BlackBerry has completed the sale of around 35,000 patent assets to a US-based entity for $600 million. The initial payment will be $450 million, followed by a series of further payments. There are no contingency arrangements, so the final sum is guaranteed. BlackBerry will have no ongoing financial interest in the patents, but will have a licence to use them.
The patents principally read on what have previously been described as “non-core or legacy mobile devices, messaging and wireless networking technologies”.
The deal has been financed by a group of investors including the buyer itself and a number of private equity firms based in Canada and the US. The participation of at least some Canadian investors was a condition set by the government in Ottawa for the sale to get regulatory approval.
IAM understands that the buying party is led by York Eggleston IV, who has been an active, though relatively low-profile, player in the patent market for a number of years.
Most recently, an Eggleston-run NPE, Slingshot, was involved in the acquisition of dozens of IBM patents, some of which were subsequently asserted against Uber. The firm has also bought IP assets from other businesses, including Intellectual Ventures and Japan’s Funai Electric.
A special purpose vehicle called Catapult has been established to manage the acquired portfolio and the BlackBerry licensing business that comes with it. This includes the ongoing royalties that the company is already receiving from the transacted IP.
In its 2021 financial year, BlackBerry earned $272 million from what it termed “licensing and other”. The amount within this sum specifically attributable to the divested patents is not known. Presumably, though, it includes royalties generated by Teletry as a result of the deal the Marconi-owned entity agreed with BlackBerry in 2017 to sub-license its patents “to a majority of global smartphone manufacturers”.
Although Teletry has now done most of the heavy lifting on that front, the agreement with BlackBerry remains in force and so it seems likely that it will also transfer over.
Given the encumbrances on the patents that will arise as the result of the deals Teletry has agreed over the last four years, the $600 million being paid for the portfolio will raise eyebrows in many quarters. It is certainly a lot higher than the $450 million price that had been mentioned by, among others, the Globe and Mail, Canada’s leading newspaper.
However, with a foundation of ongoing royalties and 35,000 plus assets to play with, Eggleston and his investors no doubt feel they have every chance of getting their money back and then some. Given that, assertion campaigns are likely to begin relatively soon.
It is almost certain that a large amount of dealmaking around the portfolio has been held up as this protracted sale has been negotiated. Now that it is complete, a logjam may well be broken with plenty of action to follow as a result.
For its part, BlackBerry will feel that $600 million for a portfolio which has already generated significant royalties, and to which it would have had to dedicate significant extra resource in order to find new licensees, is a good return. The sum will add considerably to the company’s cash reserves, which stood at just over $700 million at the end of August 2021.
Something to look out for is whether the deal will spur other operating companies to take a similar path. There is also the potential for it to generate heightened interest within the investment community about getting involved in IP.
Although the price for the acquisition was agreed some time ago, the complexities involved in transferring the licensing business over and the involvement of so many investors in financing the deal have held up its completion. Speaking on the company’s Q2 earnings call, BlackBerry CEO John Chen made clear his frustrations.
It is believed that some of the issues were caused by the close attention the Canadian government paid to the proposed transaction. Its sign-off was required before the agreement could be completed and one of the conditions it imposed was the need for Canadian participation on the buyside.
This has now been secured. Toronto-based private equity operation Third Eye Capital is among those providing money, as is a major Canadian pension fund. IAM also understands that AON is another investor and that the company has been involved in providing insurance cover for the deal.
IAM broke the news that BlackBerry was contemplating the sale of a large chunk of its portfolio, and that it had appointed Elvir Causevic and Ed Fish of Tech+IP Capital to look for potential buyers, in November 2020. The patents are primarily said to be applicable in four areas: social media and messaging; enterprise security; enterprise collaboration; and consumer voice and security.
The completion of the deal is a significant feather in the caps of Causevic and Fish, who had just parted ways with Houlihan Lokey when they received the BlackBerry instruction. They were not available for comment today. Sullivan & Cromwell and Kirkland & Ellis acted as the principal legal advisers on the transaction