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Apple and Nokia Battle Over Cellphone Patents

Apple's iPhone is a technological marvel. You can watch streaming video on it, download apps, take photos with its camera and give voice commands to Siri, its digital assistant. You can even make old-fashioned voice calls on it.

Nokia, the Finnish company that was the world's largest cellphone maker until its business was decimated by Apple and makers of Android-based phones, claims none of those features would exist without its inventions, which were made over many years and after billions of dollars were invested in research.

For the past five years, Apple has paid Nokia a modest royalty for the use of its patents. But with that pact about to expire on Dec. 31, Nokia wants Apple to keep paying for that portfolio, and is demanding that Apple license additional patents. Apple is refusing to pay Nokia's price and has accused it of extortion.

The impasse, after two years of tense negotiations, broke into open warfare this week in a volley of lawsuits in 11 countries, including the United States and Germany.

"Apple is saying, we want to pay one low price and not have to deal with any of your patents again," Clem Roberts, an intellectual property lawyer at Durie Tangri in San Francisco, said. "Nokia is saying, 'I don't want that low price because my patents are worth more than that.'"

The fight underscores just how much today's smartphones rely on an earlier generation of technology. It also shows how cellphone pioneers like Nokia, Ericsson of Sweden and Motorola, whose patents are now owned by Google, are still trying to profit from the industry in which they are now bit players, at best.

"Obviously, the iPhone was not created on a green field but was built on what others created before Apple," said Florian Mueller, a German iPhone app developer and former consultant to technology companies who has followed the cellphone patent wars. "On the other hand, the iPhone was a paradigm shift. It was more of a mobile computer than a mobile phone."

Patent disputes are common in the technology industry. This month, for instance, Samsung won a partial victory over Apple when the United States Supreme Court ruled that it should not have to give up all of its phone profits for copying the look of Apple's iPhone. Google, part of Alphabet, won a similar case against Oracle in May after it was accused of copying software code used for Android, the search giant's smartphone operating system.

But the tactics are evolving as the law and technology change.

When the Supreme Court a decade ago limited the leverage that patent owners had to stop sales of a product that violated their patents, it empowered patent users to play hardball in negotiations, Mr. Roberts, the intellectual property lawyer, said.

Companies like Nokia and Ericsson, which once had an interest in exchanging mutual licenses with other companies for their own cellphone businesses, left the handset market and concentrated on other tech gear and licensing their old patents. Nokia and Ericsson each make more than a billion dollars a year from licensing their patents and brands globally, their annual reports say.

Nokia has split its patent portfolio and transferred slices to so-called patent trolls – a derisive term for companies that buy others' intellectual property and often file lawsuits to extract royalties from patent users – with Nokia sharing in any profits.

In its legal filing on Tuesday, Apple claimed that this strategy was a conspiracy between Nokia and its patent partners, which include Acacia Research and Conversant Intellectual Property Management, to raise patent prices in violation of federal antitrust law.

Apple said Acacia and Conversant had filed 52 cases against the company around the world, many asserting violations of Nokia patents. In September, Acacia won a $22.1 million jury verdict against Apple, and last week, Conversant won $7.3 million.

"Unfortunately, Nokia has refused to license their patents on a fair basis and is now using the tactics of a patent troll to attempt to extort money from Apple by applying a royalty rate to Apple's own inventions they had nothing to do with," Apple said in a statement about the case.

In response, Nokia filed legal cases against Apple in 14 venues, from Texas to Japan, on Wednesday and Thursday, accusing it of violating 40 patents. Nokia said it had reached patent deals with more than 100 other companies, including many smartphone makers, which demonstrated that it had offered its intellectual property at a fair price.

"After several years of negotiations trying to reach agreement to cover Apple's use of these patents, we are now taking action to defend our rights," Ilkka Rahnasto, the head of Nokia's patent business, said in a statement.

Analysts say there is no doubt that Nokia owns important patents, which include those related to how phones transmit data and how their batteries consume energy.

Ericsson, which also had a longstanding legal dispute with Apple before they agreed to a new licensing deal last year, similarly has a large portfolio of patents – including technology for how smartphones make calls and how video is beamed onto a handset.

"Unless there's a fair return on this technology, the whole model for the telecom world is at risk," Gustav Brismark, Ericsson's chief intellectual property officer, said. He added that the company had invested billions of dollars over decades in its patents.

In the past, Mr. Brismark said, companies quickly reached agreements over how to use Ericsson's patents. But in the past five years, companies like Apple have more often turned to courts to reach settlements.

Central to the latest dispute between Apple and Nokia is what is a fair and reasonable fee to use Nokia technology that is now part of every smartphone. Patent lawyers say there has been a tradition of charging a modest royalty for patents on standard technologies. Previously, Nokia fought bitter legal battles with other smartphone makers, including Samsung and LG, over how they used its patents.

As Nokia seeks to require Apple to pay to license more of its patents, some of its recent claims may be hard to justify. In one of its lawsuits filed on Wednesday, it says Apple is violating a patent Nokia received two months ago for an electronic device case that includes a hole for a camera lens in the back and room for a battery beneath the display, features that have been common to smartphones for many years.

Still, Mr. Roberts said American courts have been skeptical of patent-related antitrust claims like those by Apple. "The whole point of the government granting these patents is that it was giving the inventor a monopoly over that invention," he said.

But Apple and Nokia are fighters, and too much is at stake for either to give up easily.

"What is a fair return on technology that has been shared with everyone?" Mr. Brismark of Ericsson said. "You have to create the right incentives for tech pioneers."

[Source: By Vindu Goel and Mark Scott, The New York Times, San Francisco, 22Dec16]

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small logoThis document has been published on 26Dec16 by the Equipo Nizkor and Derechos Human Rights. In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.