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Why Nokia deal with Apple may spark mobile patent war

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Missile launch by Steve JurvetsonAfter a protracted period of patent warfare, Nokia and Apple appear to have settled their differences — with a bundle of cash. Nokia boss Stephen Elop says the two companies have agreed to drop their lawsuits against each other, with Apple paying a one-time sum and a regular license fee to use Nokia’s technology.

“We are very pleased to have Apple join the growing number of Nokia licensees,” said Elop in the announcement, before suggesting that Nokia might be able to use its apparent victory to prize some money out of the hands of other companies as well. That means Android, in particular, could be in the firing line.

So far Apple remains silent on the nature of the deal, but it has to be said that the move comes something of a surprise given that the US International Trade Commission had previously ruled that the American company had not infringed a number of Nokia patents. Still, it may have proved easier for both sides to settle and move on than continue a war that showed few signs of ending, despite entering a second year of litigation.

The agreement and payments end all patent cases between the two companies, but there’s still one major unanswered question: exactly how much is the deal for. That’s being kept tightly under wraps, but there is a hint in Nokia’s statement that the deal will be a significant boost to its bottom line. The release says “this agreement is expected to have a positive financial impact on Nokia’s recently revised outlook for the second quarter 2011 of around break-even non-IFRS operating margin for Devices & Services.”

Sifting through the jargon, that seems to imply that Apple’s payments will make up some of the expected deficit in sales of handsets and software, which is the largest part of Nokia’s business. Last month Nokia had said that it was downgrading its expectations, after lack luster sales meant it was losing as much as 9 percent of its profits in the handset business. It’s not clear how much of that shortfall this deal will make up, but my back of the envelope calculations suggest a wide range that reaches as high as $900 million (though it is most likely lower).

Beyond the immediate news, there are also longer-term issues to consider. First, there’s the effect on Apple. I think those are minimal: the company has huge cash reserves and now has ended almost all possibility of further litigation from Nokia in this area.

More importantly, there’s the impact on Nokia and its image. While the payments may help the company right itself temporarily (remember, the company says the money is only going to shore up its dismal Q2 results) they may betray a deeper issue — that it is becoming reliant on others. Regardless of the rights and wrongs of the case, it’s going to be hard to fight the image that everybody else is now keeping Nokia afloat through their payments. After all, these millions from Apple come on top of billions from Microsoft.

Perhaps the most important long-term impact could be that this victory encourages Nokia to launch more lawsuits. Some suggest that Android, for example, could now be a prime target. Nokia has already launched cases against the likes of Samsung, LG, Sharp and Toshiba, and — as Florian Mueller of the FOSS Patents blog points out — Nokia is preparing to go on the warpath.

Having proven its ability to defeat Apple — after the most bitterly contest patent dispute that this industry has seen to date — is a clear proof of concept. Other companies whom Nokia will ask to pay royalties will have to think very hard whether to pay or pick a fight.

Maximizing cash from its patent portfolio is an expensive and time-consuming gambit, but it seems to have paid off for Nokia so far. In fact, perhaps even more than Stephen Elop’s famous “burning platform” memo, this situation encapsulates Nokia’s ongoing problems more succinctly than almost anything else: as the company that comes up with technology that everybody else manages to exploit better than it can.

Photograph used under Creative Commons license courtesy of Steve Jurvetson

16 Responses to “Why Nokia deal with Apple may spark mobile patent war”

  1. You forgot to include the juicy part why goog will lose, here it is

    ‘This is also very significant with a view to Android. Given that Android is in many ways a rip-off of Apple’s operating software, Android-based devices are highly likely to infringe on largely the same Nokia patents that Apple now felt forced to pay for.’

  2. d ^^ b

    There has always been patent related lawsuits going in and out of Nokia’s law dept. Just like it is with everyone else in the business.
    Difference between companies might be that those that spend more to R&D might have more reason to sue others since they have more patents.

    This wasn’t the war to end all wars, there will be lawsuits like there always has been, even with Android makers. Actually, hell yea, there will be those against Android vendors, but it isn’t because they make Androids. It’s because after this one being settled with Apple, most other companies in this field make Androids.

    When you say that this could launch _more_ litigation against Android makers, I don’t see that happening.
    Main reason being that with Nokia vs. Apple the situation was one that isn’t that usual in mobile business. Generally licensing works, but here there seemed to be some kind of bigger hitch.

    Apple being new player didn’t have existing deals patent swapping deals with Nokia and they didn’t want to license the stuff that made them special. Because of existing deals and industry customs, all patents usually are licensed. This is main reason _why_ Nokia _wanted_ to sue them.
    Apple also didn’t want to pay according the same model that others did, because it was a little pricier than the one they wanted to use. By doing this they allowed a weak spot in their defense, a calculated risk, that allowed Nokia to sue them. If there isn’t patent swapping, you usually pay something per device you make. This in main reason _why_ Nokia _could_ sue them a big time.

