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Analysis: HP - Dial "M" for mayhem Free games boost gaming industry revenue Apple working with suppliers on new iPad: report Missouri teachers sue to block social media law Video: Texting as a competitive sport More technology news Follow Reuters Facebook Twitter RSS YouTube Read Gaddafi whereabouts a mystery as rebels close in 9:10am EDT Spitzer sued for libel over his Slate column 2:50pm EDT Gaddafi hunted as loyalists fight on in Tripoli | 4:48pm EDT Consumer Edge says U.S. confidence hits new low 10:28am EDT Five headless bodies found in Acapulco 20 Aug 2011 Discussed 257 GM says bankruptcy excuses it from Impala repairs 243 UPDATE 3-White House denounces Perry as Republicans target Fed 152 Obama accuses Congress of holding back U.S. recovery Watched Una Healy got naked on holiday Sat, Aug 20 2011 Lockheed Martin presents airship of the future Thu, Aug 18 2011 Libyans celebrate rebels in Tripoli Sun, Aug 21 2011 Analysis: Google/Motorola could be peak of patent price spike Tweet Share this Email Print Related News UPDATE 4-Mosaid deal would create global patent power-WiLan Thu, Aug 18 2011 Kodak shares rise 17 percent on interest in patents Thu, Aug 18 2011 Mosaid deal would create global patent power: WiLan Thu, Aug 18 2011 UPDATE 3-WiLan offers C$480 mln to join patents with Mosaid Wed, Aug 17 2011 Apple, Qualcomm, others eye InterDigital Wed, Aug 17 2011 Analysis & Opinion M & A wrap: HP confusion Tech wrap: HP investors running for cover Related Topics Technology » Media » A Motorola Droid phone is seen displaying the Google search page in New York August 15, 2011. Credit: Reuters/Brendan McDermid By Poornima Gupta and Bill Rigby SAN FRANCISCO/SEATTLE | Mon Aug 22, 2011 12:49pm EDT SAN FRANCISCO/SEATTLE (Reuters) - The bubble in mobile phone technology patent values may just have popped. Now that Google Inc has agreed to a $12.5 billion deal to buy Motorola Mobility Holdings Inc -- scooping up a trove of 17,000 phone-related patents to give itself some ground to defend its Android operating system -- the most motivated buyer looks to be off the market. "The game is completely changed as a result of Google's acquisition of Motorola Mobility. The arms race is essentially over," said John Amster, chief executive of RPX, a company that advises customers on patent purchases. "They have basically created through acquisition what they needed." Google's move was widely seen as a response to its loss in the auction of 6,000 Nortel patents to a group led by Microsoft Corp, Apple Inc and Research in Motion, which fetched an unprecedented $4.5 billion in July. Most in the industry believe Google -- a relative newcomer to the telecommunications business, without a historical accumulation of patented technology -- has now put itself on more of a level footing, curbing its appetite for further purchases. "It's a bubble in this market space until there is a balance of power established, and I think now there is," said Ron Laurie, managing director and patent consultant at Inflexion Point Strategy. The heat of the patent market will be tested early next month by the auction of wireless telecommunications specialist InterDigital Inc. Apple, Google and Microsoft -- three of the most cash-rich players in technology -- had expressed interest in the company, but Google's participation in the auction is now unclear, sources told Reuters last week. Even so, the company could still fetch a handsome price. "There is clearly an upward sloping trend in patent value and patent value being recognized," said James Malackowski, chief executive of Ocean Tomo, an intellectual property advisory firm which values patent portfolios as part of its services. "As with any trend, it's never perfectly smooth, you see volatility in outlier transactions." WHAT'S IT WORTH? How phone patents got to be so expensive all of a sudden is a factor of their strategic desirability rather than any other measure of value, experts in the field agree. As the smartphone market exploded -- threatening to revolutionize personal computing -- Apple needed to protect its iPhone and Microsoft wanted Android handset makers to pay for technology it believes it invented. Google, and its handset partners, needed protection from both. The result was a sudden spike in the value of phone-related patents on the market at a crucial time. "I was surprised, as was everyone, by the Nortel auction, which worked out at almost $750,000 per patent," said one patent attorney, who asked not to be named as he has acted for various major technology players. "That is extraordinarily high, probably by a factor of 10 higher than usually you would see a portfolio like that go for." On paper, patents can be valued like any other asset, said Malackowski at Ocean Tomo. "There are three textbook ways to value intellectual property, just as you would real estate -- the income approach, the cost approach, and the market approach," he said. "If you are looking at an apartment building, the market approach says how much do other apartment buildings sell for? For the cost approach, you would ask what it would cost to build a like unit. The income approach says look at the present value of the rents -- or for patents, the present value of the expected earnings associated with owning the technology." But in reality, these methods are skewed by business considerations. "Both of these transactions (Nortel and Motorola) were highly strategically motivated," said Malackowski. For this reason, most think Nortel was unique and an outlier, not an indication of things to come. "We think the value was mainly driven by the process and the strategic dynamics, not by pure patent values," said Amster at RPX. "We did not expect that was going to be a relevant, comparable transaction for the future in the patent market. People talking about value per patent is frankly silly." PAST, FUTURE DEALS If the patent bubble did just pop, the biggest loser was InterDigital. Shares of the wireless company -- due to be auctioned early in September -- have fallen 17 percent since Google's Motorola purchase was announced. Sources familiar with the situation say Google's participation in the auction is now uncertain, leaving the field open to bidders Apple, Nokia, Qualcomm Inc and others. Google now has what it needs, industry experts agree. "A key wireless patent was worth a lot more to Google on Friday (before the Motorola deal) than it was on Monday," said Laurie at Inflexion. The fate of Eastman Kodak Co, which is looking to sell a portfolio of digital imaging patents, may be better. The lowly shares of the ailing photographic pioneer are up 41 percent since the Motorola deal. But Kodak's market value is still much less than the $2 billion to $3 billion price tag analysts have put on its patent portfolio, which is becoming a common situation. "A lot of companies are in that position," said Laurie. "The patents are worth more than the company that owns them. We are going to see a lot more patent deals done as M&A deals for that reason." Other losers could be those who sold too soon. Smartphone innovator Palm Inc sold itself and its groundbreaking webOS system for only $1.2 billion to Hewlett-Packard Co last year. Few doubt the company would fetch more now. The technology may yet reappear on the market after HP ditched the system last week. Industry experts think the technology patent market will now either revert to normal, or get back on a more gradual growth track, but wild spikes are in the past. If there was a bubble, it is probably over now, given some competitive heat has been removed from the situation. "The game will never be the same as it was before Nortel. Whether valuations will continue to rise or level off, it's very hard to predict," Laurie said. A return to more predictable deals is most likely, said Amster at RPX. "Companies buy patents all the time, normal patent purchasing will continue. But the strategic arms race is over. It has to go back to normal." (Reporting by Bill Rigby and Poornima Gupta, editing by Matthew Lewis) Technology Media Related Quotes and News Company Price Related News Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above. Social Stream (What's this?) 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