Microsoft and Nokia weave an entangled patent web

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.

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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.

nokiaphonespatents

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.

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, The Microsoft-Nokia Deal

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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20 comments
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  • Microsoft may have left itself open to potential antitrust objections

    DOJ will not bother with that type of witch hunt, based on the simple fact Microsoft now has a proven history of cross-patent licensing and patent-protection licenses agreements. This show a wiliness to work for long term profit without hurting their competition.
    Exactly what the DOJ was looking for and expect Microsoft to uphold going forward.
    bates40
    • Reread the last few paragraphs...

      They outline whether or not such a case can be made, and for now, it can't be made.
      GoodThings2Life
  • Interesting

    The timing of the Valuact deal now becomes apparent. MS had to cement that so would be no proxy fight and in exchange awarded them a board seat in 2014. Valuact from what I read is not in favor of the consumer play, but this essentially makes it set in stone. Valuact was not informed of this deal when it made its deal with MS. So in a way this twarts them from trying to move MS into a less consumer strategy. The stockholders may not like this turn of events, but anyone who is a Windows Phone or tablet fan has to applaud it as MS is committing all in on Windows Phone and mobile. They cannot afford now to be slow as they have a large investment they need to recoup. And they get some great hardware engineers, manufacturing expertise, and appears complete patent protection for all thier mobile endeavors.
    brickengraver
    • I agree

      They just told ValueAct who runs the show without directly telling them.
      rmark@...
  • What web?

    Microsoft will now make mobile phones which would otherwise infringe Nokia design and other patents, so it is licensing them. It doesn't give Microsoft any new IP rights it can pursue against others. Nokia also ends up with no new rights. I don't get the heading.
    timrichardson
    • MS bought the design patents

      Microsoft now owns the design patents--it is licensing the other Nokia patents along with all those that Nokia had previously licensed from the likes of IBM, Motorola, and Qualcom. So essentially there is no one out there that can hinder them with patent lawsuits. Including Google Motorola. It appears when it comes to patents MS knows what they are doing--wish they were as competent in other areas. Practically every Android device now has pay a royalty to MS--which I would think is a fair chunk of change. So Android is not free, and if Nokia also goes after those Android producers and asserts their patents, they could also see a nice revenue stream. they now have the cash to carry on such a war. Now the question is, if Nokia wants to go back in the smart phone business--which they can in a few years--can they use those design patents that they sold because of cross licensing agreement? That would be an interesting but unlikely scenario.
      brickengraver
      • along with benefits come costs and responsibility

        What Microsoft said, Microsoft said and there no proof.

        Of course, if Microsoft got benefits from Motorola/Nokia deal then it follows that Motorola got benefits as well. No telling until it gets through courts and the deal becomes public.

        Ummmm, wonder if HTC will file a motion in a Nokia vs HTC lawsuit that HTC is now covered with their patent deal with Microsoft.
        BorgX
  • Add BlackBerry to the fold

    Scoop up some more patents, strengthen the mobile enterprise offerings and make BB features a WP App.
    greywolf7
  • But

    I thought all the big folks have already sued all the big folks.

    Whatever.

    Or maybe this is an accounting trick. For instance, the patents are assigned to a foreign subsidiary and Microsoft USA licenses them effecting an overseas transfer of profits.

    Well patent value is not really measurable as to market value. It's like a painting or that sealed first Spiderman, until it's actually sold, it's worth is what the owner paid for it. And when it's sold, it's worth what the seller got, not what the seller asks. As a result, the cost will never be re-appraised. Those patents will be carried as an asset at their cost of purchase.

    The assets and liabilities acquired subtracted from the purchase price of non-patent items is known as goodwill. Goodwill must be and is reduced in a finite time by effecting annual charges to retained earnings. If the deal is profitable, the increased profits more than cover the retirement of the goodwill. If it fails, the liabilities are paid off, the assets liquidated, and the goodwill is expensed. Incidentally, expensed at the higher US tax rate, maximizing the reduction of the tax bill.

