Tuesday, June 14, 2011

Apple and Nokia settle patent dispute -- see I told you so: Apple pays

Nokia just announced the settlement of its wide-ranging patent disputes with Apple that kept various courts in the United States and in Europe busy and in which either of the two litigants asserted dozens of patents.

The dispute started in October 2009. Nokia emerges victorious:

The financial structure of the agreement consists of a one-time payment payable by Apple and on-going royalties to be paid by Apple to Nokia for the term of the agreement. The specific terms of the contract are confidential.

"We are very pleased to have Apple join the growing number of Nokia licensees," said Stephen Elop, president and chief executive officer of Nokia. "This settlement demonstrates Nokia's industry leading patent portfolio and enables us to focus on further licensing opportunities in the mobile communications market."

This is the very outcome I had predicted on a couple of recent occasions. Let me quote from two blog posts of mine:

March 29, 2011:

"[I]t's hard to imagine that [...] the outcome could be anything else than Apple being required to pay."

May 19, 2011:

"Time is now clearly on Nokia's side on various fronts, and I think Apple will most likely end up paying a 'Nokia tax'."

This frees up resources for both Apple and Nokia. Apple is embroiled in litigation with the three leading Android device makers (Motorola, HTC and Samsung). Nokia doesn't have any litigation worries at the moment, but part of its new strategy is to ratchet up the monetization of its patent portfolio. The fact that Nokia has demonstrated its ability to defeat Apple -- after the most bitterly contested 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.

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.

Let me show you just how big a fight this was. This is a battlemap as per the end of March, following Nokia's second ITC complaint:


The question will of course come up how much Apple actually pays. Theoretically, it could be a symbolic amount, but that's very unlikely. I'm sure Nokia had to go down from its maximum demands because otherwise there wouldn't have been a settlement. But the deal structure is very telling: a combination of a payment for past infringement as well as running royalties is a clear indication that there's serious money in this for Nokia.

I don't hold shares in any tech company, but if I were an Apple shareholder, I would probably view this outcome favorably. Nokia emerges victorious, but this is a sweet defeat for Apple because its competitors -- especially those building Android-based devices -- will also have to pay Nokia, and most if not all of them will likely have to pay more on a per-unit basis because they don't bring as much intellectual property to the table as Apple definitely did. So from a competitive point of view, I don't think Apple loses much. On the bottom line its profitability may even benefit from this because Apple's margins face no greater threat than Android-style commoditization of smartphone technologies.

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