Finnish mobile phone giant Nokia has signed a license agreement with Apple, settling all patent litigation between the companies. The two firms' lawyers had been trading blows since October 2009.
Litigation between Nokia and Apple is settled
Under the agreement, Apple will make a one-time payment as well as pay ongoing royalties to Nokia, the company said in a statement. Both companies were to withdraw complaints filed with the US International Trade Commission.
While the specific terms of the contract are confidential, analysts see Nokia as the clear winner. "Normally, these things would be settled by simply exchanging patents," Jürgen Kuri, deputy chief editor of the c't computer magazine told Deutsche Welle. "But in this case, Apple is actually paying money, so that will generate some income for Nokia."
Intellectual property consultant Florian Müller agrees. "The combination of back royalties for past infringement plus running royalties suggests to me that this is a very significant revenue opportunity for Nokia," he told Deutsche Welle.
But even more importantly, Müller added, the agreement showed Nokia's determination to duke it out with an opponent with almost unlimited legal resources. "Other industry players will have to ask themselves whether they're in a better position than Apple to pick a fight with Nokia."
Ending a battle fought on many fronts
The dispute between Nokia and Apple had dragged on for over one and a half years. Nokia first filed suit in October 2009, alleging that the technologies Apple used in its iPhone breached 10 patents held by Nokia. Later that year, Apple filed a countersuit claiming Nokia was violating Apple patents.
Nokia said Apple's bestselling iPhone 3GS used patented technology illegally
In response, Nokia took its case to the US International Trade Commission (ITC), an extrajudicial body that has the power to ban the import of patent-infringing devices. The Finnish company complained that Apple was infringing Nokia patents "in virtually all of its mobile phones, portable music players, and computers."
With time, both Nokia and Apple filed suits with several courts in various countries, including Great Britain, Germany, and the Netherlands.
According to Martin Fähndrich, a patent lawyer with Hogan Lovells International in Dusseldorf, a variety of factors determine the country in which a suit is filed. One aspect to consider is a country's strategic importance as a market, Fähndrich told Deutsche Welle, another is the reputation of the country's courts: Some are known for fast rulings, others for being friendly to patent owners.
The settlement with Apple comes at a good time for Nokia. On May 31, the handset giant announced that mobile phone sales in the second quarter would be substantially below a previous forecast.
The announcement led to a sharp drop in Nokia's share price, as well as a downgrade of Nokia's long-term outlook by several rating agencies. At a conference last Thursday, Nokia CEO Stephen Elop had to brush off rumors about a possible takeover.
Nokia's CEO Stephen Elop hasn't had much good news for shareholders lately
"Nokia always used to be the number one in the mobile phone market," Jürgen Kuri of c't magazine said. "But in the past few years, it has come under attack."
According to Gartner, an information technology research company based in the US, Nokia still led the market in worldwide mobile sales in the first quarter of 2011, even though its market share declined by 5.5 percentage points compared to the same period last year.
Apple, on the other hand, more than doubled its sales of iPhones year-on-year, and is emerging as one of the big players in the market for smart phone operating systems.
But for Apple, too, it is convenient to have settled with Nokia, as it can now concentrate on taking on Internet giant Google. Google's Android smart phone operating system holds 36 percent of the market, while Apple's iOS system holds third place at some 16 percent market share.
Second in the market is Symbian, Nokia's operating system. However, earlier this year Nokia announced Symbian would be retired as it entered a strategic alliance with Microsoft – the creators of the Windows Phone 7 smart phone software.
Patent disputes over smart phone technologies abound
While the dispute between Nokia and Apple may be settled, several other patent rows over smart phone technologies persist.
South Korean technology company and mobile phone manufacturer Samsung filed a counter suit against Apple in South Korea, Japan, and Germany, after Apple sued it in a US court.
Apple and Samsung remain at loggerheads over who copied whose design
Apple also sued Taiwanese mobile phone maker HTC, alleging patent infringements in its smart phones using Google's Android operating system. And for its part, Microsoft has mounted several indirect legal attacks on Google over the Android platform as well.
While Nokia does not have any litigation worries at the moment, it is obvious that Nokia will try to work out license deals with the makers of Android-based devices, according to Florian Müller.
"There are about 35 out there and most of them don't have a patent portfolio as strong as Apple's - and far less money in the bank," Müller said. "If they don't bring much intellectual property of their own to the negotiating table, Nokia will likely be able to command much higher license fees than in its deal with Apple."
The power of patents
Patents are at the heart of the mobile phone industry: Experts estimate manufacturers of mobile phones need to buy licenses for some 3,000 patents - or even more for smart phones.
"Patents have become increasingly important because more and more things become patented," Jürgen Kuri said. "Especially in the US, patents are awarded not only to revolutionary new developments, but to trivial ones as well."
Given increasing competition and pressure on margins in the market for smart phones, companies are likely to rely even more heavily on patents to grow and defend their market shares in future, he said.
Author: Andrea Rönsberg
Editor: Sam Edmonds