Nokia vs. HTC – Sign of the times

Nokia’s victory over HTC is a sign of what is to come.

• HTC’s troubles have deepened further with Nokia winning an injunction against it in the UK.
• This injunction has been granted on the basis of HTC’s infringement of a non-standard essential patent (SEP) related to base station and handset communication.
• The injunction has been stayed pending appeal but the grounds for appeal which HTC has been granted are quite limited.
• HTC will, of course, appeal the ruling, but its chances of turning it over are slim.
• Hence, HTC is likely to have to pay up or be forced to forgo the UK market.
• To date, Nokia’s patent strategy has been defensive in nature but this is going to change.
• Historically, Nokia has licensed SEPs but kept the non-SEPs or the implementation patents for itself.
• This has enabled it to limit competition by forcing companies to design around its innovations or face an injunction.
• It has done this to protect its handset business to ensure that its devices were of superior quality and performance.
• Following the acquisition by Microsoft, this strategy is no longer relevant and there are two ways by which Nokia will seek to grow revenues.
  • Firstly: Many of the SEP agreements are with companies who also hold SEPs and so the rate that Nokia receives has been a net rate.
  • This will now become a gross rate as Microsoft will be paying the piece that Nokia was before it.
  • This sounds good but I suspect that it won’t change much.
  • This is because the two biggest revenue earners in the handset industry (Apple and Samsung) have no meaningful SEPs and so the rate Nokia receives from them is already pretty much gross.
  • Secondly: Nokia will start monetising the implementation patents as they are no longer needed for defensive purposes.
  • There are no limits on what Nokia can charge for these patents and RFM research indicates that there are some very valuable patents that have been lying quiet for some time.
  • To me, this is by far the biggest potential for revenue upside and it is quite substantial in nature.
  • However, it will be quite some time in coming as the legal cycle is both long and tortuous.
• I think that there is real upside to be earned from Nokia’s patent portfolio but it is going to be quite some time before those revenues start to hit the P&L.
• Hence, while I remain pretty positive on the outlook for Nokia over the next 2-3 years, I think that for the immediate term the fireworks are over.