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Mosaid to manage major patent portfolio for Nokia, Microsoft

Nokia and Microsoft will entrust one of the world's biggest portfolios of wireless patents to Ottawa-based Mosaid Technologies Inc. in a move that is likely to have a major impact on the North American patent industry.

Mosaid announced Thursday it will acquire 2,000 patents originally filed by Nokia Corp. , and attempt to generate revenue from them by securing licensing deals with companies it believes are infringing on the intellectual property. Mosaid did not pay anything to acquire the patents, but will manage them for Nokia and Microsoft Corp keeping one-third of the revenue.

"This is one of the most valuable patent portfolios ever to change hands," Mosaid chief executive officer John Lindgren said.

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The oddly structured deal illustrates the difficult situation big wireless players such as Microsoft and Nokia find themselves in. The wireless industry has become extremely litigious over patent rights in the past few years, with dozens of lawsuits involving just about every major handset and operating system manufacturer. Microsoft and Nokia are allied in the mobile device wars, as Nokia plans to use the Windows mobile operating system in its products. Until now, Nokia has not looked to generate licensing revenue from the 2,000 patents it gave to Mosaid.

Mosaid, however, will try to generate as many licensing deals as possible. Normally, when an operating company such as Nokia or Apple sues another operating company, the result is a cross-licensing deal, whereby each company gets access to some of the other's patents. But by giving those patents away to a licensing firm such as Mosaid, Nokia and Microsoft can generate revenue from the patents without being seen as suing their direct competitors for patent infringement – something the same companies decry as a hindrance to innovation when they are the targets of infringement lawsuits.

Microsoft issued a terse statement Thursday describing itself as having a "passive economic interest" in the revenue generated from the Mosaid deal.

"The marketplace for intellectual property is incredibly dynamic today, and this agreement is an effective way to make these Nokia innovations available to the industry and to unlock the considerable value of this IP portfolio," said Horacio Gutierrez, Microsoft's corporate vice-president and deputy general counsel.

It appears highly likely that Apple – the current leader in the consumer wireless space – will be one of the companies targeted for a licensing deal, although no party involved in the deal would say so on the record.

For Mosaid, the deal is doubly beneficial. Mosaid executives believe there will be about $500-billion worth of wireless devices to which the patents may apply manufactured over the next five years. Indeed, Mr. Lindgren said the revenue from this deal alone will likely eclipse the revenue generated so far in Mosaid's 35-year history.

But perhaps more importantly, the deal gives Mosaid ammunition to fight off an acquisition attempt by Wi-LAN, an Ottawa-based patent firm that made a $38-per-share bid for the company earlier this month. Mosaid has already labelled the bid opportunistic, and it expected to respond in full by Sept. 7. However the Nokia-Microsoft deal adds a significant hurdle for Wi-LAN, because the two companies would have to reapprove the deal should Mosaid come under new ownership.

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Mosaid was quick to note that the Microsoft-Nokia deal was months in the making, and not designed to ward off the Wi-LAN acquisition.

But even if Microsoft and Nokia did approve the takeover, the deal is nonetheless likely to drive up Mosaid's share price. Before the Wi-LAN offer, Mosaid shares had not risen higher than about $35 this year. On Thursday, they jumped 1.73 per cent on the TSX, closing at $41.15.

Traditionally, patent firms followed a well-known business strategy, registering and acquiring patents, then using those patents to set up licensing deals with companies alleged to be infringing on them. Indeed, many patent firms in North America have generated millions in revenue from just a handful of patents by setting up continuing licensing deals with large manufacturers.

But in recent years, more patent firms have taken an approach akin to that of property management companies in the real estate world. In effect, the firms act as middle men for individual inventors who want to generate money from their patents, but lack the financial and legal arsenal to go after large companies that may be infringing on those patents. The patent firms make money by managing that intellectual property on behalf of the inventor for a cut of the licensing fees.

Essentially, that is what Mosaid will do – albeit on a much larger scale – for Nokia and Microsoft.

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