In Lawsuit, Nokia Says iPhone Infringes Its Patents

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October 23, 2009

By SAUL HANSELL and KEVIN J. O'BRIEN

Nokia, the world's largest cellphone maker, sued Apple on Thursday, claiming the iPhone violates 10 patents for wireless transmission technologies.

The iPhone, which was introduced by Apple in 2007, uses two industry standards for wireless communications, G.S.M. and U.M.T.S., that Nokia developed as part of a consortium of global telecommunications companies. Nokia said it had repeatedly asked Apple to license its patents related to these standards and that Apple had refused.

"By refusing to agree appropriate terms for Nokia's intellectual property, Apple is attempting to get a free ride on the back of Nokia's innovation," said Ilkka Rahnasto, vice president for legal and intellectual property at Nokia.

Steve Dowling, an Apple spokesman, said that the company did not comment on pending litigation.

Patents disputes are standard practice in the world of electronics, especially cellphones, where the products are complex and a lot of money is at stake.

"Sometimes it can take years to figure out if a product infringes on a certain patent," said Jerry A. Kaufman, the president of Alexander Resources, an Addison, Tex., consulting firm that specializes in telecommunications patents.

Lawsuits are a common negotiating tactic, he added.

Typically, the royalties for essential patent portfolios in cellphones make up 1 percent to 2 percent of the wholesale price. In some cases, the cost can be as much as 5 percent, Mr. Kaufman said. In total, a cellphone maker might spend between 5 percent and 15 percent of the wholesale cost of the phones on licenses for patents. (That figure understates the total cost of intellectual property because many of the chips and other components a manufacturer buys include licenses for technologies they use.)

The potential return to Nokia could be enormous. The wholesale cost to wireless carriers of the iPhone is estimated to average about $600. A 2 percent royalty would represent $12 for each phone sold. In just the most recent quarter, Apple sold 7.4 million iPhones. It has sold more than 34 million total.

Last week, Nokia said its share of the global smartphone market slipped to 35 percent in the third quarter, from 41 percent in the second, as its competitors Apple and Research In Motion, the maker of the BlackBerry, gained.

As communications equipment sales decline, manufacturers are looking to be more aggressive in making money from their patent portfolios, said Neil Mawston, an analyst at Strategy Analytics in London. "The intellectual property rights wars are ramping up in the handset industry now," he said.

Nokia said it had invested more than 40 billion euros ($60 billion) over the last 20 years to develop the two technologies, which it has licensed to 40 leading mobile phone makers. G.S.M. is the most common global standard for wireless communication, and U.M.T.S. is a related standard for fast data communication.

Several other communications companies, including Sony Ericsson and Samsung, also contributed technology to the G.S.M. standards. These firms typically license their patents to each other at no cost, said Roger Entner, a senior vice president for telecommunications research at Nielsen.

Handset makers not part of this group typically pay royalties - but Apple has not. "Apple is a Johnny Come Lately and has not paid its dues to the club," Mr. Entner said.

Nokia filed the suit in United States District Court in Delaware. Nokia did not specify a dollar amount it was seeking.

An analyst said Nokia's suit was part of a trend of telecom equipment makers being more litigious. Those makers are increasingly searching for new revenue as wireless markets become saturated and sales begin to stagnate.

"Where there is a hit, there is usually a writ," said Mr. Mawston of Strategy Analytics.

SOURCE: New York Times http://www.nytimes.com/2009/10/23/technology/companies/23nokia.html?_r=1&ref=technology

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