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Nokia does score one injunction, though, bringing its total to four

Nokia Oyj. (HEX:NOK1V) may no longer be in the business of making smartphones, having sold off its profitable smartphone unit to Microsoft Corp. (MSFT) 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?
 
Nokia arguably started the smartphone wars in 2009, suing Apple, Inc. (AAPL).  It settled with Apple in 2011 and with Samsung Electronics Comp., Ltd. (KRX:005935) (KRX:005930) -- 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 nearly half 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 EP1579613, 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
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. (MSI). 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.

Nokia patents
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).
HTC BlinkFeed

HTC comments 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 CEOHTC 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 states:

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.

Mannheim region
The Mannheim Regional court in Germany [Image Source: Borgelt & Partners]

The Mannheim court also dismissed another claim by Nokia on patent EP1581016, which covers "a communication network terminal for accessing internet".  Comments HTC:

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. (EPA:STM), 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 spending 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. (HKG: 0992) (#3) South Korea's LG Electronics (KRX:066750) (KRX:066755) (#4) -- are more fortunate than HTC as it appears they signed long-term licensing deals with Nokia at lower rates during the Symbian era [source, source].  Were this not the case, it would likely be suing them as well.
 
Moving down the sales rankings, Chinese phonemakers Huawei Technology Comp., Ltd. (SHE:002502) and ZTE Corp. (SHE:000063) 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 finished 2014 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.
Nokia Patent King

Mobile patent rankings

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 for HTC.

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.

It saw 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.

Nokia v. HTC
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 300 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.

Peter Chou
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 300:

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 300, 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 have begun to leak out.]

Sources: Dutch Court, Engadget, Focus on Taiwan



Comments     Threshold


This article is over a month old, voting and posting comments is disabled

Obviousness
By melgross on 2/6/2014 3:56:11 PM , Rating: 2
If a patent is too obvious, it will eventually be declared invalid. We've been seeing this happen a fair number of times.




RE: Obviousness
By lemonadesoda on 2/6/2014 4:17:34 PM , Rating: 2
"eventually" is too long. Fortunes are won and lost in single product cycles (18 months) whereas patent cases, both the time and costs, drag on. The ability to delay and stall a competitor - or the ability to threaten to do this - is valued in the billions.


RE: Obviousness
By vXv on 2/6/2014 5:06:36 PM , Rating: 2
Yeah said patents should not be granted in the first place.


RE: Obviousness
By Reflex on 2/6/2014 5:12:37 PM , Rating: 2
All useful patents are obvious in hindsight. That is why obviousness is judged by the standards of the time it was filed, not in retrospect when the method is widely used and thus appears 'obvious'.

Also, patent titles have nothing to do with the simplicity, complexity or obviousness of a patent. Articles that cite the titles of patents as proof of anything are lazy writing.


RE: Obviousness
By sprockkets on 2/6/2014 7:04:58 PM , Rating: 3
You seem to forget mentioning obvious to someone skilled in the arts, which negates probably around 95% of all BS software patents today.


Enough with the bans
By Solandri on 2/6/2014 5:02:33 PM , Rating: 5
Patent attorneys are now wielding bans (and the threat of bans) as clubs to beat the companies they're suing into submission.

A ban should only be warranted if all of the following are true:
- The product violates the patent.
- The patent holder can show it will suffer irreparable harm if the product is not banned. (Sorry patent trolls who don't make a product - if the patent violation doesn't impact your sales, any losses you suffer due to lack of licensing income can be corrected with a monetary award after the fact. You're not losing money/market share because of the violation.)
- The product manufacturer is not taking steps to remove the violating feature (tells the court in reasonable timeframe when and how they plan to remove the feature).
- The product manufacturer is unable to or refuses to negotiate licensing terms.

In other words, a ban should be the last line of defense for a patent holder. Used only if the patent violator refuses all other remedies and willfully continues to violate the patent. It should not be the first thing that rolls off the lips of the patent holder.

I'd even add a provision to the last one - that licensing terms must be contingent on the patent being upheld if litigation is still ongoing. If the patent is overturned, the patent holder must repay all collected licensing fees to the licensee.




RE: Enough with the bans
By ven1ger on 2/7/2014 3:42:21 AM , Rating: 2
quote:
I'd even add a provision to the last one - that licensing terms must be contingent on the patent being upheld if litigation is still ongoing. If the patent is overturned, the patent holder must repay all collected licensing fees to the licensee.


I'd even go further, and add in interest on the collected licensing fees.


Crazy German Courts!
By InterDigital on 2/7/2014 4:33:16 AM , Rating: 2
One Chinese company was exhibiting some new Android tablets in a fair in Germany was issued a court order to shut down the demo for infringing Apple iOS products. Now HTC is being absolved from infringing Nokia's patents. What a show of double standard practice by the German courts. Maybe the judges likes HTC products, which contains Nokia parts? By the way why is the show 300 relevant to this patent story?




RE: Crazy German Courts!
By bug77 on 2/7/2014 7:54:32 AM , Rating: 2
Why would this be double standard? If one company infringed, than anybody else must infringe, too? I fail to see the logic.


RE: Crazy German Courts!
By tonyswash on 2/7/14, Rating: -1
RE: Crazy German Courts!
By Tony Swash on 2/7/2014 5:12:09 PM , Rating: 2
Still waiting for the link to the info about a Chinese company being issued a court order to shut down the demo for infringing Apple iOS products, I'm beginning to think it's not true.


RE: Crazy German Courts!
By atechfan on 2/9/2014 5:25:08 AM , Rating: 2
Why are there two Tony Swash's?


well
By p05esto on 2/6/2014 4:10:50 PM , Rating: 2
If a company invents a technology via research they should be able to be paid for it. Period. That goes for MS or Apple or anyone. People just cry patent troll, but without research and patents no one would really innovate because everything would just be stolen. Competition would have no reason. Everyone would just wait for something cool and then just copy it. Why spends billions on research if you can just copy?




RE: well
By insurgent on 2/6/2014 5:11:24 PM , Rating: 4
That's a narrow-minded assumption, since these manufacturers could've arrived at a similar solution after independent research. A lot of these patents have been used in other devices before and/or painfully obvious, like powering down a CPU when idle or sliding to unlock.


Too bad
By bug77 on 2/7/2014 5:29:24 AM , Rating: 2
You're associating Thermopylae with the movie 300. The historic truth is much more interesting, imho.




Update
By Tony Swash on 2/7/2014 5:23:16 PM , Rating: 2
Looks like the whole "HTC takes on Nokia in fight to death" scenario is not happening. Nokia and HTC just signed a global cross licensing deal and resolved all legal actions. The deal includes HTC paying license fees to Nokia.




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