BREAKINGVIEWS - Nokia's innovative past clings to Apple's future

NEW YORK Tue Jun 14, 2011 11:25pm IST

The Nokia Research and Development Centre is seen in Helsinki April 11, 2008. REUTERS/Bob Strong/Files

The Nokia Research and Development Centre is seen in Helsinki April 11, 2008.

Credit: Reuters/Bob Strong/Files

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NEW YORK (Reuters Breakingviews) - Nokia's(NOK1V.HE) innovative past has hitched a ride on Apple's(AAPL.O) future.

The iPhone maker will pay an undisclosed -- though substantial-sounding -- sum to Nokia for rights to its technology. But settling the two-year dispute won't reverse the Finnish company's waning fortunes. It's the latest example of how patent portfolios can prolong the lives of tired tech firms.

While Apple has a big collection of patents for computing and personal digital devices, it's a relative newcomer to cell phones. The first iPhone only arrived in 2007. Nokia has been producing mobile phones for decades, stretching back to the clunky carphones of the 1970s. And as the biggest firm, with an R&D budget to match, it is in position to fight for fees related to many 4G phone technologies.

Neither company is saying what the terms of the settlement are. But Nokia announced the payments would be large enough to improve its second-quarter bottom line. Similar agreements suggest a 1 percent or so royalty on sales of iPads and iPhones. Based on sales forecasts, that would add up to more than $500 million this year.

That's good news for Nokia, which warned about its revenue and earnings last month. Its shares bounced 4 percent on the news. It also provides momentum in Nokia's negotiations with producers of devices using Android software. But it won't solve the company's huge market-share losses, particularly in smartphones, where most of the industry's profits are now concentrated. Nokia's net income already had been expected to fall 70 percent this year to 680 million euros. A settlement slows, but won't stop, that fall.

More broadly, Nokia's deal with Apple highlights the winds at the back of intellectual property holders. TiVo's (TIVO.O) market value shot up following a recent court decision over its television recording technology. An auction of Nortel's (NRTLQ.PK) patent portfolio is heating up as Google (GOOG.O), Microsoft (MSFT.O), Hewlett-Packard (HPQ.N) -- and even Nokia -- weigh in. The ranks of so-called patent trolls -- aggressive and opportunistic patent enforcers -- are swelling. The revenue of one such firm, Acacia Research (ACTG.O), has nearly tripled in two years.

But retiring to a life of patent hoarding has its limitations. Such litigation won't bring Nortel back from bankruptcy or make Nokia's phones must-have devices.

CONTEXT NEWS

-- Apple and Nokia have signed a licensing agreement to settle all patent litigation between them. Apple agreed to make a one-time payment and also will pay ongoing royalties. The amounts have not been disclosed, but Nokia said the agreement would have a positive affect on its financial outlook.

-- Separately, Microsoft legally objected to the proposed terms in the sale of patents held by bankrupt Nortel Networks. Microsoft argued that existing agreements, such as Microsoft's 2006 royalty-free license deal with Nortel, should be transferred to any new buyer. Google has agreed to pay $900 million for the portfolio unless a rival puts in a superior bid at an auction to be held later this month.

(Editing by Jeffrey Goldfarb and Martin Langfield)

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

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