German Court Blasts Nokia's "Poor" Legal Assault on HTC
February 6, 2014 2:04 PM
Nokia does score one injunction, though, bringing its total to four
Nokia Oyj. (
) may no longer be in the business of making smartphones, having sold off its profitable smartphone unit to Microsoft Corp. (
) last September
for a cool $7.2B USD
, but that hasn't stopped the Finnish industry veteran from profiteering at the expense of the industry's younger powers.
I. Build Product or Sue?
started the smartphone wars in 2009
, suing Apple, Inc. (
settled with Apple in 2011
with Samsung Electronics
Comp., Ltd. (
) -- the top Android smartphone maker -- late last year.
It reportedly gets a small cut -- somewhere in the $5 to $10 USD range -- from every smartphone its licensees sell. That means that the smartphone industry's top two players -- who together account for
the smartphones sold globally -- both are paying Nokia a cut of device sales.
Nokia no longer makes smartphones, it only sues and licenses, having sold its smartphone unit to Microsoft.
But Nokia is keenly focused on legally punishing one small Android phonemaker in a global litigation campaign that is raising eyebrows.
II. If It's an Obvious Cell Phone Technology, Nokia Likely Owns a Patent on It
This week in Germany's
Mannheim District Court
, HTC resoundingly won one battle, but lost another.
The court ruled that HTC was guilty of infringing on Nokia's
, a patent which covers a "method and apparatus for enabling a mobile station to adapt its revision level based on network protocol revision level".
This patent brings into focus much of why Nokia's patent portfolio is considered the most formidable in the phone industry, more so than Apple, Samsung, or Microsoft. Over the last two decades Nokia has built both cellular equipment and handsets.
HTC's smartphones were found to infringe on a patent to improve communication with older cellphone towers. [Image Source: Reuters/MyDrivers]
This is similar to the old Motorola, but the crucial difference was that when Motorola split, most of the valuable network IP was retained by Motorola Solutions Inc. (
). Motorola Mobility received much of the less valuable patents, including "essential" standards patents, which carried legally binding licensing obligation. In other words, Motorola Solutions has many of the more valuable patents.
The EP'613 patent was an example of the perks of being both a handset maker and an equipment OEM. As one of the few in this role, Nokia was the first to notice many tricks on both the tower and -- crucially -- on the device side to dealing with complex and finicky network equipment.
The problem for other companies is that many of these tricks are obvious and beneficial, so they are likely to be independently formulated at some point down the road. When this happens, the company unknowingly stumbles into an infringement that could ban its devices and cost it hundreds of millions or more in licensing fees.
If it's obvious, it's probably patented by Nokia, who obtained more patents than any other phonemaker.
The industry has cracked down on the most severe forms of exclusivity and protectionism by setting aside certain patents as "standards essential". But when it comes to these kind of tricks, they're not necessarily the only solution to the problem at hand, so they're typically not ruled standards essential. In that regard, the most dangerous patents in the mobile market today are arguably also some of the most obvious ones. The more obvious the patent, the more likely someone is to infringe on it unknowingly, after all.
III. HTC Admits it Infringed
That's basically the stance Taoyuan, Taiwan-based HTC has taken in the face of the base station claim. The patented technology is found in many HTC handsets, it admits, but it's a firmware fix that can be swapped out. The technology allows handsets ("mobile stations") to connect to older networks by using older communications profiles (the "network protocol revision level" bit).
in a press release:
The functionality found to be infringed is redundant and no longer in use in Germany and we are investigating modifications for our handsets to remove this redundant technology. This ensures that there will be minimal disruption to our customers while we pursue an appeal.
HTC CEO Peter Chou [Image Source: BGR]
Nokia, however, wants Germany to put in place a long-term ban and force HTC to pay a large amount in damages. It
Nokia is pleased that the Regional Court in Mannheim, Germany has today ruled that HTC products infringe Nokia’s patent EP 1 579 613 B1, which enables modern mobile devices to work in older networks.
This judgment enables Nokia to enforce an injunction against the import and sale of all infringing HTC products in Germany, as well as to obtain damages for past infringement. This is the fourth patent found infringed with injunction awarded in Germany.
Nokia began its actions against HTC in 2012, with the aim of ending HTC’s unauthorised use of Nokia’s proprietary innovations and has asserted more than 50 patents against HTC. Since then, Nokia believes it has demonstrated beyond doubt the extent to which HTC has been free riding on Nokia technologies, with HTC found to infringe several Nokia patents in venues including the Regional Courts in Mannheim and Munich, Germany, the UK High Court, the Tokyo District Court in Japan and the US International Trade Commission.
