Google, Apple Inflate Patent Bubble

NEW YORK (TheStreet) -- What's a patent worth in this ridiculously cash-heavy, technologically insecure market? Judging by the last two deals: about $742,647.

Google's (GOOG) $12.5 billion plunge into the phone making business with Motorola Mobility (MMI) translates to $735,294 for each of Motorola's 17,000 patents.

And the $4.5 billion Nortel mega deal prior to that, involving Apple (AAPL), Microsoft (MSFT), Ericsson (ERIC) and Research In Motion (RIMM) in the RockStar consortium, comes out to a nice, round $750,000 per patent.

Take the average of the two deals, and you get an average patent price of $742,647 apiece.

Obviously, not all patents are solid gold. Any big portfolio is probably a grab bag filled with lots of useless costume jewelry along with just a scattering of precious gems.

But the Google deal and the Apple consortium underscore not just the increased scope of the mobile market, but the underlying value of a deep patent portfolio held by a number of tech giants.

Nokia (NOK), for example, jumped 18% Monday on the news of the Google-Motorola deal. That surge pushed Nokia's market cap up by $4.3 billion -- in one day.

That's cheap, said Morgan Stanley analyst Ehud Gelblum, who estimates that Nokia is sitting on 30,000 patents (10,000 patents registered in each region: U.S., Europe and Japan) worth about $20 billion by current valuation standards.

"Nokia's IP valuation upside is encouraging, but only comes if there is a buyer," wrote Gelblum in a note Tuesday. The most likely buyer would be Microsoft, but since Nokia has already agreed to a partnership to make Windows 7 phones, there's not much need to take the relationship farther.

"Nokia's investment case rides on whether or not it will regain competitiveness with Windows Mobile," Gelblum wrote.

The patent math is particularly favorable to outlier RIM, which the company says has 11,000 patents pending and granted, not including the past 18 months of applications or the Rockstar acquisition.

On a per-patent basis, RIM is holding $8.2 billion worth of intellectual property. This could, as analysts say, put a floor under the stock as the company continues to get squeezed out of the smartphone market.

With Motorola trading $2 below the $40 offer price, it looks like the market isn't seeing any additional bidders. And as one investor pointed out: "That probably means no more $10 billion-plus patent deals in the near future."

Welcome to the patent bubble.

--Written by Scott Moritz in New York.



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