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Wednesday, July 26, 2006

It's not personal, It's strictly business

In the late 1980’s Motorola taught Nokia a painful lesson in patents: it sued Nokia for GSM patent infringement in the USA and took the case to the International Trade Commission attempting to get the import of Nokia’s products to USA banned. Nokia quickly settled for US$20m, when US$20m was a lot of money for Nokia, and licensed Motorola's GSM technology. As a consequence, Nokia quickly established a company wide initiative to start patenting everything coming out of their labs, because they realized the patent process could be a legal means for negotiation and market leadership as opposed to a pure technical disagreement over invention. Prior to this, Nokia thought that short product cycles would render patents valueless.

When the 3G standard was being architected in the late 1990’s, Nokia and Ericsson tried to develop a European flavour of CDMA elbowing out Qualcomm and they were nearly successful with their efforts in the darkened ETSI rooms. However, Qualcomm taught Nokia a painful lesson in the power of Capitol Hill lobbying and ultimately got the US government to threaten a trade war with the EU. The US even sent a “verbal note” to the Finnish government threatening them not to go ahead with licensing 3G spectrum before the Intellectual Property Rights issues were resolved. Eventually everything was resolved by a deal being struck between Qualcomm and Ericsson. Nokia continued to haggle for a while, but eventually licensed the Qualcomm IPR with some GSM IPR in return.

In 2006, as the adoption of W-CDMA is starting to kick-in and Qualcomm has changed the rules of the game from the late 1990s: it has sold the infrastructure and handset business and focused on technology licensing and chips, Nokia is yet again back at the negotiating table.

The proxy war that Nokia is fighting in Brasil and India is frankly a joke: everyone knows the only reason that no-one can compete with Nokia and Motorola in ultra-low cost handset market is because they control the vital GSM patent pool together with the (current) scale advantage for GSM: Ericsson, Siemens and Alcatel have left the handset game and just collect the GSM royalties. Similarly, everyone knows that China will not license a 3G technology which will leave its’ incumbent equipment providers at such a huge disadvantage.

Meanwhile, Nokia keeps on learning painful patent lessons with its’ failure to close out cross-licensing agreements. Is this just Nokia settling a couple of disputes before it enters the ring for the main bout?

I think everything is bubbling up nicely for a quite a brawl: every follower of The Godfather Saga knows that as power is passed from one generation to another, more than a little blood is shed.