Nokia Hits Apple with Wireless Patent Infringement Suit [Updated]

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Nokia announced on Thursday that it slapped Apple with a patent infringement lawsuit over technologies used in the popular iPhone. According to Nokia, Apple is infringing on ten different patents relating to GSM, UMTS and WLAN standards.

Nokia filed its case in Federal District Court in Delaware with the claim that Apple isn't paying licensing fees for the wireless technologies it uses in the iPhone, iPhone 3G and iPhone 3GS. The patents in question address wireless data, speech coding, security and encryption.

"Companies who contribute in technology development to establish standards create intellectual property, which others then need to compensate for," commented Ilkka Rahnasto, Nokia's Vice President of Legal & Intellectual Property. "Apple is also expected to follow this principle. 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."

Mr. Rahnasto's statement that Apple is "refusing to agree" implies that there may have been some level of negotiation between the two companies, but it could also mean that Apple is simply refusing to pay any licensing fees. The company said that it has already struck licensing agreements with about 40 other companies.

Just exactly what those agreements entail, however, is unclear. GSM, UTMS and WLAN are international standards, and the manufacturers that build radio components based on them are most likely paying fees to the appropriate standards management organizations already. The GSM standard is managed by ETSI (European Telecommunications Standards Institute), UTMS by 3GPP, and WLAN by IEEE.

In Apple's case, Nokia is more likely targeting how the technologies are being used in the iPhone. "This raises some interesting issues, because, while Apple may have designed and implemented some aspect of its circuitry in the iPhone, at least for some of the radios... Apple is buying off-the-shelf technologies that other OEMs have developed," an attorney familiar with this aspect of the law told The Mac Observer.

Assuming Apple is infringing, the company could sidestep future headaches by changing components that stay outside of Nokia's patents in future iPhone models.

Assuming Nokia is attempting to circumvent standards organization groups, the outcome of this case could impact how companies use standards-based technologies, at least in the United States.

"One of the essential purposes of the standards is that they exist to allow everyone, including Apple, to be able to develop competing cell phones and other devices by providing standards that everyone can use and innovate on," TMO's legal contact said. "If companies are able to successfully sue each other for infringement on anything but proprietary technology that doesn't affect the ability to use the standard, competition in the markets for cell phones and other devices will be significantly hindered."

Nokia claims that it has invested some €40 billion in wireless tech research and development, so it stands to reason that the company would like to recoup at least some of that by charging other companies fees for using its work. Whether or not Apple is responsible for any licensing fees is now working its way into the courts, which means it could be a very long time before the case is resolved.

[This article has been updated with additional information related to Nokia's lawsuit.]

[Thanks to TMO reader rattyuk for the heads up.]

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19 Comments Leave Your Own

Constable Odo

Nokia is really starting to scrape bottom.  It’s taken them this long to realize Apple wasn’t paying licensing fees?

daemon

I wonder why Apple is refusing to pay the fees now…

Tiger

What do you mean now, did Nokia file this two years ago when the iPhone came out? There is so little information in this to know whether it’s a recent ‘refusal’, or if Nokia bothered to fight for it beginning 2 years ago when the iPhone came out.

We need more info.

dhp

It?s taken them this long to realize Apple wasn?t paying licensing fees?

As the article states, there is some implication in the wording that Apple and Nokia have been negotiating. Even if that’s not the case, it can take quite a while to discover patent infringement, gather evidence, and prepare a lawsuit.

Jeff Gamet

My Jedi instincts tell me this is a pretty sad attempt on Nokia’s part to deal with the iPhone’s success because it doesn’t have any products in the pipeline that can compete. Innovation through litigation doesn’t sound to me like a good plan for competition.

daemon

My Jedi instincts tell me this is a pretty sad attempt on Nokia?s part to deal with the iPhone?s success because it doesn?t have any products in the pipeline that can compete. Innovation through litigation doesn?t sound to me like a good plan for competition.

Have you seen the N900? It’s a thing of beauty! I want one and I’ve never been a Nokia fan!

Any ways, Apple should just pay their licensing fees like everyone else does, it’s a nominal fee of about $12 a phone.

VaughnSC

I’m with Jeff. I cant see anything in IP license fees that shouldn’t already be covered by the purchase price of the associated chipset(s).

