Apple (AAPL) Meets The Nokia (NOK) Litigation Machine

Nokia (NYSE:NOK) sued Apple (NASDAQ:AAPL)  saying  that Apple’s iPhone infringes Nokia patents for GSM, UMTS and wireless LAN (WLAN) standards.

Nokia has a habit of trying to get its way in court as Qualcomm (NASDAQ:QCOM) found out two years ago. After a prolonged royalty fight, Nokia sued the chip design firm and accused it of illegally copying six of its patents for mobile downloading of software applications and for mobile television broadcasts. The dispute between the firms ended with Nokia paying Qualcomm for intellectual property, turning the Finnish company’s legal tactic on its head.

Nokia sued two Chinese companies for copying the design of several of its handsets in 2006. Nokia has also been involved recently in patent litigation, which it won,  against InterDigital.

It is odd that Nokia took so long to bring Apple to court. The iPhone has been commercially available since 2007. Nokia must have asked Apple for royalties for use of the technology for at least that long. It is almost as if Nokia waiting until the iPhone was clearly a hit before filing suit.

 The issues at stake are hardly trivial. The ten patents in the suit relate to technologies fundamental to making devices which are compatible with one or more of the GSM, UMTS (3G WCDMA) and wireless LAN standards. The patents cover wireless data, speech coding, security and encryption and are infringed by all Apple iPhone models.

A first reading of the Nokia press release about the alledged infringements would lead most people to believe that Nokia found out only yesterday that it might have a problem. It is a clever approach to a complex legal chess game.

Apple is likely to face a large number of suits related to the iPhone. Success brings in legions of attorneys. A small Singapore company called Creative sued Apple over the design of the touchscreen on the iPod. Apple settled that suit for $100 million. If it has to settle with Nokia, it could be very costly. According to Fortune, Piper Jaffray analyst Gene Munster believes that the royalty Apple might have to pay is as high as 2% of the retail value of the iPhone.

The Nokia/Apple case is likely to be a long one. Apple has a chance to sell tens of millions of iPhone over the next several years. Nokia, the world’s largest handset company with a global market share of almost 40%, finds that Apple and RIM (NASDAQ:RIM) are effectively pushing it out of the high end of the market. Getting a per-unit toll on the revenue from the expensive handset market, smart phones,  would be nearly as good as Nokia having a successful smart phone of its own. RIM may be next on the Nokia lawsuit list.

Douglas A. McIntyre