Saturday, September 10, 2022

Nokia's non-smartphone patent revenues (automotive, video/audio, IoT) have become significant and will continue to grow fast while various smartphone license deals are up for renewal

Yesterday, Nokia's IP chief (official title: President of Nokia Technologies) Jenni Lukander gave a presentation in New York City to financial investors on the evolution of Nokia's licensing revenues:

I followed the event over the web. Publicly traded companies in the patent licensing businesses often have to reconcile conflicting goals. In its dispute with Apple, Qualcomm wanted to convince the courts that Apple's cessation of royalty payments (through its contract manufacturers) was causing irreparable harm--while seeking to assure investors of its strong position. Nokia doesn't have to contradict itself like that: no inconsistencies for now. But I did sense that the presentation served a dual purpose: Mrs. Lukander apparently sought (and, in my opinion, persuasively managed) to

  • demonstrate the strength of Nokia's patent portfolio and mid-term growth prospects in the licensing business (partly by virtue of diversification of the licensee base)

  • while cautiously preparing the stock market for potential turbulences that could result from delayed renewals (and, by extension, sending out a strong message to licensees that, if necessary, Nokia will choose delays over devaluation, i.e., go to court if necessary, even though it may result in multiple quarterly misses).

More than once, Mrs. Lukander noted that Nokia was now going through a period in which various major license agreements are up for renewal. Of course, she emphasized that Nokia believes in the strength of its portfolio, which particularly also includes that Nokia can prevail in court, even more so on patents that have already been successfully asserted against other parties. And she didn't say that there were major problems with licensees other than--obviously--the ongoing litigations with OPPO and Vivo. But everyone who invests in, or analyzes, companies with a patent licensing revenue stream knows that renewals aren't always seamless, especially when dealing with the behemoths: Apple and Samsung. For example, Ericsson had to sue Samsung last year, and is suing Apple as we speak.

About a year ago, Bloomberg published an article entitled Nokia’s Patents Chief Gets Pushback in Bid to Make Firms Pay. And the subhead noted that Nokia "seeks to extend [its] smartphone licensing business to IoT."

That diversification of the licensee base into automotive, video/audio, and other IoT segments is not merely an objective, but has already materialized to a noteworthy extent. Yesterday, Mrs. Lukander said the following:

"And to put our progress into context, our business in these new growth areas was negligible in 2018 and has grown to over 100 million euros in the past twelve months."

That is remarkable. It's unclear how much of that comes from the Avanci patent pool, which has recently signed license agreements with ever more of the world's major car manufacturers. I would assume that most of the "over 100 million euros" comes from automotive. Daimler and an unnamed second company took direct licenses from Nokia last year.

There definitely is a fast-growing wireless SEP licensing opportunity in video/audio and over time in other IoT segments such as smart meters.

Dutch ruling in OPPO case

The pending disputes with OPPO and Vivo came up repeatedly. Just two days before Nokia's Wall Street event, a Dutch court--The Hague District Court--entered a 62-page decision in Nokia's favor in a 4G/5G standard-essential patent case. Here's the header section (click on the image to enlarge):

OPPO--through its German subsidiary--had brought a declaratory judgment action over two Nokia SEPs from the same patent family: EP2981103 and EP3220562 on an "allocation of preamble sequences." I often just mentioned EP'103 and also meant EP'562: they're very similar, though it obviously is always better for a plaintiff to prevail on two patents from the same family than just one (but nowhere near as meaningful as prevailing on two patents from different families).

The Mannheim Regional Court granted Nokia an injunction over those two patents in July. The purpose of OPPO's Dutch complaint for declaratory judgment was--rather transparently--just to obtain a favorable decision in order to increase the likelihood of the Karlsruhe Higher Regional Court staying the injunction. Nokia then brought counterclaims, seeking a Dutch injunction--and that's what has now happened.

In order to get a swift decision on the technical merits from the Dutch court, OPPO waived its FRAND defense at that stage. The German appeals court, however, presumably has to decide on FRAND as well.

It's unlikely that the economic impact of a Dutch injunction on OPPO matters, given that OPPO has already stopped selling its devices in the much larger German market. The Dutch low-risk bet didn't work for them but they'll keep on fighting and got two Munich cases stayed earlier this week.

While Mrs. Lukander expressed hopes yesterday that the dispute with OPPO could be resolved soon, I wouldn't hold my breath. As I mentioned in the post I just linked to, IAM's Asia IP Elite report notes that OPPO "has established a reputation as one of the toughest negotiators in the mobile space." Nokia's experience and sophistication in wireless patent litigation are second to none, but Nokia and OPPO are two well-matched adversaries.

Does Nokia's litigation team have the management bandwidth to start additional enforcement actions in the months ahead? I don't doubt it. By mounting stiff resistance, OPPO will likely bring down the royalties it has to pay. For now, Nokia doesn't have leverage in any of the markets in which OPPO sells most of its devices: Germany is a small market for them. Some others are far more vulnerable in Germany--or even in the Netherlands...