Since daemon seems to know a concrete dollar figure, perhaps he should proffer a description of the relevant ‘technology’ Nokia claims to own and link(s) to the standards body that acknowledges it.

daemon

Since daemon seems to know a concrete dollar figure, perhaps he should proffer a description of the relevant ?technology? Nokia claims to own and link(s) to the standards body that acknowledges it.

http://www.businessinsider.com/nokia-wants-to-extract-200-million-from-apple-in-iphone-patent-suit-2009-10

It’s called google, try it once in awhile.

Nemo

Dear Dameon:  To begin with, you should develop a more respectful tone towards your fellow interlocutors.  If not perhaps, you should take your comments to a forum where your sort of disrespectful tone will be appreciated.

However, to the point, the article that you cite says nothing about the technology that Nokia is claiming that Apple has infringed upon.  It merely states a dollars figure based on what it would have taken to pay a royalty on each iPhone and iPod Touch that Apple has sold. 

As for Apple not paying any royalty, we don’t know what Apple is or isn’t paying, but if Apple isn’t paying what Nokia is demanding, I suspect the reason is that Apple doesn’t think that it has any obligation to pay what Nokia is demanding, which may very well be true.  Since Apple and Nokia can’t agree, the court will decide their dispute.  That’s part of what courts do:  Determine who has what obligation to whom based on the law. 

If Nokia prevails, it will get its 200 to 400 hundred million, and even if we trebled the damages for willful infringement, it’s only 1.2 billion, which, while not insignificant, is not going to hinder Apple, with its 34 billion in cash.  The real problem for Nokia is that Apple is kicking its ass in the market for smartphones, and the outcome of this lawsuit is unlikely to do anything to stop that.  To halt its slide in market share for smartphones, Nokia must produce a smartphone that can compete with the iPhone.  And unfortunately for Nokia, too few people, ordinary customers and/or reviewers, agree with you that the N900 is that smartphone.  Look up the reviews on Google, and you will see that the N900 fairs badly in most of them, and that is also reflected in sales in the geographic markets where the N900 competes with the iPhone.

daemon

Dear Dameon:

That’s not my name.

To begin with, you should develop a more respectful tone towards your fellow interlocutors.  If not perhaps, you should take your comments to a forum where your sort of disrespectful tone will be appreciated.

1. You’re colouring my statements with your bias, please stop that. 2. Please stop with the ad hominem attacks.

However, to the point, the article that you cite says nothing about the technology that Nokia is claiming that Apple has infringed upon.  It merely states a dollars figure based on what it would have taken to pay a royalty on each iPhone and iPod Touch that Apple has sold.

3. I was citing where I got my information from and how I found it. 4. The iPod Touch is not a subject of the lawsuit, please do not confuse the issue.

If Nokia prevails, it will get its 200 to 400 hundred million, and even if we trebled the damages for willful infringement, it?s only 1.2 billion, which, while not insignificant, is not going to hinder Apple, with its 34 billion in cash.

5. Patent infringement lawsuits are designed protect intellectual property, not hinder competition. Apple has no right to use another company’s intellectual property to produce a product without appropriate licenses.

The real problem for Nokia is that Apple is kicking its ass in the market for smartphones, and the outcome of this lawsuit is unlikely to do anything to stop that.

6. According to Gartner in August 2009, Nokia’s smartphone market share was 45% compared to 2008’s 47%. Apple’s 2009 market share was 13.7% compared to 2008’s 2.8%. Nokia is still out selling Apple 3 to 1, and despite holding the largest market share in smartphones for 2008, only lost 2% of their share to Apple’s phenomenal growth in 2009.

7. Nokia’s financial loss is from a $1.35 billion write down of their wireless network property. They were also hit by the world wide decrease in phone purchases of 20%, but kept their world wide market share of 38% for all phone categories.

  To halt its slide in market share for smartphones, Nokia must produce a smartphone that can compete with the iPhone.

8. Nokia’s 2% slide in smartphone market share? Have you seen the N900? You really should go and play with it, it’s an amazing piece of hardware.

Look up the reviews on Google, and you will see that the N900 fairs badly in most of them, and that is also reflected in sales in the geographic markets where the N900 competes with the iPhone.

Every review I’ve read of the N900, and I’ve been following the N900 since May, have been positive.

Joao

It?s taken them this long to realize Apple wasn?t paying licensing fees?

