Thursday, January 27, 2022

Daimler-style strategic breakthrough for Nokia (and by extension Avanci, Ericsson, Qualcomm): Nordic Semiconductor arranges end-product-level SEP licensing for its customers

Nokia and Nordic Semiconductor--a company that makes wireless communications chips for the IoT industry and one of whose executives spoke at my 2019 Brussels conference--just announced a "pioneering new approach to licensing the use of cellular IoT Standard Essential Patents": IoT device makers (specifically, those building smart meters, payment terminals, and vehicle telematics) who incorporate Nordic's chips into their products can now opt in and take a pre-negotiated standard-essential patent (SEP) license from Nokia covering their devices.

Nordic Semiconductor celebrates the "added transparency and predictability early in the design process, giving the increased clarity and certainty Nordic cellular IoT customers have been seeking over the past three to four years." Nokia calls it "a win-win for Nordic’s customers and Nokia, simplifying the SEP licensing process in the IoT space and making it easier for licensing agreements to be concluded amicably and efficiently."

Like in that Hot Chocolate song, "Everyone's a winner, baby, that's the truth." Is it? I mean, is it equally great news for both sides? And more broadly speaking, looking beyond this particular deal, is it equally positive for SEP holders as it is for SEP implementers?


There's a winner here and a loser, a winning side and a losing side. Let's tell it like it is (just like I told everyone who lost the German patent reform battle, which yesterday's Dusseldorf presentation validated once again).

Just like Daimler before it, Nordic Semiconductor--which wasn't embroiled in litigation with Nokia but was certainly a vocal critic, speaking out at plenty of webinars against those who refuse to grant exhaustive licenses to chipset makers--has surrendered to Nokia's licensing model.

Sure, this is now a kind of partnership, a deal, it looks consensual. But it was Nokia who imposed its model on Nordic. The fact that Nordic won't have to disclose to Nokia those of its customers who elect not to opt in and take a license is of limited value: Nokia is one of the most sophisticated patent holders in the world and knows how to track down unlicensed implementers.

It's not a license. It's just a group deal. Just like when Sisvel negotiated with RPX, and RPX invited its members to take a license on the terms it had negotiated. In the end, Nordic's customers have to take a license from Nokia, one way or the other. It may be simpler now, streamlined, efficient, whatever buzzword we may want to use. But Nordic would no longer have any credibility if it wanted to go out and bash SEP holders who say they want to license end product makers. This is it.

I have no information on how the talks between those parties went, or whether Nokia was about to sue any of Nordic's customers, but I doubt that Nordic entered into this agreement without having to fear in the slightest that its customers could be sued (and would in turn seek indemnification from Nordic, depending on whether their chip supply agreements made that a possibility). This prenegotiated option for Nordic's customers came into being in the shadow of Nokia having all the leverage. For Nordic, the outcome is not even face-saving because when you spend years advocating certain positions and then recognize that you had made unrealistic demands, you lose more than you gain, though at least you can tell your customers that you tried to secure the best possible deal for them.

Some IoT products are very cheap and have low margins, though volumes can be high. I would assume that Nokia is prepared to offer them a license on different terms than the royalties it gets from a Daimler or Apple. Also, 5G does not appear to be included: it's up to LTE-M (4G).

The fact that automotive components are one of the product categories the agreement covers is another parallel between today's announcement and the Nokia-Daimler settlement.

And now let's look at the transcendental impact of this.

A few months after Daimler settled with Nokia, it took an Avanci license. It had previously taken direct licenses from Sharp and Conversant as well, so an Avanci license became the most efficient choice.

Today's Nokia-Nordic announcement is a trailblazer: the future may be an Avanci IoT patent pool. The "marketplace" page of Avanci's website has the headline "Enabling the IoT" followed by "Wireless connectivity for the Internet of Things." The licenses listed on that page are car makers. But there is also a high-volume potential in other IoT categories than connected cars, such as the ones the Nokia-Nordic arrangement relates to.

Nokia's strategic breakthrough benefits companies like Ericsson (whose SEP portfolio is considered even stronger than Nokia's by many experts) and Qualcomm, who have taken the same position as Nokia on component-level licensing--and, by the way, have always been at loggerheads with Apple over that question.

Nokia is playing it smart, and Nordic couldn't turn the tide. Now Nordic's customers are facing a licensing offer they can't realistically refuse unless they have particular reasons to assume they can get a better bilateral deal (for example, because they might take a Nokia license with respect to different types of products, or because they bring patents to the table that make a cross-license the better choice for Nokia).

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