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BlackBerry Ltd.’s BB-T deal to sell most of its patents for US$600-million has fallen apart after lead financier Third Eye Capital abandoned the transaction this month.

Waterloo, Ont.-based BlackBerry announced in late January that Catapult IP Innovations Inc., a Baltimore-based, Delaware-registered entity, had agreed to buy the patents with US$400-million of conditional debt provided by a syndicate led by Toronto-based Third Eye that included an unnamed Canadian pension fund. Catapult, formed in 2021 specifically to buy the assets, needed to raise US$90-million in equity to access the loan and complete the deal. Catapult is led by inventor and entrepreneur York Eggleston, who has been amassing patent portfolios to tap their licensing potential.

But in early June, BlackBerry revealed it was no longer under exclusivity with Catapult “given the length of time that the transaction has taken” and was exploring other options as Catapult continued working to secure its equity. The deal, which passed a federal government review in March, had been in the works since 2020.

Earlier this month, after Catapult still hadn’t raised the equity, Third Eye informed the company it was pulling out, along with the rest of its lending syndicate, a source familiar with the matter said. The source said the lenders grew impatient tying up capital as the deal dragged on and as other investment opportunities surfaced.

The source said BlackBerry is still motivated to complete the deal with Catapult or another buyer and is exploring options including possibly increasing its financial participation in a transaction with Mr. Eggleston’s firm. Catapult agreed to pay for the deal with a US$450-million senior secured loan and a promissory note for the balance, secured by a second lien on the patents payable in five instalments starting three years after the close. The Globe and Mail is not identifying the source as they are not authorized to discuss the matter.

Third Eye hasn’t ruled out participating in a transaction with Catapult should it manage to raise its equity. But the Toronto financier is now formally out along with its syndicate members, which accounted for most of the financing. Any new deal could take months to complete. Third Eye’s exit is an added blow to BlackBerry as it had wanted Canadian involvement in the deal.

BlackBerry has been entitled to walk away from the unfinished deal since May, and either party was entitled to terminate if it didn’t close by Monday. A BlackBerry spokesman and Third Eye chief executive officer Arif Bhalwani declined to comment. A message to Catapult was not returned.

The delay has had a financial impact on BlackBerry, which, like other former tech heavyweights, had made a business in recent years of extracting monies from other companies for use of its technology either by suing them for patent infringement or reaching licensing agreements. Licensing revenue was US$63-million in the fiscal year ended Feb. 28, sharply down from the US$272-million, US$328-million and US$286-million it generated in its 2021, 2020 and 2019 fiscal years, respectively. The company blamed that drop on the patent sale process “and associated restrictions on monetization activity.” Licensing revenue fell to US$4-million in the first quarter ended May 31, down from US$24-million in the same period last year.

CEO John Chen said on a June 23 conference call with analysts, “I believe for simplicity of our company’s story and the focus, we should find a buyer, and I believe we will find a buyer.” He said BlackBerry had been approached by other interested parties and that the company “will not shy away” from resuming its licensing pursuits.

During Mr. Chen’s nearly nine-year tenure, BlackBerry has shifted out of the handset business it once dominated into other areas, including connected car technology and cybersecurity.

But its stock has struggled to reignite with the exception of last year when it became a “meme stock” whose value was driven up by speculators. The company beat analyst expectations in its first quarter ended May 31, posting US$168-million in revenue. But macroeconomic challenges are “muting growth” of its business this year, CIBC Capital Markets analyst Todd Coupland said in a June note in which he cut his stock price target to US$5 from US$8. The stock closed Monday up 2 cents to US$6.11 – less than its value the day Mr. Chen became CEO in November, 2013.

The patents in the Catapult sale date to when BlackBerry was a smartphone powerhouse. The company has said the deal would not affect clients’ use of its current products or services and that it had obtained a licence to the patents sold.

In May, Las Vegas-based intellectual property analyst Samuel Baird delved into the potential value of the divested portfolio of 37,175 patents, which would be one of the largest such deals in the past decade. Mr. Baird said in a report the buyer’s cost could exceed US$900-million, including related maintenance costs, prosecution fees and litigation costs.

But he warned that 53 per cent of the granted patents are set to expire by 2027 and another 40 per cent by 2034, meaning “the shelf life of the divested BlackBerry portfolio is significantly lower” than other comparable patent portfolios sold in recent years.

BlackBerry spokesman Matthew Chandler subsequently told The Globe and Mail that, in fact, 29.5 per cent of the company’s patents were set to expire by 2027, calling the 53 per cent figure cited by Mr. Baird as “incorrect,” and adding the analyst’s “high level data analysis” from securities filings “would not give him as accurate a view as we have with BlackBerry’s own internal patent data. Additionally, the Baird article likely does not have the most accurate expiration dates which include patent term adjustment granted by the patent office.”

Mr. Baird further found that many of BlackBerry’s divested patents that will expire by the end of 2024 have a relatively high value compared with the rest and estimated that “the vast majority” of the portfolio, if challenged before the U.S. Patent Trial and Appeal Board, “may have troubles surviving” the process. Nearly two-thirds of past BlackBerry patent challenges have resulted in either a settlement or an invalidation or narrowing of its claims, indicating “that challenging the validity of a BlackBerry patent has a high certainty of being successful.”

He concluded the price and future costs, including legal and maintenance expenses for “a quickly expiring portfolio,” mean “the return on investment will be an uphill battle.”

Editor’s note: An earlier version of this story stated that 53 per cent of BlackBerry’s granted patents were set to expire by 2027. In fact, only 29.5 per cent of the patents will expire by 2027. The article above has been updated.

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