    These problems don’t really come up with that many other companies. This means that there will be litigation, even big cases, but it won’t be as much of a grand battle and spectator sport. It will be business as usual, like it already has been, not a new way to make income.

    To make this comment even longer ( sorry about that) I’ll try to explain what I see to be the the two reasons that Nokia won’t be going on Android related suing spree.

    The other companies either
    1. already are swapping licences in a fair way with Nokia or licensing their own patents to Nokia for money and Nokia licences to them, again for money. All in a fair way as it is customary in the business. This goes for the more seasoned players with patents. Companies such as Moto, Samsung, LG,…
    2. The new players don’t as much invest in R&D. Therefor they don’t have anything that could use as a hostage against Nokia. Apple didn’t have many patents and the existing ones were possibly weak ones, but these were ones that Nokia wanted. This made it possible to put up a big fight before the two reached fair terms. The other new players too have to license stuff from Nokia but are more likely to accept the normal industry terms since they can’t pick up a big fight without interesting patents. When they have reached the first agreement it’s of course still possible, but much less likely, that they would start a fight this big.

    One point still. Bobbie, you said ”this situation encapsulates Nokia’s ongoing problems more succinctly than almost anything else: as the company that comes up with technology that everybody else manages to exploit better than it can.”
    Yes, I wholeheartedly agree, but be careful not to over interpret this event. I think this patent war would have happened even if Nokia had been doing better than ever. At the moment Apple isn’t that afraid on Nokia anymore, so now they can easily settle and patent their stuff to Nokia. If they had went all the way in court the result would have been the similar, solid patents are worth paying for. Just because Nokia has problem using their own patents, they still have right to get paid for results of their R&D.

    Nokia going against Android, not likely.
    New lawsuits however are and have always been business a usual, so there will still be some of those. Also ones against companies that happen to make Android.

    Disclaimer: And now to make this whole comment less likely to hurt your ego, I’ll admit that I probably know “nothin’ ’bout nothin'”. I’m not a patent lawyer for either one of the companies, just one of those who have gathered their knowledge about this case form sites like this. You can blame me for being a misinformed ass and I can blame it for all the techblogs in world. yay.

  3. Lucian Armasu

    I think they did it because Elop promised he’d go after Android manufacturers, too, and they will be hurt more than Apple by this. I was worried this would happen when Microsoft signed the deal with Nokia. Microsoft will use Nokia’s patents to hurt Android even more. It’s a pitty they’d rather beat them in the court instead of doing it in the market.

    • When Google buys Nortel’s 6,000 patents, that also cover hardware, data transmission, radio technologies etc. they will have a patent war room to defend Android. Why do you think MS is objecting to the deal?

      • You do realize that the DOJ is also looking at Apple because they are interested in the same patents. They definitely have the deep pockets to outbid anyone else if they choose to.

        It would protect them from litigation from most other patent holders making telecommunications gear because it contains key patents on 4G LTE.

  4. pjs_boston

    If memory serves, Apple’s principal reason for not licensing Nokia’s patents in the first place was that Nokia had attempted to tie licensing of its patents to a cross-license of key iPhone patents.

    Only a few folks have pointed out that the current settlement does not require Apple to cross-license its key iPhone patents to Nokia. I see this as a victory for Apple in two ways. First, Nokia will be emboldened to go after Android phone vendors for patent royalties. Second, Apple’s patent portfolio is undiluted, as there remains no precedent for Apple licensing out its key innovations. This may help Apple to force Android vendors to strip offending features from their phones.

    In the future, the Android army may find that they have to give their profits to Nokia and while trying to sell phones missing key iPhone inspired (i.e. stolen) features.

    • bigpicture

      Android is a software product, most of Nokia’s patents cover hardware, and radio transmission technologies etc. Apple’s hardware is mostly what was infringing.

      • From the original press release from Nokia:

        “The ten patents in suit relate to technologies fundamental to making
        devices which are compatible with one or more of the GSM, UMTS (3G
        WCDMA) and wireless LAN standards. The patents cover wireless data,
        speech coding, security and encryption and are infringed by all Apple
        iPhone models shipped since the iPhone was introduced in 2007.”

        While some of those may well be hardware patents, some will cover software methods too (particularly those connected with encryption).

        Basically, if you make a phone, you’re probably using Nokia patented tech. However, I believe HTC, Samsung and Motorola already license at least the GSM patents from Nokia, and so any phones they make – including, probably, Android ones – will be covered.

  5. sranzha

    as far as i remember they payment from microsoft is coming as part of marketing and development aid for the first NWP product i.e. Nokia will get money from microsoft only around release of their first product.

  6. These patent wars make it difficult for new players to enter the smart phone market. The existing manufacturers sue and get sued and the money evens out. New manufacturers have to pay royalties to all the existing manufactures making it more difficult to be competitive.