AlcaLu Plays the Patents

Alcatel-Lucent (NYSE: ALU) is pumped about the top-line potential of its patent portfolio, with CEO Pat Russo spending a great deal of her time focused on how to extract the maximum payback from the company's combined intellectual property, according to industry sources.

That the vendor regards its patent portfolio as a strength is without doubt. During its Capital Markets day presentations yesterday, Russo said that one of the company's priorities for 2007 is to "maximize the company's R&D capabilities… to make sure that as we work across Bell Labs and Alcatel innovations we take advantage of our intellectual and human assets to ensure we are maximizing our potential."

The CEO added: "It's about making the most of what we have."

And what Alcatel-Lucent has is "a worldwide patent portfolio of over 25,000 active patents across a vast array of technologies," according to the company's Website. To manage that portfolio, the company has a special business unit, the Intellectual Property team, which has "responsibility for patent matters, including the licensing of the Alcatel-Lucent patent portfolio."

According to one industry source, Russo is spending a great deal of her time figuring out how her company can maximize the returns from those patents, not only through licensing but from legal challenges against companies that may be using the company's patented technology without the correct legal paperwork.

A spokesman for the vendor declined to comment directly on questions related to Russo's alleged heightened interest in patent-generated income. "We take our patent assets and our intellectual property seriously and will seek to secure value from the investment the company has made," says the spokesman. "Alcatel-Lucent has the capacity to continue to create patents, and our intellectual property is strategically important and we are managing the business as such."

There's certainly the view that the company should be making more of its intellectual property. The vendor says it reports revenues from patents as "other" revenues in its quarterly reports. In the most recent quarter, that line showed revenues of €46 million (US$61 million). (See AlcaLu Details Q1 Woes.)

One industry analyst, who requested anonymity, says the company should be able to make more of its intellectual resources, but is now likely overambitious following the recent court ruling that found in its favor against Microsoft Corp. (Nasdaq: MSFT), which has been told to pay AlcaLu $1.5 billion for infringing two patents involving MP3 technology. Microsoft is contesting that decision. (See Microsoft Battles AlcaLu, AT&T.)

"They got lucky with Microsoft -- I can't see that they'll get the $1.5 billion," says the analyst, who believes that victory "has probably made them very greedy."

The analyst notes, though, that in the patent world, once a company has had a decision upheld by the courts, it makes it easier to pursue other actions involving the same patents, and that may be spurring Alcatel-Lucent on.

Microsoft warned this might happen when it responded to the February decision against it. "Today’s outcome is disappointing for us and for the hundreds of other companies who have licensed MP3 technology," the company said in a statement. "We are concerned that this decision opens the door for Alcatel-Lucent to pursue action against hundreds of other companies who purchased the rights to use MP3 technology from Fraunhofer, the industry-recognized rightful licensor."

But London-based analyst Richard Windsor at Nomura International isn't convinced Russo and crew will make a mint from AlcaLu's IP. "The issue with Alcatel-Lucent's patent portfolio is that a lot of the older Bell Labs patents were funded with public money and are free to be used by other vendors," he notes.

As for the other patents that could be mined for revenues, Windsor says this could be a challenge for the giant vendor: "The issue with patents is that they must have been filed properly in the first place, and that you then need an experienced Intellectual Property legal team to pursue payments."

— Ray Le Maistre, International News Editor, Light Reading