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Apple And Nokia End Smartphone Patent War

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Apple has agreed to make ongoing payments to Nokia in a turning point for the smartphone industry

Nokia and Apple have resolved their two-year legal dispute involving more than 40 smartphone patents, in a settlement that will see Apple make a one-off payment to Nokia and agree to pay royalties going forward.

The two companies have agreed to settle all outstanding patent litigation and will withdraw complaints against each other with the International Trade Commission. The financial terms remained confidential.

Licensing agreement

“We are very pleased to have Apple join the growing number of Nokia licensees,” said Nokia president and chief executive Stephen Elop in a statement. “This settlement demonstrates Nokia’s industry-leading patent portfolio and enables us to focus on further licensing opportunities in the mobile communications market.”

Apple said the deal would allow it to concentrate on its business, and emphasised that the deal did not affect “the majority” of the iPhone’s unique features.

“Apple and Nokia have agreed to drop all of our current lawsuits and enter into a licence covering some of each other’s patents, but not the majority of the innovation that makes the iPhone unique,” Apple said in a statement. “We are glad to put this behind us and get back to focusing on our respective businesses.”

Nokia, which has long held the position as the largest maker of mobile phones, has seen its position crumble in the face of competition from smartphones such as the iPhone and those based on Google’s Android platform. In the first quarter Apple replaced Nokia as the company with the top global mobile phone revenues.

In recent months the company has moved to more aggressively defend its patent portfolio and in 2009 began a series of lawsuits in Germany, England and the US over technologies related to smartphone user interface, power management, antenna and camera.

Patent strategy

Florian Mueller, a blogger on patent law, said the deal shows that Nokia’s strategy is paying off.

“Part of its new strategy is to ratchet up the monetisation of its patent portfolio,” Mueller wrote on Tuesday. “Having proven its ability to defeat Apple – after the most bitterly contest patent dispute that this industry has seen to date – is a clear proof of concept. Other companies whom Nokia will ask to pay royalties will have to think very hard whether to pay or pick a fight.”

Mueller noted that Apple is involved in litigation with the three leading Android device makers, Motorola, HTC and Samsung. But he said the Nokia deal in some ways falls in Apple’s favour, because it indicates Apple’s competitors are also likely to be obliged to pay Nokia.

“This is a sweet defeat for Apple because its competitors – especially those building Android-based devices – will also have to pay Nokia, and most if not all of them will likely have to pay more on a per-unit basis because they don’t bring as much intellectual property to the table as Apple definitely did,” Mueller wrote.

Windows challenge

Nokia has another reason to make Apple’s life difficult, considering the Finnish manufacturer recently partnered with Microsoft to make the latter’s Windows Phone 7 the software platform for its smartphones. Together, the two companies will attempt to challenge both Apple’s iPhone and the rising number of Google Android smartphones that currently dominate much of the consumer smartphone market.

Under the terms of the agreement, according to Nokia’s publicly released Form 20-F 2010 report, Nokia will utilise its expertise in hardware and design to “help bring Windows Phone to a broader range of price points, market segments and geographies.” In addition, the two companies will collaborate on both development and joint marketing initiatives.

However, the partnership also carries some substantial risks.

“If we fail to finalise our partnership with Microsoft or the benefits of that partnership do not materialise as expected, we will have limited our options and more competitive alternatives may not be available to us in a timely manner, if at all,” reads one section of the report. “Our expected transition to the Windows Phone platform may prove to be too long to compete in the smartphone market longer term.”