The European Commission sent a shot across Nokia's (NYSE: NOK ) bow this week when it warned the company that it shouldn't try to use its massive patent portfolio for any "illegal advantage" in the technology sector.
The warning comes as Microsoft (NASDAQ: MSFT ) is in the process of purchasing Nokia's devices and services. The possible acquisition was announced a few months ago with Microsoft proposing a $7.2 billion purchase of the divisions. So far the Department of Justice, Federal Trade Commission, Nokia shareholders, and the European Commission have said yes to the deal.
If everything goes through, Nokia will be left with its HERE mapping service, its NSN network infrastructure business, and its patent portfolio and licensing division. This latter division, called Advanced Technologies, is one of the most important parts of Nokia moving forward. Nokia said in press release back in September that it plans to build its patent portfolio and "expand its industry-leading technology licensing program."
Though Microsoft is trying to snatch up Nokia's devices, the Finnish company will still retain its patents and license them to Microsoft. That could be a great deal for both companies considering Nokia gets a massive licensing agreement from Microsoft and the Windows maker lets Nokia battle its rivals over mobile patent infringements and higher licensing fees.
That idea led Joaquin Almunia, who's in charge of overseeing competition for the European Commission, to say that Nokia should be careful not to try and get more money for its patent licensing than it already has. Almunia bluntly said this week the company should be careful not to "behave like a patent troll, or to use a more polite phrase, a patent assertion entity," according to the Associated Press.
Back in September, a large group of tech companies, including Google, Facebook, Samsung, Apple, and Microsoft, sent a letter to the Commission supporting the union's move toward a unified patent system and adding a few suggestions, as well. The new system could help cut down on patent trolls, too, which has also been a growing focus in U.S. legislation. Just last week the House of Representatives passed the Innovation Bill to cut down on pointless lawsuits tied to patents and there's similar bill in the Senate.
A slight change of plans
For Nokia, the strong words from the European Commission and the current bills in the House and the Senate mean the company may not be able to pursue its patent ambitions as vigorously as it had previously anticipated. The company will obviously still be able to defend its patents and negotiate for licensing fees, as it did with Samsung just last month. But if Nokia was looking to continually buy up new patents and defend them in court, it may have a rough road ahead.
With the EU and U.S. realizing that patent trolls can be a serious threat to innovation and production, it's likely that companies using patents solely in the courtroom are going to have a harder time making the case for infringements on those patents. And that could be a bad thing for Nokia, which is selling all of its devices to Microsoft. The EU's new unified patent system is expected to kick in some time in 2015, leaving Nokia a little time to adjust its strategy in the region. But Nokia investors who are hoping to see the company emerge as a patent litigation powerhouse might want to temper their expectations.
Get our top tech picks for your portfolio
Our top technology analyst recently infiltrated one of Wall Street's most exclusive gatherings... and left with three incredible investment opportunities, straight from the CEOs. These are profit-building strategies Main Street isn't meant to hear about -- so you must act now before someone shuts us up. Click if you want "industry insider" earnings -- NOW!