In 2009, Nokia, once the leading cell phone manufacturer, sued Apple over patent infringement. Apple responded with a countersuit. The two litigants filed a series of simultaneous lawsuits in different jurisdictions and countries over the next two years.
In 2011, Apple settled with a one-time payment and continuing royalties. The terms of these patent licensing agreements are confidential.
Nokia has chosen to hold on to its patent portfolio despite selling its mobile device business to Microsoft for $5 billion. Instead, it granted Microsoft a 10-year patent license for an additional $2.2 billion.
Nokia receives undisclosed compensation from Samsung, and a few months ago renewed that deal for another five years. Just today, HTC agreed to pay undisclosed patent royalties to Nokia.
Nokia has now successfully
licensed its patents to Microsoft, Apple, Samsung, and HTC. Microsoft itself
receives patent royalties from about 20 Android manufacturers. With this in mind, Nokia
will likely pursue the other Android manufacturers, despite no longer having a smartphone business of its own.
Thus, Apple's settlement with Nokia is a win-win. Apple has plenty of cash on hand ($160 billion!) to afford the settlement. By settling, both companies will free up resources to litigate against Apple's primary competitors, Android manufacturers.
I'm curious to know how you can purchase a part of a company's business (how Microsoft purchased Nokia's mobile device business), but not the accompanying patent portfolio. To the commoner, it seems silly to own the business but still have to pay the original owner royalty fees for technology you now own. Is this because the cost of purchasing the entire patent portfolio was too high? What's going to happen in 10-years when Microsoft's patent license expires (although at that might, it may just be that the patents will become worthless because of superior technology that is available in the market)?
ReplyDeleteI think Nokia wants to exit device manufacturing because of increased competition and a lack of cash on hand to invest in more competitive products. On the other hand, Microsoft (especially ex-CEO Steve Ballmer) wants to enter the devices business because they suspect that the market is shifting towards it. I think this partly explains why Nokia is retaining its map services (Nokia owns Navteq), most of its patents, and some other services, which are more in line with a new business model.
DeleteAlternatively, as you said, it might have been because of cost. Microsoft paid much less than Google did for Motorola, so Nokia kept the patents. Nokia could always sell the patents in the meantime. Also, in 10 years, a lot of the patents would probably expire.
It's interesting how the smartphone patent war is like an actual war; as various companies compete against each other, "alliances" are made in the form of win-win agreements like Apple's settlement with Nokia. By alliances, I mean companies complementing each other, whether intentionally or not, to have some significant advantage over a competitor.
ReplyDeleteI agree. Many analogies can be made. For example, patents are weapons and portfolios are arsenals. Patent portfolios can be used to attack/litigate or to discourage/defend/countersue. They can also be sold to patent trolls to fight proxy wars against competitors. When companies with large portfolios fight/litigate, the damages are extremely high. And like World War I, these alliances can be secret through confidential agreements.
DeleteThis is a interesting story. So, is Nokia still in business? I thought they were being bought out by Microsoft, at least their mobile division. It's a good move by Apple to settle as they know it's not good for them in the long run. A lot of companies are forming alliances nowdays. I recently wrote about how Cisco allied with Samsung for a 10 year patent sharing contract. Also Google earlier made that same deal with Samsung too. A lot of key players are not allying with each other to reduce litigation from occurring.
ReplyDeleteI wonder if this is the most efficient way. Certainly Nokia is happy about it, getting to make money without producing any kind of product (at least, that's what it seems like you are saying). I suppose if companies didn't want to pay for the patents they could simply innovate around them, but I wonder how difficult that would be.
ReplyDeleteConnor
Indeed, Nokia is in a better position to act like a patent troll. I hope they won't, but it is a potential strategy. However, it's worth noting that Nokia has had a history of licensing patents to its competitors (so it could simply continue existing agreements and make new ones with similar rates). Also, European regulators have already warned Nokia not to "behave like a patent troll".
DeleteDara, what an excellent objective summary. As always, I appreciate your references.
ReplyDeleteDo you have a personal opinion regarding the “win-win” nature of the settlement? In the bigger picture, do the consumers win? Does the economy win?
Thanks! As I see it, the settlement is a "win-win" from the perspective of Nokia and Apple. It's a "loss" for Google, Android, and Android manufacturers, who may face new and intensified litigation.
DeleteI'm not sure whether it's good or bad for consumers and society as a whole. The settlement is confidential. Will the settlement lead to more disputes being resolved (relieving courts and reducing legal costs that are passed to consumers), instead of expensive, prolonged litigation? Or will it lead to more litigation against Google and Android manufacturers (probably not as good for consumers who end up paying more)?