Ailing Nokia falls back on patent royalties to raise funds

Helsinki: Desperate for cash to tide it over until sales ramp up of new products, Nokia is stepping up its quest for royalties from rivals using its designs as the basis of their technology.

Nokia already earns ¤500 million (Dh2.37 billion) a year from its patent royalties in key areas of mobile telephony and some analysts say a more determined application of its patent rights could boost its income by hundreds more millions of euros a year. Alternatively, a sale could generate billions of euros.

Either way, at a time when its future is being threatened by falling sales and a loss of market share, Nokia's patents have emerged as the struggling company's most valuable and stable assets. Their full exploitation could be crucial for its longer-term survival.

"They should be doing this. The only questions is: why did they wait so long?" said Alexander Poltorak, chief executive of patent consultancy General Patent Corp.

Nokia has already served warning to newcomers in the mobile industry with whom it doesn't yet have licensing agreements, saying it aimed to boost its royalty revenue. Last week it took action against two makers of devices based on Google Inc's Android software.

Nokia sued HTC and ViewSonic for infringing its mobile technology and software patents, and others using Android are likely to be among the next targeted. Analysts say it's likely soon to go after top Chinese and Indian vendors, as well as Kindle-maker Amazon.com.

"I would expect its next targets to include ZTE, Huawei and Micromax," said analyst Tero Kuittinen at Finnish mobile firm Alekstra.

Nokia declined comment on other possible targets but spokesman Mark Durrant said in an email: "It's clear from last week's press release about actions against HTC, RIM and Viewsonic that we are taking new steps, moving beyond essential patents to other patents for which we have no obligation to license at all."

ZTE, Huawei, Micromax and Amazon were not immediately available for comment.

Tables turned

The reasons for the more aggressive stance are not hard to find. Sales of Nokia's new Lumia phones have not compensated for diving sales of legacy products as the group loses out to smartphone offerings from the likes of Apple, and analysts have said its cash reserves of ¤4.9 billion are likely to dwindle.

Both Standard and Poor's and Fitch Ratings have recently cut their credit ratings on Nokia to "junk" status.

Nokia's position as a patent powerhouse — it ranks along with Qualcomm Inc and Ericsson as a holder of the largest patent portfolios in the industry — goes back more than 20 years.

Back in 1989, Motorola forced it to pay more than $10 million to settle a patent infringement claim, one reason Nokia has ensured that the ¤45 billion invested since then in mobile research and development has been as well protected by patents as possible.

Before that, the then conglomerate making everything from rubber boots to televisions had famously protected more innovations at its toilet paper business than at its mobile phone unit.

So how much are Nokia's patents worth?

One pointer is that after a legal battle against Apple in 2009-2011, Nokia gets royalties from each iPhone sold.

Nokia also has the successful example of its partner Microsoft, which has signed up some ten vendors — including HTC and Samsung — to pay licensing fees for their Android devices.

Intellectual property

HTC is paying Microsoft a roughly $5 royalty for each Android phone it sells.

A similar fee for its stronger wireless patent portfolio could give Nokia $800 million this year alone if it signed up just half of Android makers, although in reality such an amount is unlikely since Nokia already has cross-licensing deals with some of them.

Google's planned $12.5 billion acquisition of Motorola Mobility Holdings Inc underlined the value of intellectual property in the fast-changing telecoms world, where established players are seeking to keep out newer rivals.

The search-engine giant is seen by many analysts as paying a high premium to patch over its lack of intellectual property in the wireless arena.

But the deal doesn't mean Nokia can't go after Google suppliers, as patents the Finnish company licensed to Motorola are not transferable to others even in an acquisition. Also such agreements typically only last between five and ten years, although details of the 2010 deal aren't public.