BlackBerry Ltd.’s BB-T US$600-million patent sale has hit a snag.
The Waterloo, Ont., company said in a release Wednesday it is no longer under exclusivity with Catapult IP Innovations Inc., a U.S. special-purpose entity formed to buy the assets, “given the length of time that the transaction has taken” since the deal was announced Jan. 31.
BlackBerry BB-T “is exploring alternative options in parallel” as Catapult continues to work on securing its required financing, the seller said.
The deal, which passed a federal government review in March, has been in the works since 2020. Catapult is led by Baltimore-based inventor and entrepreneur York Eggleston, who has been amassing patent portfolios to tap their licensing potential.
Delaware-registered Catapult agreed to pay with a US$450-million senior secured loan and a promissory note for the rest. That was to be secured by a second lien on the patents payable in five instalments starting three years after the deal closed.
BlackBerry said in a regulatory filing in January that Catapult had secured US$400-million of conditional commitments from a syndicate led by Toronto’s Third Eye Capital and including an unnamed Canadian pension fund, and that Catapult was required to complete an equity financing for US$90-million to be able to draw on the debt financing and complete the deal. Third Eye chief executive officer Arif Bhalwani said early this year that BlackBerry wanted to ensure there was Canadian involvement in the deal.
BlackBerry has been entitled to walk away from the unfinanced deal since early May, and either party can terminate if it doesn’t close by Aug. 29. A BlackBerry spokesman declined to comment.
Catapult did not respond to requests for comment. Mr. Bhalwani said in an e-mail Wednesday that Third Eye Capital was “still committed as the lead senior lender in the syndicate providing debt financing to Catapult,” and that, “No issues have been raised with respect to the valuation of the patent portfolio.”
Last month, Las Vegas-based intellectual property analyst Samuel Baird delved into the potential value of the divested portfolio of 37,175 BlackBerry patents, which would be one of the largest such transactions in the past decade. Mr. Baird said in an online report the cost to the buyer could exceed US$900-million including estimated associated maintenance costs, prosecution fees and litigation costs.
But he warned that 53 per cent of the granted patents are set to expire by 2027 and another 40 per cent by 2034, meaning “the shelf life of the divested BlackBerry portfolio is significantly lower” than other comparable patent portfolios sold in recent years.
BlackBerry spokesman Matthew Chandler subsequently told The Globe and Mail that, in fact, 29.5 per cent of the company’s patents were set to expire by 2027, calling the 53 per cent figure cited by Mr. Baird as “incorrect,” and adding the analyst’s “high level data analysis” from securities filings “would not give him as accurate a view as we have with BlackBerry’s own internal patent data. Additionally, the Baird article likely does not have the most accurate expiration dates which include patent term adjustment granted by the patent office.”
Mr. Baird further found that many of BlackBerry’s divested patents that will expire by the end of 2024 have a relatively high value compared with the rest, and estimated that “the vast majority” of the portfolio, if challenged before the U.S. Patent Trial and Appeal board, “may have troubles surviving” the process. Nearly two-thirds of past BlackBerry patent challenges have resulted in either a settlement or an invalidation or narrowing of its patent claims, indicating “that challenging the validity of a BlackBerry patent has a high certainty of being successful.”
He concluded the price tag and future costs, including legal and maintenance expenses for “a quickly expiring portfolio,” mean “the return on investment will be an uphill battle.”
Under CEO John Chen, who joined in the fall of 2013, BlackBerry has shifted out of the handset business it once dominated into other areas, including connected car technology and cybersecurity. But its stock has largely struggled to reignite, with the exception of last year when it became a “meme stock” whose value was driven up by speculators.
BlackBerry, like other technology companies whose products go into decline, had made a business in recent years of extracting monies from other companies for use of its technology either by suing them for patent infringement or reaching licensing agreements. Licensing revenue was US$63-million in the fiscal year ended Feb. 28, sharply down from the US$272-million, US$328-million and US$286-million it generated in its 2021, 2020 and 2019 fiscal years, respectively.
The patents in the Catapult sale date to when BlackBerry was a smartphone company. The company has said the transaction would not affect customers’ use of its current products or services and that it had obtained a licence to the patents being sold.
Editor’s note: An earlier version of this story stated that 53 per cent of BlackBerry’s granted patents were set to expire by 2027. In fact, only 29.5 per cent of the patents will expire by 2027. The article above has been updated.
With a report from Josh O’Kane
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Sean Silcoff