If RIM is headed to oblivion, what happens to its Rockstar stake? 05 Jul 12
The dark cloud that seems to follow Research In Motion (RIM) everywhere it goes just got a whole lot stormier. The release of the company’s new BlackBerry 10 operating system – which is seen as an all-in bet to ensure survival – has been delayed. This news comes just after RIM announced net losses of $518 million over the past three months.
Despite chief executive officer Thorsten Heins’ denial that RIM is in a death spiral, the latest bad tidings can only exacerbate concerns that the Canadian company is not long for this earth. IAM has suggested before that RIM could do worse than looking to its apparently quite desirable IP in an effort to claw back some value.
A year ago this week, RIM was – as a member of the Rockstar BidCo syndicate – one of the winners in the auction to acquire Nortel’s highly prized patent portfolio. It later emerged that around one third of the 6,000-plus attained patents would be assigned directly to the individual winning bidders. According to Reuters, RIM donated US$770 million towards the BidCo fund, while Ericsson paid US$340 million; Apple's 10-Q filing from last July shows that it chipped in a princely US$2.6 billion. Presumably, those shares of the $4.5 billion the consortium paid were somehow reflected in the direct allocation.
But RIM will probably find it tricky to recoup what it spent on the patents it took sole ownership of. Most of its key competitors in the mobile space were also its partners in Rockstar BidCo – and are likely to have generous licences to all of the rights in question. Such high-level encumbrances will surely douse any potential interest from non-practising entities, too. Instead, should it come to a fire-sale, RIM’s organically grown portfolio will prove most attractive to buyers.
The remaining two-thirds of the auctioned portfolio was transferred to the ownership of Rockstar Consortium, the NPE formed by the BidCo group out of the ashes of Nortel IP team. As Rockstar’s CEO John Veschi explained in an interview recorded at the IPBC last week, five of the six Bidco bidders (all but EMC) are its shareholders; so, if RIM disappears from the scene, then there may be a position in the NPE up for grabs. Though one or several of the other BidCo members might be keen on filling the gap, it’s not clear how well this would sit with competition regulators who had already closely examined the winning bid for any potential antitrust violations.
But a stake in a new IP pure-play business could be a highly attractive proposition to third-party investors too. Veschi has claimed that the entity is already in negotiations with over 100 potential licensees. “Pretty much anybody out there is infringing,” Veschi told Wired in May. “It would be hard for me to envision that there are high-tech companies out there that don’t use some of the patents in our portfolio.”
As was discussed at the IPBC, the investment community has seen the potential returns from IP monetisation and interest in the patent marketplace is growing. Business models based on IP assets have demonstrated their success on the capital markets, and some investors are even seeking to start their own licensing entities. Rockstar is not a publicly traded company, but there could be an opportunity for venture capitalists, angels or private equity firms to step into RIM’s shoes should the ailing Canadian company have to make an exit.
Presumably, there will be a part of the Rockstar Consortium shareholders' agreement that deals with what happens should one member part the scene for whatever reason. It could be that we will find out what it says sooner than anyone had anticipated. If RIM enters bankruptcy, though, perhaps the agreement would not apply as the interests of the company's investors and creditors come to the fore. In that situation it might just be that a well-known search engine business based in Mountain View, California, becomes an interested observer, or more, of events.
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