Nokia Corp. (NOK) said Tuesday it has agreed to settle all patent litigation with Apple Inc. (AAPL), in a deal that will give a much-needed boost to the company after a string of bad news as it struggles to compete with its U.S. rival.
Nokia, the world’s largest mobile phone maker, will receive an undisclosed one-off payment from Apple and ongoing royalties. Also the settlement, which ends a long-running patent dispute, “is expected to have a positive financial impact on Nokia’s recently revised outlook for the second quarter 2011 of around break-even non-IFRS operating margin,” for devices and services, the company said.
The settlement is a welcome piece of good news for Nokia, whose profit warning last month was followed by a succession of ratings downgrades, as the company conceded that it is losing market share in the highly competitive smartphone market. Its Symbian operating platform is struggling to compete with Apple’s iPhone and the ever-increasing range of devices using Google Inc.’s (GOOG) Android platform, and although the company has partnered with Microsoft Corp. (MSFT) to use its Windows Phone software, it won’t likely launch the first phone based on that platform until the fourth quarter.
Under the terms of Tuesday’s license agreement, Nokia and Apple have both withdrawn their complaints to the U.S International Trade Commission and have settled all patent litigation.
The companies have been at loggerheads since late 2009 when Nokia first demanded royalties after claiming that Apple’s iPhone had violated 10 patents, following up shortly after with additional claims against the iPad. Apple countersued, but as recently as March of this year Nokia filed an additional complaint with the U.S. Trade Commission saying that Apple had infringed Nokia patents “in virtually all of its products.”
That most recent complaint meant Nokia had 46 patents in suit against Apple and in addition to the two ITC complaints, Nokia had filed cases on the same patents in the U.S., U.K., the Netherlands and Germany.
“Clearly with today’s announcement we have achieved the end we want which is Apple becoming a Nokia licensee,” Nokia spokesman Mark Durrant told Dow Jones Newswires Tuesday. “This ensures that we’ll get the appropriate return on investment on the EUR43 billion or so that we’ve spent over the past few decades on our R&D.”
Nokia Chief Executive Stephen Elop said the deal “enables us to focus on further licensing opportunities in the mobile communications market.”
The Nokia patents cover a range of handset technologies and features such as touch scrolling and display illumination, Durrant said. He declined to comment further on the financial details of the agreement with Apple.
As Nokia owns almost twice as many patents as Apple, patent experts had expected a settlement in which Apple made some form of one-off payment to Nokia.
“We’re glad to put this behind us and get back to focusing on our respective businesses,” Apple Europe spokesman Alan Hely told Dow Jones Newswires. “Apple and Nokia have agreed to drop all of our current lawsuits and enter into a license covering some of each others’ patents, but not the majority of the innovations that make the iPhone unique.”
In the technology industry, where the major players have sued and countersued each other for decades, the battle between Nokia and Apple has been emblematic of the current state of the mobile turf wars.
As the focus of competition increasingly turns to software and services, it has shifted to what Elop has described as a “war of ecosystems” in which the value of patents has taken on even more importance for the major handset makers.
In April, South Korea-based Samsung Electronics Co. Ltd. (SSNHY), the world’s No.2 handset maker after Nokia, filed a patent infringement lawsuit against Apple in the U.S., having already done so in Europe and Asia.
In a measure of how the sands are shifting in the global market, Japanese bank Nomura said in a note Monday that it expects Samsung to end Nokia’s 14-year market leadership of the global smartphone market in unit terms from the second quarter this year. Nokia looks set to fall to third place, behind Samsung and Apple, the bank said.
Still, Tuesday’s settlement is clearly positive for Nokia as Apple’s one-off payment and future royalties will boost the Finnish company’s profits and cash flow, said Evli Bank analyst Mikko Ervasti.
At 0912 GMT, Nokia’s shares were trading up 3.1% at EUR4.43, outperforming a 0.8% rise in the wider Helsinki market. They have lost nearly 45% of their value over the last 12 months on concerns over the company’s loss of market share and its new strategy.