    Though, I think it safe to say that Ballmer wants this to succeed because... huh. I guess he has no stake other than the value of his stock, which didn't motivate him before (and rightly so.)

    Well Elop wants it to succeed.

    The others at Microsoft, well, if it fails, somebody else gets the nod next summer. But they just got reorged and the clear message is to not sabotage other products, right? And any one who ignores the memo will be shown walking papers by..., huh, Ballmer?

    Well, those are some initial thoughts.
    DannyO_0x98
  • Microsoft Itself Could Also Be Sued

    So what's left of Nokia becomes a patent troll, not actually making anything, free to sue actual productive companies.

    How many billions protection money is Microsoft paying them? Maybe they'll decide it's not enough, it'll actually be more lucrative to renege on the contract and demand even bigger bucks.

    After all, what can Microsoft do? Make them even angrier with a countersuit, and run the risk of a court injunction ordering a complete shutdown of its business, while the lawsuit drags out? It would cave in pretty quickly.
    ldo17
    • Sorry, What Would Nokia Sue Microsoft For?

      Microsoft just agreed with Nokia to purchase the patents. How would they renege (break the contract) on that and then win in court after failing to abide buy the contract? They wouldn't have a case.
      rmark@...
      • Re: Microsoft just agreed with Nokia to purchase the patents

        No they didn't. Ownership of the patents remains with (what's left of) Nokia.
        ldo17
    • How old are you?

      Really... I am serious that is the dumbest comment I have heard. You have brought shame to your family.
      schultzycom
    • Nokia still a leading mobile company

      Hello Idio17, True to your name, your comment makes no sense.

      Nokia Solutions and Networks (NSN) is part of what remains of Nokia. NSN is one of the largest base station vendors around. They make and sell networking gear that has to be in place for your to make calls using your "smart phone". Developing base stations is not like designing a Facebook Like feature - it involves far more ingenuity and skill. And BTW, a base station is a product.

      Another component of the business is HERE, the mapping and navigation service. Nokia has one of the best navigation and mapping solutions today. It is better than lousy mapping software such as Apple Maps.

      So, drop your "troll" argument, it will not fly.
      The_observer
  • Actions speak louder than words

    Microsoft's past track record with patents is a bad one. They've grabbed patents only to turn around and sign secret deals with various competitors, and have abused the patent system extensively to try and squeeze out the competition. Unfortunately, this type of activity does not help the customers at all. I think the deal with Nokia was to try and save the Windows phone from demise. I don't think the main intention was to obtain patents, however Microsoft's statement about Nokia having one of the largest patent portfolios next to Qualcomm is somewhat concerning, if that is true. Time will tell how things play out. As usual, public statements by Microsoft are pretty much worthless, their actions speak louder than words.
    Chris_Clay
    • I don't think so.

      I think having the design patents allows them to make the devices they want and protect them. So, no one else can make there devices look or function like theirs (see Samsung vs. Apple).
      rmark@...
  • well

    The only thing is that software patents are not worth what they once were any longer.
    Even Obama stopped the recently growing abuse of software patents, and some countries like New Zealand are banning them at all already!
    hacho
  • How about just five years on patents?

    It's sickening to see companies buy up patents. Just let the patents last five years. And how about not letting companies sell patents? If you want the patent you keep it or give it up. Microsoft is going to be a patent hoarder. Just what we don't need.
    BrianC6234
    • Re: How about just five years on patents?

      Why have patents at all? They are a Government-granted monopoly, dating from a time when it was assumed that businesses could not survive unless they were protected from competition.
      ldo17
  • So Nokia will compete with Meego and Android Phones in 2015

    Microsoft will find themselves up against a resurgent Nokia, when all those talented Nokia Engineers drift away from Microsoft and help Nokia re emerge to produce their own Phones and SmartPhone in 2015. All on Microsoft money. Microsoft will have to be very careful on how they manage their new handset business, if it is not going to be another wasted acquisition. I guess it is all just patent trolling for Microsoft now.
    JulesVerny