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 (NYSE:BB) in a precarious position, to say the very least.
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.
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:GOOGL) 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.