Secretive IP Holder Funds Tech Acquisition

Zusha Elinson
The Recorder
November 25, 2008

When Novafora Inc. announced last week that it was buying Santa Clara, Calif.'s Transmeta Corp. for $255.6 million in cash, it seemed like a straightforward deal.

But it turns out that the giant, secretive patent holding company Intellectual Ventures is also playing a role in the transaction, according to regulatory filings by Transmeta on Friday.

Intellectual Ventures is putting $11.6 million into the venture, apparently in exchange for access to Transmeta's patents, the filings indicate. The deal gives a fleeting glimpse into what exactly Intellectual Ventures, with thousands of patents and billions of dollars in investment, is doing. That is a matter of keen interest to many big tech companies in Silicon Valley that are wary of the Seattle-based company's powerful patent portfolio.

Transmeta has some valuable patents for low-power semiconductors. One year ago, Intel Corp. paid the tiny company an eye-popping $250 million to settle a patent infringement lawsuit. In August, Nvidia paid $25 million to license Transmeta's intellectual property.

Craig Opperman, an IP lawyer with Reed Smith who was not involved in the deal, said it appears that Transmeta's patents are still valuable assets, especially since there are still other companies to get licenses from.

"Trust me, the buyer thought so and IV thought so, and they're very savvy about IP," Opperman said.

Exactly what Intellectual Ventures is getting is a little murky. An IV spokeswoman declined to comment on the deal, Transmeta CFO Sujan Jain wouldn't go into specifics, and Novafora's CEO didn't return a call seeking comment.

Transmeta's regulatory filings say the $11.6 million is part of the purchase price. Intellectual Ventures Funding, a part of IV, is putting that money into escrow and it will go to Transmeta when the deal closes. To get the money, Transmeta made assurances that its patents are solid and also agreed not to sell or license them before the deal closes.

Intellectual property experts say the language of the agreement indicates that Intellectual Ventures is either buying or getting a license to Transmeta's patents. And the high price -- IV is known for buying patents on the cheap -- is also telling.

"Eleven million is a fairly high amount, so I would expect it would be a sizable number of patents, and if it's a license, it's just going to be that many more," said Fabio Marino, an IP lawyer with Orrick, Herrington & Sutcliffe in Menlo Park, Calif., who was not involved in the deal.

Just what IV will do with the patents is anybody's guess. A license could be used to protect companies that have paid to become members in one of IV's patent pools, Marino speculated. Or they could be going on IV's already huge stockpile of patents.

The sale of Transmeta brings to an end a company that became very aggressive in enforcing its intellectual property after it failed to challenge Intel in the microprocessor market. Its general counsel, John O'Hara Horsley, became the center of controversy when he negotiated a cut of the $250 million Intel windfall for himself allegedly worth $10 million.

In the deal between Novafora and Transmeta, Novafora was represented by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian's Anthony McCusker, who declined to comment on the terms. Novafora also used the services of Israeli law firm Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. Menlo Park lawyers from Davis Polk & Wardwell advised Novafora on tax matters. Fenwick & West's Mark Leahy led the deal team for Transmeta.