Why Nokia is suing Apple over iPhone GSM/UMTS patents
October 22nd, 2009
Daniel Eran Dilger
Nokia has filed suit over patent infringement on Apple’ iPhone, claiming that “by refusing to agree appropriate terms for Nokia’s intellectual property, Apple is attempting to get a free ride on the back of Nokia’s innovation.” Actually the reverse is true.
As the world’s leader in handset sales by a wide margin, Nokia most certainly does have one of the “strongest and broadest patent portfolios in the industry,” as the company says. And having licensed its technology to nearly every mobile maker in the industry, it’s not surprising that Apple will have to pay Nokia to play in the phone market.
However, Nokia is painting a picture that doesn’t doesn’t really mesh with reality, suggesting that Apple is a rogue manufacturer intent on breaking patent laws. In reality, Apple maintains one of the most experienced legal teams in the field of intellectual property, knows how the industry works, and either pays for IP or proves that it doesn’t need to.
Apple, tamer of trolls
After all, this is the company that in 2005 outmatched Microsoft in slaying the Burst.com multimedia patent trolls. After Redmond paid out $60 million to Burst, Apple stepped in and invalidated most of the company’s patents and then settled for just a sixth as much, despite the giggles of pundits who hoped Apple would be forced to pay out far more than Microsoft.
Apple also expertly navigated the perilous waters surrounding the iPod, buying out trolls or in some cases partnering with them for mutually beneficial results. That’s what it did when Creative creatively threatened to get an injunction against iPod sales; Apple pulled out its own patents over a Beer Summit and ended up talking Creative into making iPod accessories and liking it.
This is a company that has played both sides of the IP game, contributing its patents to pools and licensing others’ back. An easy example is the MPEG Licensing Authority, which Apple repeatedly had to dicker with to pull licensing down to reasonable levels. In 2002, Apple staunchly refused to ship Quicktime 6 until the MPEG LA agreed to reasonable streaming fees for MEPG-4.
Apple is now gearing up again to battle MPEG LA over H.264 streaming fees set to explode in 2011, while the powerless open source community just curses under its breath, cowers in the shadows, and suggests using Ogg instead.
When the going gets tough, Nokia gets litigious
Analysts say Apple has similarly been working with Nokia to hash out an acceptable patent agreement for at least a year. So why is Nokia grandstanding about its patent suit to the press for sympathy? Because that’s about all Nokia has left going for it.
The company now sits on at least four operating system strategies: its Nokia OS “no frills” Series 30 and “basic” Series 40 embedded systems for simple phones; Symbian OS, its flagship smartphone system that just converted itself from a commercial enterprise in free fall to an open source giveaway bin; various flavors of Linux that power the company’s not-quite-a-phone devices; Windows 7 on its netback experiment; and rumors about following Sony Ericsson into the fetid swamps of Windows Mobile just to cover all the bases.
Nokia is a lot like the Microsoft of mobile phones: on top of the market for reasons nobody can still remember and yet convinced that things won’t ever change despite clear evidence to the contrary, not the least of which is the company’s frequently absurdist management decisions. Such as partnering with each other to be led out of the pit.
Follow the lack of money
A look at Nokia’s finances is also revealing. While the company sold 108,500,000 phones in the last quarter (an 8% drop from the previous year), a figure that dwarfs Apple’s sales of 7,367,000 iPhones over the same period, Nokia’s average selling price was around $90 compared to Apple’s $612. Nokia sells a lot of crap; Apple only sells the iPhone.
That’s why despite selling a tiny fraction of the volume that Nokia pushed into the channel, Apple’s iPhone brought in revenues of $4.5 billion compared to Nokia Devices and Services’ $9.8 billion, and actually earned gross margins of $2.7 billion compared to Nokia’s $3 billion, and Apple’s EBIT (earnings before interest and taxes; operating profit) was $2 billion to Nokia’s $1 billion.
Apple is just now entering its third year as a smartphone vendor and it has already beaten Nokia at its own game. And while Apple’s business is growing dramatically, Nokia’s sales slipped behind in every market it did business in: down 1.1% in Europe, down 6.6% in China, down 8.8% in the Middle East and Africa, down 11.8% in Latin America, and in Apple’s home territory of North America, Nokia was down 31.1%.
Nokia is trying to demand something like $12 per iPhone in royalties, which analysts describe as ridiculous posturing. But that goal indicates that Nokia sees no future in its own ability to innovate, and that it would rather latch onto Apple like a barnacle and live the easy life of a parasite, earning more from each sale of Apple’s iPhone than it makes from selling its own devices.
That’s why claiming that “Apple is attempting to get a free ride on the back of Nokia’s innovation” is about as shamelessly bottom feeding as Nokia could be expected to get.