Nortel's breadth of R&D investment in technology innovation is reflected in the company's patents portfolio. A strong patent portfolio is not only essential for protecting the company's position but also for staking its claim in the future. Nortel's strong history of innovation has resulted in the issuance of numerous and significant patents in areas key to the future.

As of December 31, 2007, Nortel had approximately 3,650 US patents and approximately 1,650 patents in other countries. It has been reported by industry analyst IFI Plenum that, in 2006, Nortel ranked 69th in terms of number of patents granted by the U.S. Patent & Trademark Office. Nortel has ranked in the top 70 in terms of number of granted U.S. patents since 1998.

Nortel's patent portfolio extends across Wireline, Wireless, Datacom, Enterprise and Optical technologies and services. Nortel has received patents in the U.S. and elsewhere covering standards-essential, standards-related and other fundamental and core solutions, including patents directed to CDMA, UMTS, 3GPP, 3GPP2, GSM, OFDM/MIMO, LTE, ATM, MPLS, GMPLS, Ethernet, IEEE 802.3, NAT, VoIP, SONET, RPR, GFP, DOCSIS, IMS, Call-Waiting Caller ID and many other areas.

For more than 10 years, Nortel has been a key innovator in Orthogonal Frequency Division Multiplexing (OFDM), Multiple Input Multiple Output (MIMO), Adaptive Modulation and Coding, Space Time Coding, Channel Coding, Automatic Retransmission Request, OFDM Sub-channel Mapping, Hand-off and Frame Structure, and MIMO Transmitter/Receive Architecture - the radio access technologies at the heart of 3GPP Long Term Evolution (LTE). Nortel has developed fundamental and valuable patented and patent pending technologies in these fields. Nortel's Research & Development (R&D) efforts and advancements have allowed it to be an early and key contributor to the development of the LTE standard and will enable it to be a major provider of LTE solutions in the market.

Nortel believes that pioneers and innovators should be entitled to a reasonable return on their investment in R&D. Patent rights are an incentive that reward and encourage the progress of innovation. Nortel supports licensing patents essential to the LTE standard on fair, reasonable and non-discriminatory (FRAND) terms, subject to reciprocity. Nortel believes that compensation provided through licensing standards essential patent claims under FRAND should be based on the significance of the patented technology in the standard and the value of the patented technology to the licensed implementation.

To help in accelerating the development of an LTE ecosystem and the global adoption of LTE by service providers and end-users, Nortel is willing to offer a discounted royalty rate for its LTE standards essential patent claims for LTE handsets. Nortel will license its LTE standards essential patent claims for LTE handsets at a royalty rate in the region of 1% on the sale price, subject to reciprocity, defensive suspension, and grantback to Nortel products, services, and solutions, as well as other customary license terms and conditions.