Nokia has some cause to celebrate -- this was its fourth injunction against HTC in Germany, and third in just two months.
IV. German Court Calls Second Nokia Claim Against HTC "Poor"
But the case also had a second outcome that suggests Nokia might be wise to check its jubilation.
The Mannheim Regional court in Germany [Image Source: Borgelt & Partners]
The Mannheim court also dismissed another claim by Nokia on patent
, which covers "a communication network terminal for accessing internet".
Today, the District Court of Mannheim dismissed a complaint by Nokia that HTC had infringed the German part of patent EP 1581016 (the '016 patent) entitled "A Communication Network Terminal for Accessing Internet", and awarded HTC its legal costs. In an almost unprecedented move, the Court handed down its judgment immediately after the hearing, indicating that Nokia's infringement case was so poor that the court required no time to deliberate further after hearing Nokia's oral arguments. Nokia claims to have spent €45bn on R&D in the last 20 years, but this investment has apparently not been supported by effective patent prosecution.
As with all of Nokia's patents asserted against HTC in Germany, HTC believes that this patent is invalid and will be continuing with the invalidity actions pending before the German Federal Patents Court and the English Patents Court.
To date, of the 24 infringement actions that Nokia has brought against HTC in Germany, two (EP 1329982 and EP 1474750) have been stayed because of concerns over validity, and three (EP 0812120, EP 1312974 and EP1581016) have now been dismissed outright. Together these decisions cast serious doubt on the strength of Nokia's patent portfolio and we remain confident that it poses little threat to HTC. HTC is delighted with this decision.
Nokia released a separate statement, commenting:
Nokia respectfully disagrees with yesterday's decision in Mannheim. But this was about just one of many Nokia patents in suit against HTC in Germany, the US and UK.
In other words Nokia has won four injunctions, but HTC has won three dismissals, and has two more potential invalidity-based wins on deck. That indicates Nokia is scoring only roughly half of its product claims.
A Dutch court also
ruled this week
that while Nokia could pursue breach of contract damages against France's STMicroelectronics N.V. (
), it could not seek a product ban against devices from HTC, who
purchased the microphones which used the purloined technology
The court noted that HTC purchased the components in good faith and
stopped using them
once it was informed of the infringement. There's no evidence that HTC was aware that STMicroelectronics had "borrowed" the technology from Nokia and had no right to give it to the rival OEM.
V. Why HTC?
Nokia has 10,000+ mobile patents -- more than any other company -- thanks to its
over €45B ($61B USD) on cellular devices and networks research and development over the last two decades. It's a losing argument clearly to argue that Nokia is not an innovator and pioneer in the cellular industry.
By the same token, the question is growing as to whether Nokia has become a patent troll.
It's already milking money from Samsung and Apple. The third and fourth place global smartphone makers --
Hong Kong-based Lenovo Group
, Ltd. (
) (#3) South Korea's LG Electronics (
) (#4) -- are more fortunate than HTC as it appears they signed long-term licensing deals with Nokia at lower rates during the Symbian era [
]. Were this not the case, it would likely be suing them as well.
Moving down the sales rankings, Chinese phonemakers Huawei Technology Comp., Ltd. (
) and ZTE Corp. (
) would make attractive marks, but given that their primary market is currently China -- a difficult place to enforce infringement claims, particularly against domestic powerhouses -- Nokia clearly has not felt litigation against those phonemakers is profitable.
Furthermore, Huawei and ZTE have more cash to defend themselves and are both veterans of the cellular equipment business, and hence have more IP to defend themselves with, as well.
VI. The Bully and the Victim
Nokia likely believes that HTC is the perfect licensing candidate, as it is one of the only OEMs that does not have current licensing agreements with Nokia and is not in a strong position financially.
HTC has little IP and little money. After posting
its first ever quarterly loss
in Q3 2014, it
on a slightly better note, with a $10M USD net income on a revenue of $1.4B USD. But excluding a one-time item -- the $85M USD scored by selling its remaining stake in Dr. Dre's BEATS Audio -- HTC would have posted another large loss. And it missed its own earnings recovery targets and analyst expectations.
Few OEMs can even stand in the same league with Nokia's mobile patent portfolio.
