10/22/2009
BusinessWeek
Apple’s iPhone has been giving Nokia smartphones a hard time in the marketplace. Now Nokia is giving Apple a hard time in the courtroom.
The Finnish handset giant said Oct. 22 it has filed suit against Apple (AAPL) in U.S. District Court in Delaware, accusing its California-based rival of infringing patents for core technology that allows the iPhone to make calls and connect to the mobile Internet. Although Nokia (NOK) has sued rivals such as Qualcomm (QCOM) over patents in the past, the latest lawsuit came as a surprise—and represents an escalation of increasingly contentious competition with Apple.
In a statement, Nokia said Apple has refused to pay for use of intellectual property developed by Nokia that lets handsets connect to third-generation, or 3G, wireless networks, as well as to wireless local area networks. “Apple is attempting to get a free ride on the back of Nokia’s innovation,” Ilkka Rahnasto, Nokia vice-president for legal and intellectual property, said in the statement. Neither Nokia nor Apple responded immediately to requests for further comment.
Nokia dominates the global handset market with a 38% share. But since 2007 Apple’s iPhone has grabbed the initiative in the lucrative smartphone market. Nokia’s share of the segment, which it refers to as “converged devices,” slipped to 35% worldwide in the third quarter of 2009 from 41% the previous quarter, the company said on Oct. 15. Unit sales of Nokia smartphones fell to 8.9 million in the quarter from 9.3 million in the second quarter of 2009.
The loss of smartphone share is doubly frustrating to Nokia because it sold phones with computer-like features years before Apple. During the last two years Nokia has launched a series of handsets with iPhone-like touchscreen interfaces, but none has generated quite the same buzz as Apple’s devices.
A Way to Tap Into Apple Tech?
The specific allegations raised in the lawsuit concern 10 Nokia patents in three broad areas of wireless technology. The most basic is so-called GSM—the dominant global standard for second-generation mobile networks used by most European and Asian carriers, as well as by AT&T (T) and T-Mobile (DT) in the U.S. Nokia also says Apple has violated its patents for 3G mobile telephony (also known as UMTS or W-CDMA), and for unnamed wireless local area network (LAN) technologies—likely relating to the popular Wi-Fi standard.
Apple, like all mobile-phone makers, relies on such standards to make its devices compatible with carrier networks. Nokia says it has contributed its intellectual property to global standards bodies, but demands to be compensated for the use of its patents in commercial products. “Apple is expected to follow this principle,” Nokia’s Rahnasto said in the company’s statement.
While the suit is presumably intended to force Apple to cough up royalty payments, it could also be a negotiating tactic by Nokia to gain access to Apple technologies via a settlement. But Richard Windsor of brokerage Nomura International in London says the suit isn’t “as big as it looks.” Nokia is pursuing claims, he says, for “essential patents” that it is required to share at reasonable cost—not more rarefied intellectual property for which it could charge what it likes. That likely gives Nokia less leverage at the bargaining table.
Nokia also had a long-running legal battle with chipmaker Qualcomm, with each company accusing the other of infringing patents for technology that is essential for wireless devices to function. But in July 2008 the two companies negotiated a settlement that ended all the suits.
