Tuesday, March 29, 2011

Nokia v. Apple: Why now?

Why is Nokia launching a flurry of patent suits and ITC investigations now, four years after the iPhone was announced?  More than wanting a cut of Apple's profits, I think it's about needing licenses to Apple's patents to stay in the game.

Over at FOSSPatents, Florian Mueller ponders Nokia's motivations:
Many observers and analysts will now try to form an opinion on whether this latest action by Nokia is a sign of strength or weakness. I have thought about this and concluded that there is a significant degree of frustration shining through Nokia's announcement because things take so long, but more than anything else, Nokia is sending out a strong and unambiguous message that at the end of this epic battle Apple is going to have to send royalty checks to Finland.
Nokia's patent portfolio is roughly five times larger than Apple's. They both operate in the same industry resulting from the convergence of computing and communications technologies. Theoretically one "killer patent" can be stronger than a thousand other patents, and there are indeed significant quality differences between the patent portfolios of major high tech companies. But it's hard to imagine that Nokia's patents are, on average, so much weaker than Apple's that the outcome could be anything else than Apple being required to pay.
I personally have no trouble imagining that Nokia's patents are so much weaker, especially when we follow the money, and particularly, the profits.

While the relative size of Nokia's patent portfolio is certainly relevant, the direction in which money will eventually flow is presumably related to the financial damage each party's portfolio could do to the other party, and each party's ability to take the risk of such damage.  Damages, in turn, should be related to profit contributions of the inventive aspects of the patents.

Apple's share of mobile phone industry profits exceeds the combined profits of the rest of the vendors combined.   Some may argue that Apple's handset profits are derived from the persuasive marketing of "shiny things."  I would argue that their profits are highly related to the inclusion in their products of the signature iPhone features, which Apple itself, as the first mover, has patented extensively.

Why is Nokia launching a flurry of patent litigation activity right now?  I suspect a key factor is the recent agreement with Microsoft.  If the new Microsoft-Nokia phones are profitable, a significant portion of the profits will likely be attributable to their having those signature iPhone-like features.  Apple could make a very strong argument, based on the profit share in the market, that it is those features that are key to Nokia's profits, if such profits arise.

Apple likely has more than a "killer patent."  They have a "killer portfolio," because they decided to "think different" about this space for years before anyone else knew what they were doing.  I suspect Nokia desperately wants a cross-license agreement so they can continue to play.

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