Who Could Apple Buy to Bolster Its Patent Portfolio?

AppleThe famed patent wars in which every mobile company has been involved in the last few months, saw a very interesting twist on August 15 when Google announced that it would buy Motorola.

Google had been until recently the underdog when it came to patents with only about 2000 patents in its portfolio. Now, it came to possess one of the largest patent portfolios with over 20,000 patents and more than 7,500 pending patent applications.

Acquiring Motorola gave Google not only the means to defend Android and its hardware partners against patent lawsuits, but also its own hardware manufacturing arm and possibly a wild card entry to get back into the Digital TV business.

(Read More: Google’s Ace in the Hole: Motorola)

However, the last week hasn’t been very positive for Apple. A German court suspended Apple’s injunction which prevented Samsung from selling its Galaxy Tab 10.1 Android tablet in the European Union, which means that the greatest threat to the iPad 2 is back on the market. Additionally, HTC filed a patent infringement lawsuit against Apple, seeking a ban on almost all Apple products in the U.S.

It seems that the tides have turned against Apple in less than 2 days, though we cannot know the results of any of these lawsuits for sure.

However, many analysts and industry observers seem to agree that Apple needs to further bulk up its patent portfolio. With $76.2 billion in cash, Apple can easily afford to do so.

Here are two potential acquisition targets for Apple, which are already on the block.

1. InterDigital

OK, this one is obvious. After Google lost the Nortel patent portfolio to Apple and Microsoft, rumors indicated that Google was planning to buy InterDigital which held over 8,800 patents related to wireless technology. This caused InterDigital’s stock to jump over 65% in 3 days, but now that the deal is obviously not happening, it’s already down 20%.

Anyways, Apple could probably snag InterDigital and its patents now for less than $4 billion, since Google is out of the race, assuming no one else jumps in.

2. Kodak

This is the other potential acquisition target for Apple. It may seem out of the blue, but Kodak, the camera giant of yore, has close to 1,100 digital imaging patents related to processing and storing digital images. The technology covered by those patents is likely used by almost every digital camera out there, including mobile cameras. Kodak also has loads of other patents, the combined value of which is estimated to be close to $3 billion. It has already sued Apple and RIM for infringement, so it obviously thinks that those patents hold some value.

By buying Kodak, Apple could not only get out of this lawsuit, but also demand licensing fees from other mobile companies like HTC, Nokia, Samsung and Sony Ericsson.

Samsung Enters the Bidding War for InterDigital Patents

The patent wars in the technology industry just keep raging on. According to a report by Bloomberg, Samsung has now entered the race to acquire InterDigital’s huge patent portfolio, which has more than 8,800 patents related to wireless technology.

A Recap

As I reported a few weeks ago, Google was trying to buy InterDigital’s patent portfolio after it lost the Nortel patent auctions against a consortium comprised of Apple, Microsoft, RIM and others. With Apple, Microsoft and Oracle gunning for it and its Android device partners with patent infringement lawsuits, it is currently in a very desperate position. It needs to build up a huge patent portfolio, and the best way to do it fast is by buying some company which has one already.

Enter Samsung

Samsung has been slapped with multiple patent infringement lawsuits by Apple, which has alleged that Samsung slavishly copied its iPhone and iPad designs to create the Galaxy line of smartphones and tablets. Apple is definitely feeling threatened by the tremendous growth in Samsung’s smartphone sales, and the success of the new Samsung Galaxy S 2.

It seems like Samsung has decided to take matters into its own hands, and get some patents which it can use to defend itself.

InterDigital has a lot of key patents,Lee Seung Woo, a Seoul-based analyst at Shinyoung Securities Co., said by telephone. The fight between Apple and Samsung is getting serious, so if the assets go to Apple, it could be pretty risky for Samsung. To hedge the risk, Samsung could go ahead with bidding, although they may have to pay a big premium.

How It Could Play Out

Since Samsung is the largest Android device manufacturer by sales, Google and Samsung could possibly team up for the InterDigital acquisition against Apple, just like Apple, Microsoft and RIM teamed up against Google during the Nortel patent auctions.

InterDigital’s stock has risen more than 60% since the initial rumors of a possible acquisition. It currently has a market cap of $3 billion. With heavyweights like Google, Apple and Samsung in a bidding war, all with a huge amount of cash reserves, the purchase price could go higher than $5 billion, according to experts.