No wonder their getting smart if you look at this you realize why Nokia is suing

Nemo

Dear Daemon:  Now, having read Nokia’s complaint, the gist of the dispute between Nokia and Apple appears to be whether Nokia offered Apple Fair Reasonable And Non-Discriminatory (FRAND) licensing terms for its essential patents.  Nokia submitted its IP to the IEEE and ETSI for approval as essential standards.  Under the rules of both of those standards bodies, Nokia?s submission and approval of its patented technology as a standard requires Nokia to license its essential patents (IP) to all comers on FRAND terms.  However, neither body says what constitutes FRAND terms for any particular instance of IP but leaves it to the parties to negotiate terms.  If the parties can’t reach an agreement, which appears to be what happened between Apple and Nokia, neither ETSI or IEEE have a forum to adjudicate the dispute but leave it to a court of competent jurisdiction to decide what FRAND terms will be for the IP at issue.  That is where Nokia and Apple now are, before the federal district court in Delaware.

There are other legal issues that may be relevant.  For Apple, if the court determines that Nokia did not offer FRAND terms, Apple will be able state an affirmative defense that Nokia committed a prior material breach that relieved it of its obligation to perform, that is, pay the non-FRAND royalty that Nokia demanded.  Apple may also state a similar defense under U.S. antitrust law.  Nokia has declared that its IP is an essential facility, that is, a technology that competitors must use to be able to offer competing products.  Under U.S. law, the court can and almost always will order that the owner of the essential facility, here Nokia’s IP, license that IP to all others on terms that provide the owner of the essential IP a fair return, while not being so onerous as to hinder competition.  In short, the federal district court becomes a referee on the parties negotiations, balancing the right of the owner of the IP to get a fair return for its property against the legal mandate of U.S. antitrust law to protect and foster competition.

Apple and Nokia, having failed to reach an agreement, will now have their dispute settled by the district court.  If the dispute is genuinely about terms for licensing Nokia’s IP, neither Apple or Nokia have done anything wrong.  They both simply need the court to determine their dispute and grant relief according to its judgment.  However, if Nokia either violated its contractual obligation to offer FRAND terms to Apple for its IP or if Nokia offered terms that hinder competition pursuant to U.S. law, then Apple might not only mitigate or eliminate any liability for damages, it may also recover at least its legal fees for Nokia’s willful misuse of licensing to hinder competition.

daemon

Now, having read Nokia?s complaint, the gist of the dispute between Nokia and Apple appears to be whether Nokia offered Apple Fair Reasonable And Non-Discriminatory (FRAND) licensing terms for its essential patents.

Considering every news outlet that is covering this story about how Nokia’s suit is searching for damages that amount to “chicken feed” I’m fairly certain a 2% royalty will be found to qualify under FRAND.

There are other legal issues that may be relevant.  For Apple, if the court determines that Nokia did not offer FRAND terms, Apple will be able state an affirmative defense that Nokia committed a prior material breach that relieved it of its obligation to perform, that is, pay the non-FRAND royalty that Nokia demanded.

Under US Patent and Trade Mark Law that is not an affirmative defense that will result in anything other than a finding of patent infringement. There is no debate that Nokia does not own this intellectual property. They do, the question of FRAND terms is seperate from ownership.

Apple may also state a similar defense under U.S. antitrust law.

Please review Rambus‘s antitrust debacle. Rambus’s actions were clearly predatory involving the memory industry, no one has ever accused Nokia of predatory actions in the cell phone industry. Any antitrust case Apple is likely to bring against Nokia will be severly hindered by the good faith Nokia has displayed to the rest of the industry by fully co-operating with the standards associations and providing what many consider to be FRAND terms in their licensing of their IP.

However, if Nokia either violated its contractual obligation to offer FRAND terms to Apple for its IP or if Nokia offered terms that hinder competition pursuant to U.S. law, then Apple might not only mitigate or eliminate any liability for damages, it may also recover at least its legal fees for Nokia?s willful misuse of licensing to hinder competition.

Apple doesn’t have any basis to claim that Nokia is not offering FRAND terms, a 2% royalty for the IP that Apple is using is reasonable, there is no one that has made any indication that it is anywhere near being predatory.

Simply put, Apple is being predatory in their attempt to invalidate Nokia’s IP, a move ridiciously stupid considering the amount of money involved and the possibility that at the conclusion of the trials Nokia may no longer be obligated to license their IP to Apple due to Apple’s bad faith, making the iPhone an illegal product in the United States.

