Patent Pirates Would Shame Even Blackbeard

Throughout history, there's been a fine line between being categorized as a pirate or a privateer, but it usually came down to whether the government is getting a cut of the booty. Indeed, the U.S. Constitution lists issuing letters of marque and reprisal -- essentially the hiring of pirates to serve as privateers -- as one of the enumerated powers of Congress, and throughout the Civil War they were used with great effect on both sides.

While subsequent international treaties eventually outlawed the practice, there's a modern-day version being used to harry corporations over intellectual property. Colorful characters like Captain Kidd were gibbeted over the River Thames as a warning to others against acting as privateers, but today major corporations such as Microsoft and Nokia (NYSE: NOK  ) are employing them to attack their rivals and gain through the courts what they couldn't win in the marketplace.

Patently offensive
A recent Reuters story highlights the growing practice of intellectual-property privateering. Since there's great risk and cost associated with waging a protracted battle against an Apple or Samsung, rivals are hiring others to do the dirty work for them, with an agreement to split the proceeds afterwards.

Nokia, for example, transferred the rights to certain patents to MobileMedia Ideas, which then sued Apple, Research In Motion (NASDAQ: BBRY  ) , and HTC for violating them. Had Nokia chosen to get its hands dirty itself, it may have resulted in a similar situation as occurred previously, when Apple countersued the handset maker. By having an intermediary launch the attack, Nokia is once removed from responsibility, even though it may share in the proceeds down the road.

The licensing company also owns patents transferred from Sony and a company that is the license administrator for a patent pool, MPEG LA. Nokia, Sony, and MPEG all have a stake in MobileMedia. It may very well have been that Nokia's experience in going up against Apple several years ago was what launched the current wave of privateers plying the world's IP oceans.

Alcatel-Lucent (NYSE: ALU  ) formed MultiMedia Patent Trust to harass rivals such as Apple and LG Electronics, though a jury sided with the defense last month. Mosaid Technologies flies the Jolly Roger on behalf of Nokia and Microsoft, while Suffolk Technologies' black flag was hoisted on behalf of Goldman Sachs, P/E firm Atlantic General, and consulting shop Boston Consulting using patents from British Telecom.

To coin a phrase
The value of patents, which has always been important, took on a new dimension after a consortium of companies bought IP from the portfolio of bankrupt Nortel Networks, followed by Google's acquisition of Motorola Mobility for $12.5 billion. It seemed anyone with a substantial stock of patents was suddenly in play. InterDigital, VirnetX Holdings, and even Eastman Kodak thought their IP treasure trove would be worth a king's ransom.

That none panned out suggests that while valuable patents are not the end-all, be-all once thought. Kodak was even driven into bankruptcy after no one wanted to fork over the billions it sought and had to sell a passel of them for a song merely to secure exit financing.

One wonders whether sound specialist Dolby Labs (NYSE: DLB  ) might want to engage in some privateering on its own, as it faces questions over the expiration of some of its key patents. It operates Via Licensing, a licensing pool similar to MPEG LA. Where the latter holds key patents covering important digital video standards like MPEG 2 and MPEG-4, the former administers patent pools for mandated, de facto, and emerging standards in the audio, broadcast, wireless, and automotive markets.

A troll-bridge
Patent enforcement is a tricky business these days, particularly because the U.S. Patent Office has made a mess of things by issuing patents for things that probably shouldn't be patented. I like to point to Amazon.com's one-click checkout and MercExchange's wrangling $35 million out of eBay for its "Buy It Now" feature.

Then you have the patent trolls out there who merely exist to hold on to patents without ever working to develop them -- and sue anyone who comes along and does. Now you have corporations employing hired guns to do the blood work for them.

Obviously, we've come a long way from the perhaps apocryphal quote by patent office commissioner Charles Duell, who reportedly said, "Everything that can be invented has been invented," and there is some utility in granting protection to ideas. Yet when we muddle the waters by obscuring who owns what and whether those bringing actions actually have standing, it becomes clear the time for patent reform is essential.

Worth a second look?
Nokia's been struggling in a world of Apple and Android smartphone dominance. However, the company has banked its future on its next generation of Windows smartphones. 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 if the company is a buy or sell. To get started, simply click here now.


