BlackBerry Ltd. BB-T has agreed to sell most of its legacy smartphone patents for an upfront payment of US$170-million in a deal the Waterloo, Ont.-based company said could be worth as much as US$900-million.
The deal marks the second attempt by the data communications pioneer to offload the bulk of its intellectual property after a US$600-million sale fell apart last year.
“This transaction, once complete, will further strengthen our balance sheet while simplifying our business and enabling increased focus” on the company’s internet-of-things and cybersecurity businesses, BlackBerry executive chairman and chief executive John Chen said in a news release.
BlackBerry has sold about 32,000 patents and applications related primarily to mobile devices, messaging and wireless networking to a subsidiary of Key Patent Innovations, a Dublin-based company that seeks to extract value from other companies by asserting they are using its patented technology, typically by pursuing licensing agreements with other operating companies. Key owns more than 1,500 patents for OLED display technology, as well as ones covering data centre servers and security, infrastructure management software, and network analytics and management.
BlackBerry will get US$170-million in cash when the deal closes and US$30-million in cash by the third anniversary of that date.
It has also structured a complex earnout deal that will see it receive a growing share of profits from Key’s efforts to squeeze more returns from the divested patents. BlackBerry will get 8 per cent, or $40-million, of the first $500-million of profits Key generates, 15 per cent of the next $250-million, 30 per cent of the following $250-million and half of all subsequent profits – to a point. BlackBerry’s royalties will be capped initially at $700-million, but that can increase every year by 4 per cent of the remainder of the US$700-million it has not yet received.
Intellectual property analyst Samuel Baird has warned that the shelf life of BlackBerry’s divested patents “is significantly lower” than comparable portfolios sold in recent years and that some of its patents may have trouble surviving appeals if they are challenged. BlackBerry has countered that figures cited by Mr. Baird are incorrect.
BlackBerry, originally called Research In Motion Ltd., was the first company to sell a commercially successful smartphone that combined voice and wireless data transmission capabilities, driven by its industry-leading e-mail and BBM instant wireless messaging services. It had a commanding lead in the handheld data market until Apple and then Google arrived with new technologies in the late 2000s that substantially increased the utility of mobile operating devices, turning smartphones into pocket computers with full internet browsing capabilities. BlackBerry struggled and never caught up. By the early 2010s its handheld device market share was in steep decline, and the company nixed a plan championed by former co-CEO Jim Balsillie to capitalize on its BBM service by making it available on non-BlackBerry devices, along with other service offerings. BlackBerry no longer makes smartphones and shut down support for its legacy devices in early 2022.
Mr. Chen replaced his short-lived predecessor, Thorsten Heins, as CEO in late 2013. During Mr. Chen’s almost nine-year tenure, BlackBerry exited handsets and shifted into other areas, including connected car technology and cybersecurity. But its stock has been in a years-long funk – except in 2021 when it became a “meme stock” whose value was driven up by speculators. BlackBerry has said it expects fiscal 2023 revenue to come in at US$656-million, down 8.6 per cent from the previous year, owing to its underperforming cybersecurity business.
Like many technology companies past their prime, BlackBerry has turned in recent years to pursuing payments by striking licensing agreements with other companies that it claims use its technology. It has been a lucrative but inconsistent source of revenues, which makes it hard for analysts to assign value to the pursuit. BlackBerry generated licensing revenue of US$272-million to US$328-million in each of the 2019 to 2021 fiscal years. That fell to US$63-million in the year ended Feb. 28, 2022, as the company was consumed by the patent sale process, and then US$32-million in the subsequent 12 months. BlackBerry will report year-end numbers on March 30.
The company announced the first attempted patent sale 14 months ago. Catapult IP Innovations Inc., a Baltimore-based, Delaware-registered entity, agreed to buy the IP with US$400-million of conditional debt provided by a syndicate led by Toronto-based Third Eye Capital. Catapult needed to raise US$90-million in equity to access the loan and complete the deal. But last June BlackBerry said it was no longer under exclusivity with Catapult given how long the deal had taken to close and said it was exploring other options. By August Catapult still hadn’t raised the equity, and Third Eye pulled out with the rest of its syndicate. BlackBerry terminated the deal in December.
BlackBerry shares rose Tuesday on the news, closing at US$3.77, up 4.4 per cent on the New York Stock Exchange.
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Sean Silcoff