Friday, February 11, 2011

Implications of Nokia's new strategy for the smartphone patent wars

This morning Nokia announced its new strategy, a wide-ranging alliance with Microsoft, and the adoption of Windows Phone as its principal smartphone operating system.

I'm not going to comment on what this may or may not mean for the smartphone market like so many others. I'm looking at this from my special angle: that of a close observer of the smartphone patent wars, including Apple's dispute with Nokia, which this new alliance makes more likely to be settled amicably.

Importance of intellectual property to Nokia and Microsoft

Microsoft and Nokia are both known for an in-depth understanding -- including at the highest level -- of the strategic importance of intellectual property rights in the knowledge-based economy. In 2003, Illka Rahnasto, Nokia's vice president of legal affairs and intellectual property, published a book on "Leveraging Intellectual Property Rights in the Communications Industry", which talks a lot about how Nokia views and uses patents in strategic ways.

Therefore, I'm sure those organizations also take patents into consideration when structuring such alliances as the one they just announced. More importantly, they will do so in going forward.

IP is Android's Achilles heel. I'm an Android user (who switched from a Nokia N97), but just looking at the facts, and Android has bigger IP issues than any other mobile platform. In no small part that's due to the weakness of Google's own patent portfolio. I also see indications that the Android team doesn't manage its software licenses well, and its apparent negligence also seems to expose OEMs to liability risks.

A company as sophisticated about IPR strategies as Nokia is less likely than many of its competitors to inherit such issues if it can be avoided.

Nokia plans to "leverage its huge patent portfolio" even more than before

AllThingsD published one of the most interesting reports in the build up to the actual Nokia-Microsoft announcement, and among the topics Nokia planned to discuss with the investment community today, I found this one particularly interesting:

"Friday’s investor meeting will also address other aspects of the company, including [among others] its plans to leverage its huge patent portfolio."

Last time I checked, Nokia had patented about 11,000 inventions, and we're not talking about a company that has been sitting around so far doing nothing with them. If they now plan to step up their IP activities, I they will seek to strike more outbound license deals with other industry players and will probably be less hesistant than in the past to take enforcement action against companies refusing to respect Nokia's intellectual property.

In his presentation to investors, Nokia CEO Stephen Elop said that they have "one of the strongest patent portfolios out there" and they are willing to license it to others "at an appropriate royalty rate." This translates as stepping up their outbound licensing efforts.

Nokia's head of investor relations later underscored the "tremendous value" that this activity can generate for shareholders.

One thing is for sure: the importance of patents in the smartphone industry will only continue to grow.

The Nokia-Microsoft alliance may facilitate a settlement between Apple and Nokia

I've been following the huge patent dispute between Apple and Nokia, and I produced a visualization that shows the battlelines between the two companies.

It's a tale of escalation, and at some point there must be a solution. Those two players may have the potential for mutually assured destruction, and they're not going to want that.

If Nokia had chosen Android, that conflict would have exacerbated, and Google wouldn't have strengthened Nokia in any meaningful way concerning patents. Apple is already enforcing patents vigorously against Android device makers HTC and Motorola (I also produced a visualization of that battlefield).

But Nokia decided against Android. The partnership between Nokia and Microsoft should make it much easier for Apple and Nokia to work things out between them and strike a cross-license deal:

  • I can't imagine that Apple would assert any of its patents against Windows Phone 7. Nokia is now covered by Microsoft as far as Windows Phone-based devices are concerned, and it's been a long time since Apple and Microsoft had (and settled) a patent dispute. They need each other.

  • Apple primarily asserts patents on touchscreen interfaces and other elements of modern day smartphones against Nokia. Now that Nokia has a partnership with Microsoft in place, it can deliver that kind of user experience anyway. It might still need a license to some of Apple's patents with a view to its other phones, but if all else failed, it could always use Windows Phone 7 even on lower-cost devices and solve the patent problem. Today's smartphone is tomorrow's feature phone. Therefore, Apple might as well make those patents available to Nokia on a cross-licensing basis.

  • In light of market dynamics, it would now make a whole lot of sense for Apple and Nokia to stop wasting resources on their fight with each other and instead focus on license deals with all those makers of Android-based devices.

I won't venture to predict when Apple and Nokia will finally settle, but I wouldn't be surprised if it now happened within a matter of months. Should it take longer than that, then it would have taken even longer if Nokia had picked Android.

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