Edible Apple

Earlier this week, Apple was part of a consortium of tech heavyweights that won an auction for over 6,000 Nortel patents.

The final and winning bid came in at $4.5 billion and came from a grouping of Apple, EMC, Ericsson, Microsoft, RIM, and Sony. Left outside in the cold were both Intel and Google.

Interestingly enough, the entire bidding process has a unique tinge of Google, well, being Google along with some strategic maneuvering that further keeps Android open to legal challenges.

Reuters provides a behind the scenes look at the bidding war and makes particular mention of some of Google’s odd bidding habits.

At the auction for Nortel Networks’ wireless patents this week, Google’s bids were mystifying, such as $1,902,160,540 and $2,614,972,128.

Math whizzes might recognize these numbers as Brun’s constant and Meissel-Mertens constant, but it puzzled many of the people involved in the auction, according to three people with direct knowledge of the situation on Friday.

Making things a bit more nerdy, Brun’s constant measures the limiting value of the ratios between twin prime numbers while the Meissel-Mertens constant measures the difference of the sum of the reciprocal of prime numbers up to n and ln(ln(n)).

“Google was bidding with numbers that were not even numbers,” one of the sources said.

“It became clear that they were bidding with the distance between the earth and the sun. One was the sum of a famous mathematical constant, and then when it got to $3 billion, they bid pi,” the source said, adding the bid was $3.14159 billion.

“Either they were supremely confident or they were bored.”

Well this of course isn’t the first time Google has showcased this kind of Mathmatical whimsy when it comes to public auctions. Remember that they pulled similar stunts when vying for a portion of US wireless spectrum not too long ago.

But more interesting than Google’s oddball bids is the way the consortium of rival companies formed and the potential implications for Google whose Android operating system now faces a number of patent challenges.

As a relatively new technology company, Google’s patent portfolio is decidedly weak. While some companies like Microsoft and Samsung have patent portfolios that number in the twenty of thousands, Google doesn’t even have 1,000 patents to its credit and suffice it to say that the patents it does own most likely don’t relate to mobile or wireless technology.

That said, Google vying for Nortell’s patent portfolio was strategic and arguably of utmost importance to the search giant.

But Google wasn’t alone as a number of tech companies were also in the hunt for the patent bounty, and the bids kept on rising over a period of four days that saw over 20 rounds of bidding.

The initial parties looking to win the auction included Apple, Intel, and Google. Meanwhile, there was a consortium that consisted of Ericcson, RIM, Microsoft, Sony and EMC. There was also a group led by RPX.

Once the bidding reached $1.5 billion, RPX dropped out of the race leaving only the big dogs to compete.

“It did become clear to us very quickly that this was something that a bunch of big companies with humongous balance sheets had decided was strategic for them,” RPX executive John Amster explained. “Clearly at a price at this level it had to be strategic, and they could afford that.”

As the bidding war escalated, companies began dropping out, at which point they look to partner up with other companies still in the game. So as alliances fall apart, new ones are quickly formed. When Intel dropped out on Wednesday, it was faced between joining a consortium that included Apple or one that included Google. Intel chose Google.

The field narrowed to two — the Apple consortium called “Rockstar,” and the Google bidding vehicle named “Ranger”, the sources said.

“Then it was fast and furious $100 million allotments until they got to $3 billion, at which point Google asked for permission to bid more,” a source said. “They bid through $4 billion and tapped out.”

The winning bid of $4.5 billion was significantly higher than anyone was anticipating, and again, highlights Apple’s seriousness in keeping Nortell’s significant patent portfolio out of Google’s hands.

It’s no secret that Android has made significant inroads in the smartphone market and poses the most serious threat to Apple’s iOS dominance. Further, Apple has already taken to suing Google by proxy via its suit against HTC wherein it alleges that the Android OS infringes on Apple patents. Apple of course isn’t alone and is joined by Microsoft who is even more furiously suing manufacturers who use Android for patent infringement.

To that end, Robert Cringley writes today that Apple and co. were dead serious about defeating Google at any cost that the search giant ultimately concluded it lacked the cash reserves possessed by Apple and Microsoft. Of course, it’s also possible that Google stayed in the auction a bit longer than expected simply to drive up the final winning price Apple and co. would have to fork over.

Interestingly enough, not every member of the consortium is on equal footing relative to the patents.

Cringley writes:

RIM and Ericsson together put up $1.1 billion with Ericsson getting a fully paid-up license to the portfolio while RIM, as a Canadian company like Nortel, gets a paid-up license plus possibly some carry forward operating losses from Nortel, which has plenty of such losses to spare. For RIM the deal might actually have a net zero cost after tax savings, which the Canadian business press hasn’t yet figured out.

Microsoft and Sony put up another $1 billion.

There is a reportedly a side deal for about $400 million with EMC that has the storage company walking with sole ownership of an unspecified subset of the Nortel patents.

Finally Apple put up $2 billion for outright ownership of Nortel’s Long Term Evolution (4G) patents as well as another package of patents supposedly intended to hobble Android.

At the end of the day this deal isn’t about royalties. It is about trying to kill Android.