Wi- Lan finds new life in Ottawa

Once strug­gling firm has found a prof­itable niche in pa­tent rights

Ottawa Citizen - - Business - JAMES BAGNALL OFF­LINE

Ten months ago, Cal­gar­y­based Wi- Lan Inc. was just an­other wire­less prod­ucts com­pany with­out much of a fu­ture. Yes­ter­day, it vaulted past Corel to be­come Ottawa’s sec­ond most valu­able high- tech firm ( be­hind soft­ware gi­ant Cog­nos). WiLan shares fin­ished the day at $ 5.73, giv­ing it a mar­ket cap­i­tal­iza­tion of $ 388 mil­lion.

It has been a stun­ning trans­for­ma­tion — made all the more re­mark­able by the fact Wi- Lan em­ploys only 10 peo­ple.

The source of its stock mar­ket wealth? Wi- Lan owns nearly 150 patents cov­er­ing mainly wire­less tech­nolo­gies. Its busi­ness con­sists of no­tify- ing high- tech cor­po­ra­tions such as Nor­tel, Cisco and Nokia that they are in­fring­ing th­ese patents — and then con­vinc­ing them, through lit­i­ga­tion if nec­es­sary, to sign roy­alty ar­range­ments.

To suc­ceed in this busi­ness, you need ne­go­ti­at­ing clout — which means lots of money, le­gal ex­per­tise, en­force­able patents and a win­ning track record. In an as­ton­ish­ingly short pe­riod, Wi- Lan ap­pears to have se­cured all the nec­es­sary el­e­ments.

The big­gest boost to its cred­i­bil­ity came last month when Nokia, the globe’s No. 1 maker of wire­less hand­sets, agreed to pay $ 49 mil­lion to li­cense Wi- Lan’s en­tire port­fo­lio of wire­less tech­nol­ogy ( which in­cludes WiFi, CDMA and Wimax vari­a­tions).

Un­der the terms of the deal, Nokia paid $ 15 mil­lion cash and trans­ferred $ 34 mil­lion worth of wire­line patents ( ADSL tech­nol­ogy) to Wi- Lan.

The Nokia break­through was no ac­ci­dent. When Jim Skip­pen took over as Wi- Lan’s CEO on June 20, one of the first things he did was book a flight to Fin­land — a task made eas­ier by Wi- Lan’s pre­vi­ous deal­ings with Nokia. Twelve days later, Skip­pen was in a Nokia board­room ex­plain­ing how the Fin­nish gi­ant was in­fring­ing Wi- Lan patents.

With the Nokia deal se­cured, Wi- Lan promptly raised $ 30 mil­lion by is­su­ing 6.7 mil­lion com­mon shares, clos­ing the deal be­fore Christ­mas. By yearend, Wi- Lan had $ 60 mil­lion in cash.

This should give Skip­pen a strong hand when ap­proach­ing firms he be­lieves have in­fringed Wi- Lan patents. He is al­ready in talks with 10 cor­po­ra­tions about pos­si­ble roy­alty ar­range­ments, though he stressed yes­ter­day it could take up to two years be­fore deals are signed. In only half of th­ese cases have dis­cus­sions pro­gressed to the ques­tion of money.

Skip­pen, 44, speaks with an easy fa­mil­iar­ity about th­ese mat­ters, as he should. He worked for nearly a decade as a pa­tent lawyer in Toronto be­fore tak­ing a job in 1996 at Mo­said Tech­nolo­gies — the Ottawa com­puter me­mory spe­cial­ist that be­gan li­cens­ing its patents shortly af­ter Skip­pen’s ar­rival.

In the course of de­vel­op­ing Mo­said’s pa­tent arm, Skip­pen kept an eye out for port­fo­lios of in­tel­lec­tual prop­erty that Mo­said might ac­quire. He had a look at Wi- Lan’s patents in 2005 and con­vinced Mo­said to make an of­fer.

Wi- Lan re­buffed the Mo­said approach — pre­sum­ably be­cause the of­fer wasn’t rich enough. But Skip­pen had clearly im­pressed Wi- Lan’s board of direc­tors.