InterDigital Joins the Patent Fray; Accuses Nokia, Huawei and ZTE of Patent Infringement

Almost all the major smartphone manufacturers in the U.S. are currently at war with each other. Apple has sued Samsung and HTC over patent infringement, Nokia has won a patent settlement from Apple, Microsoft is making more money from Android than it ever did from Windows Phone 7. Even Oracle, which seemingly has nothing to do with smartphones is suing Google over the use of Java in Android.

Patent portfolios of bankrupt companies like Nortel are being sold for billions of dollars, and the value of companies with huge patent portfolios, like InterDigital and Motorola, has increased significantly in the last month.

InterDigital’s stock price rose over 65% in 3 days since it was revealed that Google and Apple were looking to acquire it for its massive portfolio of over 8,800 patents related to wireless technology.

Well, that was then. According to a press release by InterDigital, it seems like they have decided to enter the patent wars themselves. They filed a patent infringement complaint with the U.S. International Trade Comission against Nokia, Huawei and ZTE, alleging that they imported 3G wireless devices to the U.S. which infringed upon 7 patents owned by InterDigital.

It also stated that its talks with Nokia, Huawei and ZTE regarding a settlement or a licensing agreement failed to reach a resolution.

Over the past thirty years, InterDigital has invested nearly one billion dollars in the development of advanced digital cellular technologies, creating important innovations, and helping to drive an industry creating billions of wireless connections,said Lawrence Shay, President of InterDigital’s patent holding subsidiaries. During that period, we have signed dozens of license agreements with manufacturers, giving them access to a patent portfolio of approximately 19,000 issued patents and patent applications among the largest wireless portfolios in the world,continued Shay. The vast majority of our agreements have been reached without the need for litigation. However, despite having engaged in good faith efforts to license our patents to Nokia, Huawei and ZTE, we have not been able to reach an acceptable resolution. As a result, to protect our intellectual property and the interests of our licensees, we made the decision to bring legal action against these parties.

The timing of this complaint seems a bit suspect. It might be used as a bargaining chip to demand a higher price from Google or Apple.

Here’s the complete press release by InterDigital:

InterDigital Files Complaint Against Nokia, Huawei and ZTE With International Trade Commission

Google and Apple Slugging it Out to Acquire InterDigital and its Patents

Google is in a very tight spot right now. Being a relatively young company, compared to Microsoft, Apple, IBM etc, it doesn’t have many patents to its name. It has surely been innovating a lot, and has been building its patent portfolio in the past decade, but it is still nowhere compared to Microsoft or Apple, with less than 1000 patents in its portfolio. Its plan to acquire Nortel’s patent portfolio, which had over 6000 patents, failed when it lost a bidding war against a consortium of its greatest rivals – Microsoft, Apple, RIM and some others.

In the meantime, almost every company (well not every company, just Apple, Microsoft and Oracle so far) is bullying Google and its partners which make Android devices over patent infringement related to Android. To put an end to all the bullying and litigation, Google needs to bulk up its patent portfolio, and the only way to do it fast is by acquiring a company which has a huge one, related to telecommunication. Once Google acquires a decent number of patents, it won’t remain vulnerable and can easily defend itself and its partners against patent infringement lawsuits from the likes of Apple, Microsoft and Oracle.

Google obviously knows this, which is why they bid billions of dollars for the Nortel patents in the first place, but it’s hard to win an auction when you are up against heavyweights like Apple and Microsoft, who have billions of dollars in cash waiting to be used.

According to a report by WSJ, it seems like Google has another acquisition target in its sights – InterDigital. InterDigital has almost 8,800 patents related to wireless technology, and is possibly the best option for Google right now. Apple knows this, and with $76.2 billion in cash, it will likely try to acquire InterDigital as well. Ever since word of a possible acquisition got out, InterDigital’s stock has jumped up almost 65% in 3 days. Its market cap is now $3.3 billion, which is still way lower than the $4.5 billion Apple and Microsoft paid for the Nortel portfolio.

InterDigital’s management team knows this very well, and will try to auction itself to the highest bidder. Google is running out of options, and Apple has nearly double the cash that Google does. So, none of them are going to back off easily.

If I had to pick one stock to invest in, right now, it would definitely be InterDigital. It’s priced quite high right now, but I expect to rise even more, however irrational it may seem. Currently, patents are worth their weight in gold, and with Apple and Google’s billions in the game, the prices are very likely to be bid up. Winner’s curse, Auction theory 101.

Disclosure: I have no open positions in any of the companies mentioned in the post.