Read/Post Comments (13) | Recommend This Article (4)

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  • Report this Comment On January 15, 2013, at 7:19 AM, 16688 wrote:

    I don´t care patents or not.

    The truth is Nokia is now profitable.

    Nokia has competitive affordable Asha phones and also competitive high end Lumia phones. Additionally, Nokia has profitable network business (NSN).

  • Report this Comment On January 15, 2013, at 7:20 AM, 16688 wrote:

    Nokia´s stock has plenty of room to grow, because

    Nokia bears estimated that Nokia was going bankrupt and even most of Nokia bulls estimated that the company would return to profitability only at the second half of 2013.

    Now, Nokia has made an amazing improvement.

    When analysts´s estimation was still big loss in Nokia for 4Q, the stock was already about $4.35, and now the stock is only about $4.70 after announcing profitability.

    It has plenty of room to go up from here.

  • Report this Comment On January 15, 2013, at 7:21 AM, 16688 wrote:

    Newest short position numbers in NOK:

    NYSE, 12/14/2012

    280 869 950 shares

    Helsinki, 1/9/2013

    12.2% (with investors over 0.5%, below 0.5% not listed because of EU rules).

    Nokia´s total share number (approximately 3.75 billion shares) covers both New York and Helsinki.

    That makes the sort interest in NOK around 20%! And the numbers even increased from the prior two weeks.

    Nokia is a very good candidate for a big short squeeze, because the stock has been over sold.

    Nokia is the most short sold stock in both Helsinki and New York!

  • Report this Comment On January 15, 2013, at 7:21 AM, 16688 wrote:

    Nokia launched Lumia 920, Lumia 820 and Lumia 620 in India a few days ago.

    Lumia 920 and Lumia 820 were available right away, and Lumia 620 will be available starting early February.

    Nokia Lumia 820 and 920 off to a good start in India, comes with Portico pre-installed

    Major retailers like UniverCell and Sangeetha confirmed that both Lumia 920 and 820 were seeing excellent traction with a UniverCell store manager telling them it was outselling all other flagship smartphones.

  • Report this Comment On January 15, 2013, at 7:22 AM, 16688 wrote:

    Nokia´s Asha phone line still has plenty of room to grow, because the prices of the phones are competitive (even a lot cheaper than cheapest androids) and Asha phones have now more and more smartphone features. Addiontionally, added values to consumers in the Asha phones, such as free music and free games, are big selling points.

  • Report this Comment On January 15, 2013, at 7:22 AM, 16688 wrote:

    Windows Phone has hit 7% in smartphone market share in Russia

    Euroset, Russia’s largest mobile phone retailer, has shared some market intelligence with Hi-Tech Mail.Ru.

    The information does not only cover their operation, but the whole Russian market, which is about 12-13 million smartphones big in 2012.

    They reported that Windows Phones took 7% of Russia’s market in 2012.

  • Report this Comment On January 15, 2013, at 7:23 AM, 16688 wrote:

    IDC Analyst thinks Nokia will be profitable throughout 2013.

    IDC Analyst Francisco Jeronimo spoke to Bloomberg’s “The Pulse” show and there was generally positive about Nokia and Windows Phone.

    He expected Nokia to remain profitable throughout 2013, mainly due to the company being a lot smaller, and praised Stephen Elop for being responsible for making the company a lot more innovative and executing well at an incredible pace.

  • Report this Comment On January 15, 2013, at 7:23 AM, 16688 wrote:

    Lumia 505, $276 (3499 Mexican pesos) has sold very well in Mexico.

    Clove UK experiencing shipping delays from Nokia as they sell out Lumia 920 stock once again before it arrives.

    Nokia Lumia 920, 620 coming to Three UK in February.

  • Report this Comment On January 15, 2013, at 7:24 AM, 16688 wrote:

    Comscore has released some numbers for the 3 month period up to November 2012, and it shows that 5% of smartphone users in the EU5 countries (France, Germany, Italy, Spain, United Kingdom) are using Windows Phones, a population which increased 16% over the last year.

