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Nokia touchiness over iPhone bargaining ploy?

Nokia has filed a complaint against Apple with the Federal District Court in Delaware, alleging that Apple's iPhone infringes Nokia patents for GSM, UMTS and wireless local area network (WLAN) standards.

Nokia has invested more than $60 billion in research and development during the last two decades to build its patent portfolio of intellectual property to 10,000-plus patent families, which the company claims is essential to industry standards. Nokia has already entered into license agreements including these patents with approximately 40 companies, including most mobile device vendors, although it claims that Apple has refused to sign any such agreement.

?We think Nokia has filed against Apple for up to four possible reasons,? said Neil Mawston, director of global wireless practice at Strategy Analytics Ltd., Milton Keynes, England. ?First, Nokia wants to maximize the revenue streams for its IP portfolio in these tough economic times.

?Second, Nokia may want to beat Apple with a legal stick in order to negotiate more favorable prices for its IP,? he said. ?Third, Nokia wants to turn up the competitive pressure on Apple.

?And fourth, Nokia may be using the suit as a bargaining chip to cross-trade its own IP in GSM / UMTS with others that Apple may hold in multi-touch or other areas.?

Nokia is the No. 1 handset manufacturer worldwide. However, it has had trouble competing in the U.S. market against Apple?s iPhone, Research In Motion?s BlackBerry and, to a lesser extent, Microsoft?s Windows Mobile, as well as newer smartphone platforms such as Google?s Android and the Palm Pre.

As the competition in the mobile device market heats up and revenue becomes harder to come by, many of the battles among OEMs are being fought in the legal arena.

Patently upset
The 10 patents in Nokia?s suit relate to technologies fundamental to making devices that are compatible with one or more of the GSM, UMTS (3G WCDMA) and WLAN standards.

The patents cover wireless data, speech coding, security and encryption, which Nokia claims are infringed by all Apple iPhone models shipped since the iPhone was introduced in 2007.

The basic principle in the mobile industry is that companies that contribute in technology development to establish standards create intellectual property, which others then need to compensate for, according to a statement from Ilkka Rahnasto, vice president of legal and intellectual property at Nokia, Espoo, Finland.

Apple is also expected to follow this principle, and by refusing to agree appropriate terms for Nokia's intellectual property, Apple is attempting to get a free ride on the back of Nokia's innovation, per Mr. Rahnasto.

?Nokia has a substantial portfolio of patents, many of which are essential to international standards including GSM, UMTS and wireless LAN,? said Laurie Armstrong, New York-based spokeswoman for Nokia. ?Nokia has already successfully entered into license agreements, including these patents with approximately 40 companies, including virtually all the leading mobile device vendors.

?Apple has been infringing those patents since the introduction of the iPhone in 2007 but has so far declined to agree appropriate terms to license the patents from Nokia,? she said. ?As a late entrant into the mobile phone business, it unreasonable for Apple to attempt to get a free ride on the substantial investments made by Nokia over decades in developing technologies that are fundamental to producing mobile devices.

?For that reason, and only as a last resort, we have filed the suit in Delaware.?

Apple, which has shipped 34 million iPhones to date, has a standing policy of not commenting on pending lawsuits.

Industry analysts estimate that Apple could be liable to pay Nokia anywhere from $200 million to $1 billion if found guilty of patent infringement.

Nokia fluent in legalese
Here are some parts of the filing:

Prior to filing this complaint, Nokia has made various offers to Apple for the fair, reasonable and non-discriminatory terms and conditions of a license agreement under which each of the patents-in-suit could be licensed either individually or together with other Nokia essential patents, i.e. a portfolio license.

In its offers to Apple, Nokia has specified both a portfolio rate and an average per-patent royalty rate which Apple could have accepted within a reasonable time for each of the patents-in-suit.

Apple has rejected Nokia?s offers for the fair, reasonable and non-discriminatory terms and conditions both on a portfolio and on a per-patent basis and thereby refused to compensate Nokia on the fair, reasonable and non-discriminatory terms for its use of Nokia?s patented technologies, including each of the patents-in-suit.

Nokia is harmed by Apple?s failure to pay fair, reasonable and non-discriminatory compensation for its use of Nokia-patented technology in a way thaht cannot necessarily be compensated for by a payment of a past-due fair, reasonable and non-discriminatory royalty alone.

Apple?s failure to pay a fair, reasonable and non-discriminatory rate for the use of the patents-in-suit in its products at the time of their sale allows it to charge less for its products because it does not have to recover the costs of development of the technology used in the device.

This allows it to obtain market share that it would otherwise not be able to obtain were its products to bear the costs for the patented technology.

Nokia?s products, in turn, must bear the costs of the development of the technology that allows them to function in compliance with relevant standards.

This puts Nokia in a competitive disadvantage to ?free-riders? such as Apple.

Even if Apple were to subsequently pay past-due fair, reasonable and non-discriminatory royalties, it would still enjoy a market share it otherwise would not have but for the period of ?free riding.?

Nokia would likewise lose its portion of the market share for the  period of ?free riding.?

Due to the difficulty in predicting whether, if at all, such market share can be recovered, Nokia?s harm cannot be compensated by payment of past-due fair, reasonable and non-discriminatory royalties alone.