract that value.
LD: What is life like after the Nortel auction for you and your firm?
DB: We've been pretty busy. A lot of companies have contacted us. We have successfully closed additional transactions. In short we've just been very busy. We've also added a couple of partners and believe there's still a strong demand for our services.
LD: Who are your competitors now?
DB: I don't know of any other firm that is both organized as a law firm and has our focus. There are non-lawyer patent brokers, and they do a really good job of advising and working on the sale of patents. But they're not law firms, and they really focus on sales more than anything else. If somebody is going to do a regular patent sale, some of our competitors will be those patent brokers. The other leg of our practice is licensing campaigns, helping companies license their patents, and that's complemented by our patent litigation practice. In that area we compete with other firms in patent enforcement litigation: Niro Haller, Quinn Emanuel, Robins Kaplan, McKool Smith. Those are the types of firms that generally do plaintiffs work.
LD: Why did you become a lawyer?
DB: If you ask my family, they will tell you I was a born lawyer. I did like to argue. I was pretty much committed to law and trial law. I thought it was something I would be good at and that I would enjoy. I studied urban planning in the University of Virginia and went straight to law school at the University of Wisconsin. I took urban planning because it was a nice disciplinary undergraduate degree. I thought it would expose me to hard science, and I think it has helped me a lot in my patent work.