[Image Source: Chetan Sharma]
Part of what makes HTC so vulnerable compared to the Chinese OEMs is that its strongest sales have been in the U.S. and Europe, locations more open to product bans on patent infringement campaigns. The U.S. is
a particularly vital battleground
HTC was briefly in 2011 the top U.S. phone OEM -- outselling both Samsung and Apple. While today it's well down the rankings, its sales in the U.S. market remain much higher, respectively, than its sales in China and other Asian markets.
brief bans ordered in the UK
and Germany, but has shown good agility in quickly modifying devices and convincing regulators of its amends, to avoid greater damage.
Just how big is the patent gap? That big.
[Image Source: Chetan (graph)/Jason Mick (modifications)]
But for all its fiscal struggles, HTC has managed to kill over half of Nokia's infringement complaints. It's by no means out of the woods yet. Nokia has asserted approximately 40 patents against HTC devices in global lawsuits. And even if HTC can gain the upper hand against that fistful of patents, it's not hard to fathom Nokia could locate more from its massive portfolio.
That said, Nokia is also facing a danger as well. With its sale of its handset business, Joaquin Almunia, head of competition at the European Commission (EC) -- the business regulation arm of the European Union (EU) -- has a stern warning saying that
he believes that Nokia could become an abusive entity
in the wake of the sale of its devices unit to Microsoft. He stated:
In other words, [Nokia may] behave like a patent troll, or to use a more polite phrase, a patent assertion entity.
If that happens, he threatened to file antitrust actions against Nokia.
Joaquin Almunia already warned Nokia not to troll. [Image Source: 9 to 5 Mac]
Given that HTC is a licensing client to Microsoft, which currently owns Nokia's phone business, this angle will likely be increasingly scrutinized particularly in the wake of EU courts dismissing Nokia complaints as "poor" and abusive.
The bottom line is that Nokia is unquestionably a pioneer and innovator, but it no longer competes in the market it is suing HTC in.
VII. Outnumbered, but Desperate, HTC May Make Nokia Regret Its Legal Aggression
Does the antitrust backdrop improve HTC chances of survival? Not really.
The reality is that Nokia has so many patents that it's virtually impossible for any phonemaker to escape violating some of its patents, as I've said before.
But while that allows Nokia to stab an already wounded HTC, it doesn't necessarily guarantee a deathblow. With its back against the wall HTC is showing a defensive strategy that could end the patent wars -- avoiding bans via rapid modifications and updates, while dismissing weak claims to damage the opponents' overall credibility.
If this were a movie Nokia might be liked to the Emperor Xerxes in
whose envoy told the Spartan King Leonidas:
He leads an army so massive it shakes the ground with its march, so vast it drinks the rivers dry. All the God-King Xerxes requires is this: a simple offering of earth and water. A token of Sparta's submission to the will of Xerxes.
But like Xerxes, Nokia miscalculated. By choosing the most vulnerable legal victim -- in this case a small company with lots of current licensing obligations and little money -- it unwitting has gone to war with a truly desperate foe who is willing to give nothing because it is fighting for its life and future.
HTC is already paying licensing fees to Apple and Microsoft. It may be paying as much as $15 USD per device -- a fee that is basically wiping out whatever margin it's making. Unless it can miraculously drum up sales and start to command higher prices and carrier payments for its devices, it basically has no money to give. Submission is simply not an option.
HTC CEO Peter Chou has generally chosen peacemaking over court battles. But with no money left to give, his company appears determined to fight Nokia to the bitter end.
[Image Source: Getty Images]
In its most desparate hour HTC is creating substantial damage to Nokia's legal campaign and threatening to undermine not only what little fees it might squeeze from the Android phonemaker, but also Nokia's prospects in future lawsuit campaigns as well.
As King Leonidas said in
The world will know that free men stood against a tyrant, that few stood against many and, before this battle is over, that even a god-king can bleed.
HTC has fallen into yet another fiscally damaging product ban, but it also exposed Nokia's patent claims as overly broad and "poor" in construction by the German court's reckoning. That's a humiliating and dangerous statement for Nokia. Even if it can kill or squeeze licensing from (which would likely effectively kill) HTC, it now is running the risk of having European Union regulators back up their antitrust threats.
Like the quasi-historical story of the
, HTC's bold stand against Nokia may not save it, but it may be far more damaging to its enemy than most would have dreamt of.
[In related news, fresh details of HTC's
upcoming successor to the One
begun to leak out
Focus on Taiwan
"If you mod me down, I will become more insightful than you can possibly imagine." -- Slashdot
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