    With a smartphone population of about 131.5 million users, that results in about 6.5 million Windows Phone users in the big 5 European countries, nearly double the number according to the latest Comscore US numbers, where there are around 3.7 million Windows Phone users. With a population of around 315 million people the EU5 countries have a population close to that of the US.

  • Report this Comment On January 15, 2013, at 7:24 AM, 16688 wrote:

    Now, when Nokia shows it is here to stay, the stock will easily triple.

    The reason is quite simple, NYSE tech stocks are at least 2x book value, while Nokia is way much below that. The stock already hit $4.35 a few weeks ago when nothing was sure about Nokia´s 4Q, and now when Nokia is already profitable, the stock is still almost the same price as a few weeks ago.

    The reason is, Nokia has been short sold a lot.

    The short squeeze will come, and the gain in the stock will be big.

    Only a couple of years ago NOK was still about $15.

    Nokia, which has come down more than 90% from its highest, is really worth consideration.

    Nokia used to be over $40, now even with profit Nokia is only over $4. Think about it!

    Nokia has spent in R&D alone over $55 billion, now its market cap is only about $17 billion.

    NYSE tech stocks are on average about 2X book value, while Nokia is still much below that.

  • Report this Comment On January 15, 2013, at 7:26 AM, 16688 wrote:

    Nokia is actually a BUY and hold for 2013.

    Reasons:

    China Mobile deal

    Lumia 920 is heading to more markets

    Budget WP8 phone Lumia 620 is hitting the markets this month

    Nokia is likely launching a tablet. I don´t expect much, but even some Nokia´s loyal fans around the world will buy some Nokia´s tablets, that is a good gain for Nokia.

    According to CEO Stephen Elop, Nokia is planning a lot of interesting things with Verizon!

  • Report this Comment On January 15, 2013, at 7:26 AM, 16688 wrote:

    When the market feels a company will go out of business (as has been the case with Nokia), then it discounts the stock to such an extent that the price/sales ratio falls really low. As such, with special situation, turnaround story stocks, let´s look at price/sales because it gives us some idea of where a stock might go, if the company restructured and turned around and was fully valued by the market.

    So let’s look at selected price/sales ratios below:

    Nokia Apple Intel Microsoft Cirrus Logic

    0.33 3.1 2 3.11 3.76

    Please note that Nokia is currently selling at 0.33 price/sales ratio. This means that if the company manages to restructure and return to normal profitability, the stock has the potential to become a 10x bagger (even from today’s price levels) – assuming the market will value Nokia 3.1x sales like Apple or Microsoft. But even a price/sales ratio of 2, like Intel has, means a 6x bagger from these levels.

    The company is continuing to perform quite well in a very difficult environment and is on track with its restructuring efforts. G.K.

  • Report this Comment On January 15, 2013, at 7:32 AM, 16688 wrote:

    Nokia´s Asha phones are doing well.

    New Lumia generation looks promising.

    Lumia 920 has advanced features like:

    Floating-lens PureView camera with optical image stabilization, which records stable vids and takes great low-light photos

    Wireless charging

    Super bright and sensitive screen that can be used with gloves or finger nails

    Premium GPS that can be used also without internet

    Augmented reality City Lens!

    Free music with no ads

    NFC

    Rich sound recording in vids

    Fastest screen on a smartphone!

    Wireless Purity Pro headphones

    Wireless speaker that can charge your phone wirelessly

    LTE

    Nokia also bought Scalado, the imaging technology firm in Sweden. Therefore, apart from NAVTEQ and NSN, Nokia is no doubt going big with PureView imaging technology. Some authors compare Nokia to Kodak, I think it is almost the opposite.

    Kodak was the old era and Nokia is starting the new evolution with smart-phone imaging, when consumers won´t have to carry another gadget (camera), for example during traveling.

    Considering now Nokia´s Devices & Services have come back to profit,

    Nokia´s current 3.6 billion euros net cash should be enough for Nokia´s transitional period before WP8 phones take off.

    Nokia is also getting more cash from convertible bonds and selling its headquarters and other non-core assets.

    Nokia´s 3.75 billion shares outstanding,

    covers both Helsinki and New York.

