The Patent Battles: Nokia v. Apple

(IPRinfo 2/2011)

Liguo Zhang
LL.M., Researcher, University of Helsinki, INNOCENT graduate school

The patent battles between two mobile giants show that owning essential patents is necessary to be viable in the market.

Since 2009, a series of intense patent battles between Nokia and Apple have broken out. Nokia is the world’s largest mobile phone manufacturer and owns a big patent portfolio in mobile telecommunication technology, while Apple began to enter into the smart phone market in 2007 and its market shares are growing quickly.

The two companies have been throwing lawsuits back and forth since 2009. In October 2009, Nokia brought a patent infringement suit in the District Court of Delaware in the U.S. against Apple, accusing Apple of infringing of its 10 patents and demanded royalties based on over 51 million iPhones sold since it was introduced in the market in 2007. Soon Apple fought back. In December 2009 Apple filed a counter complains claiming Nokia had infringed 13 of its patents, and applied for an order barring Nokia from infringing and for damages.

Nokia requested import ban for all Apple products
Soon after in December, Nokia filed a complaint with the U.S. International Trade Commission (ITC) alleging that Apple has infringed its 7 patents that do not only cover iPhone, but also MP3 player and computer. Nokia requested the ITC to ban the importing of any Apple products, from MacBooks to iPhones, which embody the patents in question.

Following this, Apple also filed a patent infringement complaint with the ITC against Nokia, seeking to block U.S. imports of Nokia’s mobile phones. Moreover, Apple accused Nokia of antitrust violation.

In May 2010, Nokia filed a suit alleging that Apple’s iPads and iPhone infringe five Nokia patents relating to technologies for transmitting speech and data, the use of positioning data in applications, and breakthroughs in antenna configurations in a U.S. court in the Western District of Wisconsin.

Flames of battle spreading to Europe
The flames of war are soon spreading to Europe. In Sept. 2010, Apple filed a patent-infringement lawsuit against Nokia in the UK. These patents have involved the early suits between the two companies in the US. In Dec. 2010, Nokia launched suits against Apple in the UK, Germany and the Netherlands, accusing Apple’s iPhone, iPod and iPad infringing on its 14 patents. Until now, no official judgements concerning any such law suits have been made.

Since they accused each other of patent infringement and filed actions with the U.S. ITC to block imports of the rival’s products, if both they win the cases (in theory it is very likely), both iPhones and Nokia phones would be excluded from the U.S. market. This could cause a deadlock for which both parties will fell unacceptable.

Is cross-licensing the answer?
Similar patent battles also happened between Nokia and Qualcomm 5 years ago and these two companies finally came into agreement to settle a series of law suits in 2008 after about 3 years patent wars.

It is for sure these patent infringement suits finally will be settled again. These law battles in the end will compel parties to sit down to negotiate licensing issues. The party that have more chance to win patent infringement suits will gain stronger position in the settlement negotiation and demand higher royalty and other favorite conditions. The other party may also leverage its patents to negotiate cross licensing to avoid paying higher royalty.

Furthermore, because of these two companies’ dominant position in the ICT industry, if they just directly negotiated licensing of technology and cooperation, this may attract competition and antitrust authorities’ attention and risk antitrust investigation. Cross-licensing technology in the courts could avoid such risk.

War continues – NPEs comes to the battle field
These patent battles demonstrate the current situation in the ecosystem of the mobile telecommunication sector. Since 2001, almost all of market players have involved patent infringement suits. Since 2006 the number of mobile-phone-related patent complaints has increased by 20 percent annually.

These intense patent battles show that owning essential patents is very necessary to be viable in the market. Nonetheless, this may encourage intensive patenting; and further results in intense patent battles.

Furthermore recently more and more non-practicing entities (NPEs), who purchase patents from others or invent by their own and who do not produce any products but rely on revenues from licensing, join the patent battles in the mobile telecommunication sector.

Especially, big companies are their targets. Just about 5 years ago, RIM was forced to pay $ 612.5 million to a NPE to settle a patent litigation in exchange not letting its business closed by an injunctive relief against patent infringement.

All incumbents, even though owning big patent portfolio, are suffering this kind of patent battles. Since NPEs do not produce any product, it is unlikely either to negotiate cross licensing with them or to threaten a patent infringement suit against them.

The intense patent battles highlight that the high fragment of technology resulted from dispersed patent ownership may cause high transaction costs for technology implementers. Therefore it may demand effective means to integrate fragmented technology in dealing with current situation in the mobile telecommunication sector, therefore to promote effective patent licensing and commercialization of technology in the sector.