UBS: Timing of Nokia Settlement Favorable to Apple

| Apple Stock Watch

The timing of a patent infringement settlement between Apple and Nokia announced earlier on Tuesday could indicate that the settlement was favorable to Apple, according to UBS Investment Research analyst Maynard Um. In a research note obtained by The Mac Observer, the analyst told clients that Apple might have been able to leverage recent rulings from the U.S. International Trade Commission (ITC) to negotiate a more favorable royalty license with Nokia that could have an accretive effect on the company’s forward earnings.

Early Tuesday morning, Apple and Nokia announced that they had settled all ongoing patent infringement complaints between the companies, and that the two mobile giants were entering into a cross-patent licensing agreement, with Apple paying a one-time fee for past infringement, as well as ongoing royalties.

The patents Nokia owns are ones the company has long been able to collect royalty payments for, and Maynard Um pointed out that GAAP rules required Apple to account for that as a liability until the dispute between the two companies was resolved.

He furthermore argued that since the agreement was announced after a March ruling from the ITC that Apple had not been violating Nokia’s patents — a ruling that was not final and was under partial review — the timing could indicate that Apple had been able to leverage that ruling to negotiate a reduced licensing agreement with Nokia.

The bottom line is that Mr. Um believes Apple could see a one-time benefit to its earnings that represents the difference between the amount set aside under GAAP rules and the amount negotiated in Tuesday’s agreement. He also believes that Apple could see a US$.06 per share ongoing benefit to earnings.

Mr. Um maintained his “Buy” rating on Apple’s stock, as well as his $510 price target.

Apple’s shares closed higher on Tuesday, ending the day at $332.44, up $5.84 (+1.79%), on moderate volume of 11.9 million shares trading hands.

*In the interest of full disclosure, the author holds a small share in AAPL stock that was not an influence in the creation of this article.

Apple vs. Nokia

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Comments

Bosco (Brad Hutchings)

The Apple universe seems inspired by yesterday’s Macy’s ad in the Miami Herald.

Nemo

I concur:  This looks like a win for Apple.  Nokia?s goal in its several lawsuits against Apple was to first and foremost get Apple to cross license its core iPhone/iPad tech or force Apple to pay prohibitive licensing fees for technology that Nokia has agreed to license to the industry on FRAND (Fair, Reasonable, and Nondiscriminatory) terms.  Nokia best infringement claims in its court and ITC actions were always Nokia?s FRAND technology, which meant that this lawsuit was always primarily about whether Nokia had breached its obligation to offer Apple FRAND terms or whether Apple had infringed by declining to pay FRAND terms but using Nokia?s FRAND tech anyway.  When framed that way, unless Nokia could get an injunction from either the ITC or the courts, this was always going to be about how much Apple would pay to license Nokia?s FRAND tech and whether that licensing would be on Nokia?s terms or Apple?s.

As the case has progressed, it appeared that the ITC wasn?t going to issue an injunction banning the import of iPhones and iPads.  It was also looking unlikely that Nokia would win an injunction from the courts, though it was too early to say for certain.  Thus, with Nokia?s other claims of infringement either having far less merit or being countered by Apple?s counterclaims of Nokia?s infringement, settlement on fair licensing terms was the most likely outcome, whether the parties reached their own settlement or had one imposed on them in the form of a court?s judgement.  Nokia, by settling, also avoided the risk that the court would find that it hadn?t offered FRAND terms and thus, was in breach that could have cost it all past licensing fees.

So the parties negotiated their own settlement rather than risk the outcome of litigation.  This made particular sense for Apple, as Nokia has apparently accepted that it won?t get any cross licensing of Apple?s most important iPhone tech.  And, as I said, supra, Nokia will get something?and probably at least a fair royalty?for Apple?s past and future use of its FRAND tech.

Also, remember that Nokia lost a lot reason to maintain this very expensive, risky, and attention diverting fight once it abandoned its own mobile OS to use Microsoft?s Windows Phone technology.  And with Nokia moving to Microsoft?s tech some of Apple?s infringement claims would be mooted for all but Nokia? past infringement.  These reasons also moved both Apple and Nokia to settle.

But the settlement is one where Nokia isn?t getting any license to use Apple?s strategic tech and where Apple probably isn?t paying any more than fair licensing fee for its past and future use of Nokia?s technology.  That is a win for Apple.

b0wz3r

I think this hits the nail on the head…  It would have been a death blow to Nokia to have a ruling stating they were discriminating against Apple with their FRAND terms.  That’s what they were doing from the beginning, to try and bully Apple into giving them iPhone technology, because they were caught with their pants down and couldn’t catch up.

Nemo

Now, on to the Android OEMs, none of whom have any significant patent portfolio to use as counterclaims to offset and use as leverage against Apple’s claims of infringement.

daemon

O.o

Yeah, cause Motorola doesn’t have any patents Nemo…

Any ways, weren’t you arguing before that Nokia wanting complete access to Apple’s patent portfolio was a dirty tactic against FRAND?

Guess what Nokia got? Cross licensing.

Nemo

Dear dameon:  That’s why Apple chose to sue HTC and other weak Andriod OEMS first instead of Motorola.  Motorola decided to initiate a lawsuit against Apple, because it knew that, after HTC and the other weak Android OEMs, it was next.

b0wz3r

But not the core technologies that distinguish iOS from other smartphone OS’s on the market.

Nokia is still f**ked on that count… Monoposoft sure isn’t going to save their sorry a$$e$ on that front…

Nemo

Dear deameon:  Guess what Nokia didn’t get.  It didn’t get a license to use any significant Apple tech that gives Apple a competitive advantage in its mobile devices:  “The agreement doesn?t provide Nokia with a full agreement to cross-license patents with Apple . . . Apple said in a statement today that Nokia will have a license to some technology, ?but not the majority of the innovations that make the iPhone unique.? Apple gets a license to some of Nokia?s patents, including ones that were deemed essential to industry standards on mobile phones.”  Bloomberg News, Nokia Wins Apple Patent-License Deal Cash, Settles Lawsuits, 14 June 2011.

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