Intel's InterDigital Deal Raises Patent Value Questions

NEW YORK ( TheStreet) -- After struggling to sell a patent portfolio earlier in the year, InterDigital ( IDCC) shares are surging after it announced a $375 million sale of 1,700 patents and patent applications to chip giant Intel ( INTC).

While investors are likely to see the partial sale of InterDigital's patent portfolio as a positive, the company's still battered shares signal that a current slate of intellectual property deals face challenges after tech giants spent much of 2011 cutting billions in intellectual property deals.

As patent sales fall in size, the financial turnarounds of many large tech companies like InterDigital, Nokia ( NOK), Research In Motion ( RIMM) and bankrupt camera pioneer Kodak, in part, hinge on a continued market for patents, amid a Silicon Valley intellectual property grab. However, InterDigital's Monday deal shows that the value of some IP portfolios may not be as high as initially expected.

On Monday, InterDigital said it would sell 1,700 patents mainly related to its to 3G and LTE mobile device technologies to Intel for $375 million in cash. In a separate announcement, the designer of hardware and technology for mobile devices like cellphones and smartphones also said it would double a stock buyback program to $200 million, after launching the capital return in early May.

The moves come as a slight surprise after InterDigital said in early January that it had concluded a strategic review to sell its intellectual property without selling the portfolio, which includes 19,500 patents as of December 31. At that time, InterDigital said it would focus on litigating and adding to revenue tied to the licensing of its patents, adding that it earned nearly $3 billion in royalties from 2G and 3G wireless technology licenses in 2011.

Monday's deal, in the context of InterDigital's patent sale process, signals that simultaneous IP portfolio sale and monetization efforts may be harder to execute than some may expect. Because InterDigital has sold licenses and is even conducting litigation related to its IP, those existing agreements may lower the value of patents to a prospective acquirer like Intel, says Richard Erlickman, President of patent brokerage IPOfferings. Previously, Erlickman was a Vice President of Intellectual Property and Licensing at IBM.

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