Microsoft and Nokia weave an entangled patent web

Summary:The patents component of Microsoft's recent deal with Nokia is far-reaching and complex. But it's also potentially lucrative for both companies.

The patent pieces of the recently inked deal between Microsoft and Nokia got short shrift in most coverage of the deal. But the terms and implications for both Microsoft and Nokia are quite interesting.

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Microsoft and Nokia announced on September 3 that Microsoft would be buying Nokia's handset business and licensing various patents.

Microsoft and Nokia already had a cross-patent-licensing deal in place, dating back to the two companies' original agreement via which Nokia went all-in on Windows Phone in 2011. I asked Microsoft officials for more details on what was covered by this original cross-licensing deal and was told that was not something on which Microsoft would comment.

That said, Microsoft officials are commenting rather extensively on the the many twists and turns of the new patent-licensing agreement they are striking with Nokia.

Here's what the Softies have said so far:

Microsoft is acquiring outright 8,500 "design" patents from Nokia. These patents are what distinguish the physical features of one mobile device from another, officials said during a conference call explaining the deal.

On top of that, Microsoft is licensing on a non-exclusive basis for $2.7 billion another set of 30,000 "utility" patents which Nokia will continue to own. This group of patents includes all of Nokia's patents -- except for the Nokia Siemens Network (NSN) telecom infrastructure patents -- and will be used by Microsoft across a variety of products and devices, not just phones.  Microsoft officials have said they'll be converting the 10-year license it obtained to a perpetual license after the original 10-year license is up. This will mean that Microsoft will have patent coverage for this body of patents for the life of all of those patents.

On the press and analyst call on September 3, Microsoft Executive Vice President and General Counsel Brad Smith said:

"One of the reasons we focused so much on securing this license, one of the reasons it has a high price tag, is because of the very substantial value of Nokia's patent portfolio. When we look at the industry, and in particular, when we look at patents that are relevant to wireless connectivity using the CDMA standard or the GSM standard or 3G or 4G technologies, we really believe that Nokia has one of the two most valuable portfolios in the industry. The other is Qualcomm's."

Nokia has more than 60 patent licenses with various third parties, company officials have said, and Microsoft gets the protections and benefits of all of these. Qualcomm, with which Nokia negotiated a 15-year license that went into effect in 2008 is one of them. Qualcomm obtained a number of Nokia patents as part of this deal. Microsoft "now benefit(s) from that arrangement," said Smith.

Other companies with whom Nokia has patent agreements include IBM, Motorola Mobility and Motorola Solutions, as noted by Florian Mueller, author of the FOSS Patents blog. (Microsoft is one of Mueller's clients, as he has disclosed previously.) Microsoft and Nokia shared this information in a slide deck meant to supplement its conference call yesterday.

"This means that a Motorola-Nokia license deal struck a few years ago apparently goes with Nokia's wireless devices business," Mueller blogged. "As a result, Google's Motorola can't sue Microsoft's future smartphone business for the remaining term of that agreement," he claimed.

In 2011, Microsoft and Samsung signed an Android-centric patent license deal, via which Samsung pays Microsoft. That deal will extend to the wireless device business that Microsoft will own after the Nokia deal closes without requiring any additional payments, Mueller said. He added, however, that Samsung may still need a license to cover "various Nokia non-standard-essential patents," Mueller.

"Microsoft will also benefit from its prior or continuing agreements with Apple, LG, Nortel, Kodak, and others at no additional cost" according to the aforementioned slide deck.

Few real specifics are known about Microsoft and Apple's cross-patent deals, as Mueller blogged. LG signed a patent-protection license with Microsoft in January 2012. And Nortel's patents were acquired by a consortium that included Microsoft in 2011.

Et tu, Nokia?

Nokia is no stranger to fighting over its intellectual property (IP), as Apple and HTC both know.

As part of the newly minted Microsoft cross-patent licensing deal, Nokia apparently is now free to pursue patent-protection arrangements with the same set of Android phone and device makers with whom Microsoft has signed patent-protection licenses, as Reuters reported this week. Nokia officials aren't specifying which, if any, of those companies are in its sights. But among those with whom Microsoft has signed Android patent-protection deals are Amazon.com, Barnes & Noble, Buffalo, Compal, General Dynamics, HTC, LG Electronics, Nikon, Pegatron, and Velocity Micro.

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One last aside: Microsoft watcher Gina Smith has speculated that Microsoft may have left itself open to potential antitrust objections on the basis that it's now one of the largest, if not the largest, single player in mobile-telecom IP.

I asked Mueller (who, again, for disclosure's sake, counts Microsoft among his paid clients) about this.

"There are two things that no antitrust authority can ever object to in connection with patents: A voluntarily-made, non-exclusive license deal that allows one company to use another's patented inventions; and an asset deal that involves a certain business but does not include a transfer of the patents," he opined.

"Microsoft is not really building or leveraging a 'monopoly' here," Mueller said. "If it wanted a monopoly in wireless patents, it would have to actually buy Nokia's technical patents, which it doesn't under the deal just announced, and a lot of other companies' patents as well."

Topics: Mobility, Android, Microsoft, Nokia, Patents, Windows Phone

About

Mary Jo Foley has covered the tech industry for 30 years for a variety of publications, including ZDNet, eWeek and Baseline. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008). She also is the cohost of the "Windows Weekly" podcast on the TWiT network. Got a tip? Se... Full Bio

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