BlackBerry cashing in on legacy patents to the tune of $600 Million

In a move that makes it even more apparent that BlackBerry has moved beyond making phones, today the company announced it has entered into a patent sale agreement, netting the company $600 million.

WATERLOO, ON, Jan. 31, 2022 /PRNewswire/ -- BlackBerry Limited (NYSE: BB; TSX: BB), announced today that it has entered into a patent sale agreement with Catapult IP Innovations Inc., a Delaware company, pursuant to which BlackBerry has agreed to sell substantially all of its non-core patent assets to Catapult for total consideration of $600 million.

Patents that are essential to BlackBerry's current core business operations are excluded from the transaction. BlackBerry will receive a license back to the patents being sold, which relate primarily to mobile devices, messaging and wireless networking. This transaction will not impact customers' use of any of BlackBerry's products, solutions or services.

Catapult is a special purpose vehicle formed to acquire the BlackBerry patent assets. Catapult's principal funding for the acquisition will be a $450 million senior secured term loan, for which it has received $400 million of conditional commitments from a lending syndicate led by Toronto-based Third Eye Capital that includes a Canadian pension fund.

At closing, BlackBerry will receive $450 million in cash and a promissory note in the principal amount of $150 million. The promissory note will be secured by a second lien on the assets of the purchaser and will be subordinated to the rights of the senior lending syndicate. The promissory note will be payable in five equal annual installments of $30 million in cash commencing on the third anniversary of the closing date, provided that the senior loan is not in default.

Completion of the transaction is conditional upon, among other things, satisfaction of all regulatory conditions under the Hart–Scott–Rodino Antitrust Improvements Act in the United States and the Investment Canada Act. This process could take up to 210 days.

BlackBerry has filed a Current Report on Form 8-K with the U.S. Securities and Exchange Commission in connection with its entry into the patent sale agreement, which contains further information including a description of the financing conditions relating to the transaction.

For a deal like this to take place I can only assume $600 million was music to BlackBerry CEO John Chen's ears. Given that BlackBerry is out of the business of making phones, it seems like a smart move for BlackBerry. $600 million is a proper wad of cash and they will receive a license back to the patents being sold so it doesn't impact their existing products, services and customers.

What's less clear is if and how this could impact any company who wants to license the BlackBerry brand to make a smartphone (ie. Onward Mobility). My assumption would be that previous BlackBerry licensees like TCL automatically had the right to utilize BlackBerry patents as part of their BlackBerry licensing deals. Third parties in the future looking to make a BlackBerry Smartphone now may have to get two deals done - one with BlackBerry for the brand, and one with Catapult IP Innovations, for patent licenses as needed.

Regardless, it will be interesting to see what BlackBerry does with their $600 million windfall and what Catapult Innovations will do with their newly-acquired patent portfolio to make their investment back.