Nemo

Dear Daemon:  I am persuaded that you don’t know what you’re talking about.  I practice in the area, and without reviewing the law, knowing exactly what Nokia offered, and knowing what the customary commercial practice has been for the IP at issue, neither I or any lawyer worth his salt would opine in utter ignorance of the facts that Nokia offered terms that satisfy its contractual obligation to offer FRAND terms and its obligation to offer terms pursuant to the essential facility doctrine that don’t hinder competition.  Whether or not the court concludes that Nokia offered FRAND terms that satisfy mandate of the essential facility doctrine is an open question.  However, no one, not even Nokia’s lawyers, are certain at this point that the answer to that question will favor Nokia.  This is especially true given that Nokia may be filing its lawsuit for other business reasons, even though it may have doubts as to whether it will prevail.

Your answer regrading an affirmative defense indicates that you don’t know what is an affirmative defense in this context.  Normally, failure to pay offer FRAND terms would not be a defense, because the owner of a patent can offer any terms it chooses or choose not to license its patent, but failure to offer FRAND terms is a defense here, because to qualify as a standard, Nokia promised to offer FRAND terms.  That promise is enforceable in contract and in equity, because nothing in U.S. patent law prevents the enforceability of a party’s voluntarily negotiated promise to limit the rights that it would otherwise have under patent law.  Nokia promised to offer FRAND terms for its IP in exchange for obtaining status as an essential standard, as Nokia admits, even argues, in its complaint.  Having made the promise to offer FRAND to all licensees, Nokia is bound by it so that its failure to honor that promise by not offering FRAND terms constitutes a defense to not complying with any non-FRAND terms that Nokia demanded.  Even Nokia admits in its complaint that it must offer FRAND terms.

Under the essential facility doctrine (Doctrine), a party’s action needn’t be predatory.  It is only necessary that a defendant prove that the facility, here Nokia’s IP, is essential to the ability of competitors to offer competitive products.  Under the Doctrine, the party owing the essential facility can be innocent of any wrong.  The court orders licensing, as I explained supra, to guarantee that competitors can compete in the relevant market(s).  Predatory behavior is not a prima facie element of establishing that IP is an essential facility or of the court ordering licensing terms pursuant to the Doctrine that don’t hinder competition.

Let us assume that the only term at issue is the royalty.  Absent other relevant facts, I couldn’t tell a client that 2% is FRAND and, satisfying the Doctrine’s mandate, does not hinder competition in this particular context.  But of course, there could be any other number of provisions, other than the royalty, which could violate either the FRAND requirement, the Doctrine, or both.  And even the structure of the royalty, rather than the amount of it, could violate FRAND and/or the Doctrine.

Being able to practice the law competently in any area takes three years of education that costs about $150,000.00 at the top law schools, such as my alma mater, and years of of study of the law and practice, and for any particular dispute, you must have complete possession of the relevant facts.  Since no one outside of Nokia v. Apple or for that matter even inside of it has complete possession of the relevant facts, it is premature to conclude that either Apple or Nokia is right or wrong on any of the relevant legal issues and is something that no lawyer or judge would be so foolish to do.  However, laymen almost always make snap and naive judgment about complex legal disputes, which are correct only as a coincidence on those rare occasions when they are correct.

daemon

Dear Daemon:  I am persuaded that you don?t know what you?re talking about.  I practice in the area, and without reviewing the law, knowing exactly what Nokia offered, and knowing what the customary commercial practice has been for the IP at issue, neither I or any lawyer worth his salt would opine in utter ignorance of the facts that Nokia offered terms that satisfy its contractual obligation to offer FRAND terms and its obligation to offer terms pursuant to the essential facility doctrine that don?t hinder competition.

Why exactly are you giving any opinion at all then?

Nemo

First, I am not giving an opinion of law.  When I give opinions of law they costs a great deal of money and place at risks my reputation and wealth, and the reputation and wealth of my partners.  What I am doing here is giving my informal view of the nature of the dispute between Apple and Nokia and, based on Nokia’s complaint and before Apple’s answer thereto, the legal issues raised in that complaint. 

As for developing a definitive view of Nokia v. Apple, I shall wait at least until the parties file their respective motions for summary judgment and their respective oppositions thereto.

daemon

You know Nemo, for someone who has no opinion, you sure do type a lot.

Dave

I know nothing of this but just reading the comments, I like Nemo better than daemon.

Nemo

Dear Daemon:  Lawyers used to get paid by the word.  You’ve perceptively observed that I am reviving that tradition.  Where do I send the bill?

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