The close of 2012 saw two technology giants, Nokia and Research in Motion (RIM), settle the most recent battle in the ongoing patent war between multi-national cell-phone makers. The proposed settlement, which includes one-time and continuing payments, with final values over $65 million, will settle a long-standing dispute over a licensing agreement the two companies executed in 2003. The original agreement provided both RIM and Nokia to use each other’s standard essential patents, which RIM interpreted to include access to Nokia’s WLAN technologies. Although it has been widely reported that Nokia’s WLAN patents were the main source of the dispute, the RIM’s alleged licensing violations touched on a variety of other important smart-phone technologies. According to SEC filings, at the center of the dispute are several different technologies including, point-to-point short messaging service, power consumption in a mobile station, and security improvement software. In exchange for payments and a new licensing agreement, Nokia has agreed to drop all pending actions in the United States, United Kingdom, Canada, and Germany. Although the end of this patent war comes at a cost to RIM, namely a large lump-sum and life-time royalty payments, it does permit the Canadian company to focus all of its efforts on the new Blackberry 10 OS that debuted earlier this year. The settling of this long-standing legal dispute could also prove to be profitable for Blackberry shareholders, as companies like Lenovo could begin to think of a buyout now that the potential for another half billion dollar legal settlement is no longer possible.
Disputes stemming from patent licensing agreements have escalated in recent years, as cell phone makers who run non-IOS and non-Android systems attempt to protect their inventions as their market shares decline. In fact, in 2012 Nokia earned over $500 million just through its licensing agreements and continues to pour money into research in an effort to continually expand its patent portfolio, which currently exceeds 10,000 patent families. This source of revenue will become increasingly important for technology companies such as Nokia, which has seen its more traditional revenue streams, such as those generated by handset sales, fall flat in recent years. However, with projections that estimate a climb in Windows phone market share, the continuingly valuable patent portfolio could help Nokia survive the lengthy and costly consumer transition to Windows phones. Additionally, the settlement and subsequent Swiss arbitration victory could give Nokia the ammunition it needs to successfully negotiate licensing agreements with larger smart-phone makers. Continuing to leverage larger and more profitable software and technology licenses with companies like HTC Corp., could give the Finnish phone maker a secondary (or even primary) revenue stream should the Windows phone never climb above its current 3.2% stake in the smart-phone market.
* Cory Howard is a second year law student at Wake Forest University School of Law. He holds a Bachelor of Arts in International Affairs. Upon graduation, Mr. Howard plans to pursue a career in corporate law.