Wi- Lan at the time was a pe­cu­liar en­tity. Founded in 1992 in Cal­gary, the com­pany was very early to de­velop broad­band wire­less prod­ucts. It raised about $ 10 mil­lion in an ini­tial pub­lic of­fer­ing in 1998 and watched its share value soar to ridicu­lous lev­els — $ 1.5 bil­lion plus — dur­ing the tech boom.

The strange part was WiLan was never able to de­velop a prof­itable busi­ness mak­ing wire­less prod­ucts.

By early 2006, the com­pany was run­ning out of money. Wi- Lan sold off all its prod­uct lines to three sep­a­rate com­pa­nies — in­clud­ing EION Wire­less of Ottawa.

“ It’s a risky move, but it’s also a gutsy move,” the an­a­lyst said. “ You have to give credit where credit is due. They did what they had to do to get the deal done.”

At CanWest’s an­nual share­hold­ers meet­ing in Toronto yes­ter­day — which was at­tended by Al­liance At­lantis’s top ex­ec­u­tives Michael MacMil­lan and Phyl­lis Yaffe, CanWest chair­man Derek Bur­ney ac­knowl­edged the Al­liance trans­ac­tion “ is not with­out risk.”

But he said direc­tors “ are con­fi­dent that our man­age­ment team will meet the chal­lenge.”

Mr. Shine, the Na­tional Bank an­a­lyst, said it made sense for CanWest to struc­ture the deal in a way that does not de­pend on to­day’s mar­ket value of the com­pany’s con­ven­tional TV op­er­a­tion, which also in­cludes the smaller CH net­work.

“ The mar­ket ap­pears to be giv­ing Global/ CH a value of close to $ 400 mil­lion, which is ridicu­lously low,” Mr. Shine said in a note to clients.

Global’s earn­ings plunged over the past cou­ple of years as more hit shows were pur­chased by CTV and ad­ver­tis­ing dol­lars flocked to the ri­val net­work. But, in the first quar­ter, CanWest’s Cana­dian TV earn­ings ( be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­za­tion) rose 30 per cent, with rev­enue up 11 per cent. “ We be­lieve our Cana­dian TV and news­pa­per re­cov­ery theme is very much in­tact,” Mr. Shine told clients.

The an­a­lyst does not an­tic­i­pate a bid trump­ing the CanWest- Gold­man Sachs deal be­cause Gold­man dealt with as­sets CanWest didn’t want, in­clud­ing a 50- per- cent stake in hit TV show CSI and its two spinoffs.

CanWest ex­ec­u­tives said yes­ter­day that talks with Gold­man date back many months, and the bank has been in­ter­ested in adding Canada to the list of coun­tries in which its private eq­uity funds have me­dia hold­ings.

“ With our bal­ance sheet, we could not write a $ 1.5- bil­lion cheque,” said Mr. Asper, ex­plain­ing the struc­ture of the deal. He said he does not ex­pect a reg­u­la­tory re­view by the Cana­dian Ra­dio- television and Telecom­mu­ni­ca­tions Com­mis­sion to cre­ate prob­lems for the Al­liance At­lantis deal.

“ The CRTC cares about who con­trols the pro­gram­ming ( and) who has the vot­ing power. We have the vot­ing power,” he said. “ There’s no con­straints on our abil­ity to pro­gram the busi­ness as we see fit, so we think it meets all the tests … ( Gold­man’s) po­si­tion can never get any bet­ter. It’s sim­ply a ques­tion of how they exit and when they exit.”

JEAN LEVAC, THE OTTAWA CIT­I­ZEN

Jim Skip­pen, a lawyer by train­ing, has made Wi- Lan into a pow­er­house through the cun­ning ap­pli­ca­tion of pa­tent law. The Ottawa firm buys pa­tent li­cences, then goes look­ing for big firms that may be in­fring­ing on those rights. It’s the city’s sec­ond...

PETER J. THOMPSON, NA­TIONAL POST

CanWest CEO Leonard Asper, left, and Michael MacMil­lan, ex­ec­u­tive chair­man of Al­liance At­lantis, pitched their $ 2.3- bil­lion deal to share­hold­ers yes­ter­day at CanWest’s an­nual gen­eral meet­ing.

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