BUSINESS

Nortel not just Canadian company, IP not solely created in Canada: U.S. lawyer

09/23/2014 11:13 EDT | Updated 11/23/2014 05:59 EST
TORONTO - It's a fallacy to think of Nortel Networks as just a Canadian company and that its intellectual property was created solely in Canada, a lawyer for its U.S. subsidiary said Tuesday at a cross-border bankruptcy trial that will decide how remaining assets are shared among creditors.

"I think we can all agree now that Nortel was actually a multinational enterprise, global in nature, with separate corporate entities, separate groups of creditors spread around the world," said James Bromley from Wilmington, Del., by videolink.

While Canada certainly had a large role in research and development, Nortel's R&D took place all over the world, Bromley added in the second day of final summations for a trial that began in May.

"The U.S. role was incredibly important, particularly during the glory days . . . from the mid '90s to the 2000s, at which time U.S. R&D was just short of the same amount of R&D that was being conducted in Canada."

Bromley also said it's a fallacy to say Nortel's business was run from Canada, as lawyers for the Canadian parent and the court-appointed monitor argue.

While the board of directors and many of Nortel's senior executives were in Canada, the "largest and most profitable business units were operated out of the United States. That is undisputed."

He added that the United States had "more Nortel employees, therefore more Nortel retirees, more Nortel disabled, than anywhere else."

"When we talk about NNI (Nortel Networks Inc.), it had an incredibly large and vibrant organization here in the United States — made up of humans and individuals, just as much as anywhere else."

Competing groups of creditors have been focusing on the legal interpretation of a 10-year-old agreement to determine how to divvy up about $4.5 billion from the sale of Nortel's patents

In total, the trial is expected to determine how $7.3 billion of remaining Nortel assets are allocated among the various legal entities that are undergoing court-supervised windups in several jurisdictions.

Bromley said that every one of the Nortel business units that went into court protection had its own liabilities and creditors.

He argued that creditors of a parent company aren't entitled to the assets of its subsidiary until the subsidiary's creditors are "paid in full."

"That is the cornerstone of the insolvency regimes in each of the three major jurisdictions (represented in the trial)," Bromley said.

He added that the Canadian parent, Nortel Networks Ltd. or NNL, would have run out of cash within months of the restructuring in 2009 if it weren't for funds transferred from the U.S. arm to the Canadian arm.

"It did that to help facilitate the sales process," Bromley said.

"We find it difficult to accept that, not withstanding providing nearly a half-billion dollars of post-petition financing to NNL, that the monitor's decision is that we should get next to nothing out of the IP sale."

Bromley said that the court-appointed monitor is correct to say that the Canadian company owned all the rights to the intellectual property but only because it owned 100 per cent of Nortel US.

He added that the each of the subsidiaries in a 2004 agreement between various Nortel subsidiaries had exclusive "beneficial ownership" to the intellectual property within its territory while the Canadian parent only had "legal title."

Earlier, a lawyer for Nortel's U.K. pensioners said all the patents and intellectual property at the centre of the months-long trial were jointly owned by all the Nortel entities because they were the product of the entire organization's work and investments.

The U.K. pensioners argue for a pro rata approach that would divide up money from the sale of the patents among the various insolvent remnants of Nortel, which would then pay their creditors.

That position is partially supported by the Canadian pensioners and former Nortel employees but it also supports the position of the court-appointed monitor, which argues that the parent had sole ownership of the intellectual property under the terms of a 2004 agreement.

The decision about how to divide the money rests with two judges who are presiding over the closing arguments by video link in Toronto and Delaware.

Monday and Tuesday had been set aside for closing summaries but the judges decided to add a third day on Wednesday to give more time for arguments.

At its height, Nortel was the most valuable company on the Toronto Stock Exchange and employed more than 90,000 people around the world.

The company was hurt by changing market conditions and an accounting scandal that sent its stock price plunging. Its shareholders will get virtually nothing through the restructuring since its liabilities are greater than its remaining assets.