How the World Got Wired · Three Ships and a Fire Sale

Part Three: A Canadian Tragedy

I want to end this chapter with a different kind of story. The story of a Canadian company called Nortel.

Nortel did not lay cables. Nortel did not run a phone network. Nortel built the equipment that the cables and the networks plugged into. The optical switches. The routers. The boxes you would have seen, in the late 1990s, in every server room of every internet company in the world. If Global Crossing’s cables were the highways, Nortel’s equipment was the toll booths and the traffic lights.

For most of the twentieth century, Nortel had been a sleepy Canadian company called Northern Telecom. Then, in the 1980s and 1990s, it became one of the leading makers of telecom and internet gear in the world. By July of 2000, Nortel was worth, on the stock market, about $398 billion Canadian dollars. It made up about a third of the entire value of the Toronto Stock Exchange.

Stop and imagine that. One company, in one industry, worth as much as a third of all the other major Canadian public companies put together. Tens of thousands of Canadians worked for Nortel directly. Hundreds of thousands of Canadians owned its stock in their retirement accounts, often without even knowing it — because so many Canadian mutual funds held huge positions in Nortel that ordinary investors got it whether they wanted it or not.

When the dot-com bubble burst, Nortel did not die quickly. It died slowly. Slow enough that hope kept returning. Through 2001, 2002, 2003, 2004, executives kept saying the company would recover. Each time, it shrank some more. There was an accounting scandal — executives accused of cooking the books to inflate profits — that dragged on for a decade. There was relentless competition from cheaper Asian manufacturers, especially a fast-growing Chinese company called Huawei. There were layoffs, and more layoffs, and more layoffs.

On January 14, 2009, Nortel filed for bankruptcy.

It is hard to overstate what this meant for ordinary Canadians. Tens of thousands of Canadian retirees, who had owned Nortel stock as the cornerstone of their retirement accounts, watched it become worthless. Tens of thousands of Nortel employees, many of them engineers in their fifties and sixties, lost their jobs and their pensions in a country where, at the time, finding another job in their field was nearly impossible because their entire industry was contracting at the same moment.

This was the most painful and the least famous of the three collapses. The American collapses had villains — Winnick selling his stock, Ebbers cooking his books. The Canadian collapse had, mostly, just slow grinding loss.

But Nortel did have one thing of enormous value left, even after everything else was gone.

It had patents.

A patent is a legal document that says, I invented this idea, and I have the right to prevent other people from using it without my permission. Nortel, over its many decades, had been granted thousands of patents — on wireless technology, on optical switching, on semiconductors, on internet protocols. Many of them were essential to making modern smartphones and networks work. Whoever owned those patents could, potentially, charge fees to every company that built smartphones or networking equipment.

In June and July of 2011, Nortel held an auction for its patents. The auction took place over four days in a law office in Toronto. The largest technology companies in the world sent their lawyers.

The bidding started at $900 million — an opening offer from Google. Then, in a bidding war that lasted four days, the price climbed higher and higher. Each new bid had to be at least a certain amount above the previous one. But Google decided, in the middle of the auction, to make bids that were not just higher but strange.

Google bid $1,902,160,540. (This was a number derived from a famous mathematical constant called Brun’s constant.)

Google bid $2,614,972,128. (This was another mathematical constant, called the Meissel–Mertens constant.)

Google bid pi multiplied by a billion: $3,141,592,653.

Nobody at the auction quite knew what Google was doing. Were they signaling something to the other bidders? Were they amusing themselves? Were they trying to throw off competitors who were trying to predict what Google would bid next?

Whatever they were doing, it didn’t work. Google lost the auction.

The winning bid, on July 1, 2011, came from a consortium of companies that had banded together to outbid Google. The consortium called itself Rockstar. Its members were Apple, Microsoft, BlackBerry, Sony, and Ericsson. They paid $4.5 billion.

The Nortel patents went into Rockstar’s hands. Rockstar used them, over the next several years, to file lawsuits against companies — including Google’s Android phone partners — that built smartphones. The patents shaped much of the legal warfare around smartphones in the 2010s. Eventually, in 2014, Rockstar broke up and sold most of its patent portfolio to a different group, which included Google. The patents had traveled a long way from a quiet Canadian company that nobody remembered.

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