Nokia vs. RIM: Advantage, Nokia

The patent wars among mobile industry heavyweights is heating up, to say the least. Turns out yesterday's article, in which Ericsson (Nasdaq: ERIC  ) and the world leader in phone sales, Samsung, took their patent dispute to court, was simply a precursor for today's announcement.

Nokia (NYSE: NOK  ) has more than 10,000 patents worldwide and, out of necessity, has aggressively protected them. And no one is immune, including industry-leading Apple (Nasdaq: AAPL  ) , which famously lost its patent suit against Nokia a few years ago and continues to make payments to the Finnish company as a result. Apple has since sued Samsung and won, just as Ericsson intends to. But the recent patent infringement decision by a Swedish arbiter in favor of Nokia leaves Research In Motion (Nasdaq: RIMM  ) in a precarious position, to say the very least.

Some background
The patent relationship between Nokia and RIM goes back nearly 10 years, to 2003. Initially, the two signed a licensing agreement providing RIM with cellular-related technologies Nokia had patented. The original agreement was, amicably, reupped in 2008, and all seemed right with the mobile patent world.

The point of contention between Nokia and RIM was whether the original agreement covered what has now become the industry standard, WLAN (Wi-Fi) technology -- technology that Nokia holds the patents for. So, in 2011 RIM contacted Swedish authorities to arbitrate, suggesting WLAN patents should be covered. The arbiter ruled against RIM early on Nov. 6, and Nokia has now filed suit in the U.S., Canada, and the U.K.

So, now what?
Now that the ruling's been handed down, RIM is left with only two options: Pay Nokia a yet-to-be-agreed-upon royalty for each and every BlackBerry phone sold. Or, stop selling BlackBerry smartphones using WLAN technology. Problem is, every BlackBerry phone RIM sells, and most every smartphone period, uses Wi-Fi technology. So not going to market really isn't an option for RIM, particularly now.

Could the timing be worse for RIM?
There's rarely a good time to lose a patent war; just ask Samsung. But for RIM shareholders and fans of BlackBerry smartphones, this feels like a kick in the stomach. RIM's share price is up more than 47% the past three months, and that's after a not-surprising 4% drop Nov. 28, following the patent-related news.

What's makes the timing so frustrating for RIM is that the excitement surrounding the pending release of its BlackBerry 10 phones and OS on Jan. 30 appears warranted. BB10 is supposed to be faster, come with tons of available apps and new features, and retain RIM's legendary security protocols.

For Nokia
There's no denying this is big for Nokia. Patents are a key reason shareholders have held on as Nokia slowly emerges as a player in the hypercompetitive smartphone marketplace. Making a dent in Apple's iPhones domination is going to take time, not to mention contending with the success of Nexus, the result of the Google (Nasdaq: GOOG  ) and LG partnership. With sales of a million units a month, Nexus is quickly becoming a force to be reckoned with.

But those 10,000 patents, in addition to a profitable Siemens division and world-class maps, provides time for Nokia and its Lumia phone, running Microsoft's (Nasdaq: MSFT  ) Windows 8 OS, to catch on. And it is catching on, as evidenced by recent sales results at both Amazon.com and telecom partner, AT&T.

Nokia patents already generate nearly $650 million U.S. annually, and that's about to go up -- significantly -- thanks to the latest patent war ruling. And we're not even close to seeing the last of the patent wars: Suits, claims, and ultimately awards, will be a reality for years to come.

As for now, RIM has just one option -- grit its teeth, come to a royalty agreement with Nokia, and get back to focusing on BB10. The new BlackBerry 10 phones, and an OS that looks like a significant step in the right direction, is the least long-suffering RIM shareholders should expect. There will be near-term pressure on RIM's share price -- that can't be avoided. But for RIM investors betting on BB10, this, too, shall pass.

For Nokia investors, you can add this patent ruling to all the reasons outlined in this Nov. 26 article as to why it's a solid growth and income investment opportunity.

Nokia's been struggling in a world of Apple and Android smartphone dominance. However, with the patent ruling in hand, its next generation of Windows smartphones has more time to take hold. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide whether the company is a buy or sell. To get started, simply click here now.


Read/Post Comments (2) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 28, 2012, at 9:40 PM, hymanbaum wrote:

    Nokia and RIMM should merge or have some kind of agreement where they help each other. It would be easier, then, for Microsoft to leverage the exiting enterprise RIMM user base...and to better compete with Apple and Google.

  • Report this Comment On November 28, 2012, at 10:26 PM, TimmyBee123 wrote:

    Of course RIM did not want to pay to use this technology but if they have to it is just a cost of doing business. Every company probably uses this technology so RIM is no different.

    It may take $5/phone away from them but it is not a deal breaker.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2131487, ~/Articles/ArticleHandler.aspx, 12/20/2014 3:16:58 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement