The recent purchase of Nortel’s patent portfolio in bankruptcy for $4.5 billion by a consortium of international businesses, including Microsoft Corp., Apple Inc., Ericsson, EMC Corp., Sony Corp. and RIM, dramatically reveals how a debtor’s intellectual property assets may yield significant value to a debtor’s estate. While a debtor’s patent portfolio may be composed of substantially valuable assets, the optimal monetization of IP in Chapter 11 reorganization and/or sale often proves elusive. There are options available to the debtor and its advisers to achieve maximum return to the debtor’s estate and a higher resulting distribution to its stakeholders through the effective marketing and sale of intellectual property (specifically patents) in parallel with any potential sale of the debtor as an ongoing concern.
Valuation
The valuation of intellectual property sometimes, but often does not, lend itself to traditional valuation techniques. Unless a patent generates a fixed stream of revenue through licensing, conventional valuation methods, such as discounting cash flows, may not be useful to determine what a willing buyer might pay. Many patents do not necessarily generate fixed revenue streams and their value requires a deep understanding of both the patent marketplace in general and the specific technology embedded in the patent. Generally speaking, there are two types of purchasers of patents: operating businesses and nonpracticing entities.
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