    In other words, the short interest in NOK has been around 20% (Helsinki + New York) on a base of 3.75 billion shares.

    This is a significant figure to note, because for example, shares of Apple have been short sold only about 0.5%, Samsung over 2% and other telecom companies about 4% in general.

    Therefore, the real short covering of NOK is still to come yet.

    Apart from Lumia 920 and 820 variants, Nokia has been pushing at the same time the sales of Lumias 510, 610, 710, 800 and 900 with campaigns and discounts.

    For example, Lumia 800 has gone back into top ten charts in many countries.

    Kantar reported that WP phones have reached 11.7% market share in Italy.

    The two hit phones are Lumia 610 and Lumia 800 there.

    Nokia launched Asha 205 and Asha 206.

    In these two new Asha phones, Nokia has a new innovation called “Slam” with which you can share photos and videos between the phones, and don´t have to even pair them up like NFC. Also Facebook etc and 40 most popular games in the world are in these phones, which make it hard for manufacturers to compete quality low end phones with Nokia.

    Nokia´s WP8 phones will be available in more markets, because they also support Arabic now.

    China Mobile (the world´s biggest carrier with over 700 million subscribers) has also confirmed Lumia 920T !

    When now, both China Mobile and China Unicom are subsidizing the Lumia 920 heavily, the 2-year or 3-year contract is starting from

    0 or 1 yuan, and considering only less than 1/5 of Chinese people are using highest-end smartphones, now even middle class Chinese people have a chance to use a highest-end smartphone because of China Mobile´s and China Unicom´s Lumia 920 deals.

    This will result into a huge number of 2-year or 3-year contract users for Nokia in China! Besides, 3G penetration in China is still very low, there is a huge opportunity there.

    Additionally, among the highest end phones, Nokia Lumia 920 is significantly much cheaper than for example iPhone 5 and Galaxy Note II. Nokia has an advantage in both the price competition and the biggest carriers´ backing in China!

    In addition, Chinese people know Nokia is really famous with build quality.

    Business men and women like the Lumia 920, because of Office, good maps and location data City Lens and GPS, and good virus protection firmware built in the phone.

    Awards Won By Nokia Lumia 920

    The Top Smartphone of 2012, V3, UK

    The Best Mobile Phone of 2012, Readers Choice Award, Gizmodo, Australia.

    iF Award for Outstanding Design, International Forum Design, Germany

    Mobil Award for Best Smartphone Design, Mobile Magazine, Denmark

    Best Smartphones of 2012, The Next Web, USA

    Top Score Award, Mobil, Sweden

    The Best High End Smartphones for the Holidays, CNET, USA

    Best Productivity Phone, Best Camera Phone, Best Mapping Phone, Best Windows Phone, Runner up, Arstechnic, USA

    Top 25 Tech of 2012, Mashable, USA

    Top Smartphone of the Year, Mybroadband, South Africa

    Best AT&T Smartphones of 2012, BGR, USA

    The Independent UK calls the Lumia 920 “probably the most innovative smartphone on the market”

    Lumia 920 and Lumia 620 will gain more smartphone market share in 1Q13, because the supply of Lumia 920 is now starting to get better. Many Lumia 920 pre-orderers especially in China are starting to receive their phone.

    Lumia 620 is hitting many markets soon.

    Nokia used to be over $40, now even with profit Nokia is only over $4. Think about it!

    Nokia has spent in R&D alone over $55 billion, now its market cap is only about $17 billion.

    NYSE tech stocks are on average about 2X book value, while Nokia is still much below that!

    Asha phones have already been profitable. And the sales of Asha phones have increased significantly.

    Lumia 920 is the most important high-end flagship smartphone for Nokia right now. Now when the supply starts to ease, Nokia can still sell very well Lumias 920 for another two quarters before next holiday season. Additionally, Nokia will have already much more to come at MWC this year. Verizon is also doing teamwork with Nokia.

    Lumia 620 will compete aggressively with budget androids and budget iPhones. Lumia 620 is hitting many markets already this month.

    Nokia stock is with big upside potential.

    Nokia has competitive affordable Asha phones and also competitive high end Lumia phones. Additionally, Nokia has profitable network business (NSN).

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