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IP, IP Asset, Patent

Recognizing Buyers And Sellers In The Technology Market

The smartphone technology battles between Nokia and Apple have taken a quite predictable turn. The lawsuits will be dropped, and Apple will pay (by conservative accounts, more than $600 MM now and $138 MM per quarter). So, like other analysts also predicted, Nokia is a “seller” when it comes to patented smartphone technology, and Apple plays the role of the (somewhat reluctant) customer.  In retrospect, why is this so predictable? Consider this press release from 2007:

MACWORLD SAN FRANCISCO—January 9, 2007—Apple® today introduced iPhone, combining three products—a revolutionary mobile phone, a widescreen iPod® with touch controls, and a breakthrough Internet communications device with desktop-class email, web browsing, searching and maps—into one small and lightweight handheld device.

Of course, one glance at my iPhone 4 tells me we’ve already come a long way since 2007, but consider Nokia’s history in the smartphone market.  In a few minutes time, I was able to locate an article about the 2003 release of the Nokia 3650, which by general description, would have to be considered a smartphone.  The article talks about the phone’s inclusion of a camera, as well as having email and general internet access.  I also found articles from 2004 and  2005 detailing other Nokia smartphone releases.  By other accounts, the Nokia communicator series was released more than 10 years before the iPhone, in 1996.

Are these phones as sophisticated as the 2007 iPhone? Likely not. So what’s the point? Innovation is a long process, and today’s inventions give birth to tomorrow’s innovations.  Important inventions are often documented and patented long before incorporation into finished products.  Is this always the case? Of course not, but the point is that technologies often underscore important products for decades.

Moreover, Nokia focused on innovation in the mobile device arena long before Apple got involved. Did Apple improve upon inventions of the past? Undoubtedly. But that doesn’t absolve Apple from its obligation to license underlying technology from Nokia that Apple itself uses, but did not invent.  And therein lies the importance of IP (as well as the primary source of its controversy).

Having already invented technologies necessary to participate as a smartphone handset maker, Nokia can generate revenue from sales of competitor’s products, in addition to its own.  In fact, Nokia doesn’t have a to sell a single phone if it chooses not to, with no impact on its ability to license its portfolio.  (Admittedly, the effectiveness of the campaign is necessarily different, but that is another matter.)  This fact is critical for a company facing declining market share, particularly when investors come calling, saying “Show me the money.”

With money coming in from Apple, and Android device makers likely being next on the target list, Nokia can keep cash flowing through the door, buying some time for the next innovation cycle to catch up, or, if it so chooses, paying off the investors and then shutting out the lights.  But thanks to its patents, it can go out with a bang, rather than a whimper.

Patenting is not a “numbers” game, except when that number is a date. The earliest, broadest patents still in force, usually win.  When new innovations are late to the game, they’ll often be vulnerable and exposed to attack. Apple’s only alternative may have been to shop around at other companies that at least tinkered with the smartphone concept enough to yield a few patents (and for all I know, they tried).  By the same token, Apple is no slouch when it comes to patenting, so it too can claim victory by refusing to license some of the key UI technology that makes the iPhone so distinctive.

But while Apple enjoys the moral victory, Nokia gets the one that counts.

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Discussion

3 thoughts on “Recognizing Buyers And Sellers In The Technology Market

  1. Agree with you that it seems like Nokia is recognizing its current status as also-ran in consumer market and is now going the way of Qualcomm. NTTAWWT-cost of goods sold is a whole lot more enticing at this revenue model.

    Posted by JACKIE HUTTER | June 16, 2011, 9:24 am
  2. My understanding is that the dispute was over the way that Nokia was trying to charge Apple over the cost of GSM patents. Apple was always willing to licence the IP but felt that Nokia was gauging Apple on price. Nok was charging based on a percentage of the phone’s cost with cheap and cheerful “feature” phones paying only a small percent of what Nokia wanted from Apple for the expensive iPhone. Apple felt this was not a legal tactic and refused to pay. Nokia sued. Apple counter sued.

    What we don’t know is how the settlement is structured and therefore saying who won or lost or whether the fee Apple is to pay is large or small compared to what Nokia originally demanded is an empty statement. I don’t think the issue was ever about Apple trying to absolve itself from paying from what I’ve read elsewhere. Apple presumably knew all along it would have to pay something so the rumoured payments must have been in some regard anticipated already by Apple. That the rumoured settlements include cross licensing some of Apple’s non smartphone patents indicate to me that the Apple IP was probably the fudge factor that let the 2 companies come out with a “victory”.

    Posted by eric perlberg | June 16, 2011, 1:46 pm

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