Once leading mobile phone maker Nokia is on the ropes, first overtaken by Apple as a sexy smartphone maker and then crushed under the meteoric rise of Android-powered smartphones. But there is a new hope! Patent litigation. Specifically, Nokia has resolved its lawsuit against Apple with a settlement that involves both a one-time payment and ongoing royalties for iPhones and iPads. Interestingly, this isn’t even a bad deal for Apple:
In the statement, Nokia pointed out that it has invested approximately EUR 43 billion in research and development over the last 20 years, building up a patent portfolio with over 10,000 patent families. The agreement is expected to have a “positive financial impact” on Nokia’s quarterly earnings.
Legal pundit Florian Mueller viewed the settlement as a favorable outcome for Apple shareholders, despite the fact that Apple has to pay. According to Mueller, the agreement comes as a “sweet defeat” for Apple because competitors building Android-based devices will also likely have to pay Nokia, possibly paying more per-unit because rival handset makers may have less intellectual property to use as bargaining chips.
What’s more, Apple has tons of cash on hand and super-high profit margins. The people for whom this promises to be a big headache are, as usual, not the incumbent players but hypothetical future players. Imagine a firm that’s not currently a highly profitable, super-successful manufacturer of mobile devices. Now you’ve got a new barrier to entering the market. In other high tech news, Microsoft and other device manufacturers are filing suit to try to block Google’s purchase of network equipment maker Nortel. Google wants Nortel for its patent portfolio, but Microsoft claims a “worldwide, perpetual, royalty-free license to all of Nortel’s patents” as a result of a 1996 deal that apparently Google doesn’t recognize.
I don’t have a super-clean policy point to make about this, but it’s striking how much time and energy is spent in this most vibrant and innovative sector of the economy on these patent wars. It’s an equilibrium that’s obviously wonderful for patent lawyers, and seems to serve all the major incumbents well enough but I don’t think it really bodes well for the world. When firms engage in an arms race to hire more and better engineers to build better products, we all end up reaping gains. A battle to hire more and better lawyers to craft better litigation strategies is, by contrast, a zero-sum thing or even a negative-sum one if at the margin it persuades some bright hard-working people to become lawyers rather than engineers.