Nokia lawsuit seeks a piece of the iPhone pie

Nokia is entitled to protect its intellectual property, but there is reason to be skeptical of its timing and motives

Nokia is taking Apple to court, alleging that the iPhone infringes on 10 different technology patents owned by Nokia. Nokia is entitled to protect its investments in research and development and its intellectual property, but there is reason to be skeptical of Nokia's timing and motives.

I had questioned in a previous article why Nokia would wait more than two years to address the issue if Apple has been violating these patents since the original iPhone was released. As one of the comments on that article suggested, Nokia apparently did approach Apple and the two have been in negotiations for some time. The lawsuit is a not-so-subtle sign that there has been a breakdown in the negotiating process.

Nokia claims that there are 40 other tech companies that are paying for the legally-licensed use of these 10 patents and it wants Apple to do the same. Piper Jaffray analyst Gene Munster believes that Nokia may be seeking a royalty on iPhone sales amounting to 1 to 2 percent for each device. Based on the number of iPhones sold thus far, that could amount to around $US400 million plus the continuing royalties on future iPhone sales.

Ironically, Nokia didn't like it when the lawsuit filing shoe was on the other foot. Qualcomm sued Nokia over patent infringement related to GSM, EDGE, CDMA, WCDMA, HSDPA, OFDM, WiMax, and LTE technologies-- many of the same technologies Nokia is now suing Apple for allegedly infringing. A settlement was eventually reached costing Nokia $US2.5 billion and implementing a 15-year agreement between the two to cross-license technologies and play nicely together.

Technology patents are often notoriously vague and things get sticky when companies hold nuanced patents related to minor tweaks in commonly used technologies that are virtually universal in the industry. Patents for things like GSM, CDMA, or LTE could potentially be applied in litigation against just about any handset manufacturer.

Nokia is the big dog on the block. It holds a commanding share of the global smart phone operating system market--- about double that of second place contender RIM. Apple is a distant third with the iPhone and could soon drop to fourth with the explosion of Android-based devices.

Nokia also holds a significant advantage in terms of the total number of smart phones sold, and since smart phones are a small segment of the larger mobile phone industry Nokia also sells substantially more devices than Apple overall. However, similar to the difference between Acer and Dell, Nokia devices are generally less expensive with lower profit margins. Bottom line: Apple may sell fewer devices, but it makes more per device and is pretty much even with Nokia in terms of its share of smart phone profits.

Nokia did achieve a significant accomplishment with its Microsoft alliance, enabling it to integrate Office Mobile and other Microsoft technologies and providing Nokia with a stronger challenge for RIM BlackBerry devices in the enterprise. But, Nokia has not had a device with as much as excitement as the iPhone, or even the Motorola Cliq or Verizon Droid (also from Motorola) for some time.

With Apple announcing record iPhone sales and record quarterly profits, taking Apple stock to an all-time high, the failure to negotiate a settlement is probably all the more bitter to Nokia. If Nokia is going to lose market share to the iPhone it may as well cash in on its intellectual property rights if it can and make a few bucks in the process.

Tony Bradley is an information security and unified communications expert with more than a decade of enterprise IT experience. He tweets as @PCSecurityNews and provides tips, advice and reviews on information security and unified communications technologies on his site at tonybradley.com.

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Tony Bradley

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