November 28, 2012

Nokia Beats up Research in Motion in Court over Contract Dispute - So Much for RIM's Recent Hot Run of Small Successes


Research in Motion (RIM) has clearly lost a contract dispute over the use of Nokia patents. It is a case that has been in the courts for a good while and one that a number of legal analysts suggest RIM has consistently misplayed from the very beginning. In great part, the big mistake came when RIM decided to pursue an arbitration strategy against Nokia once the two companies were unable to reach a licensing fee agreement on a number of Nokia wireless/Wi-Fi patents.

Nokia itself now says that a Swedish arbitrator had ruled that "RIM was in breach of contract and is not entitled to manufacture or sell WLAN products without first agreeing on royalties with Nokia." Nokia has also noted that it has filed cases in the United States, Britain and Canada to enforce the arbitrator's ruling. 


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The patents in question date back to 2003 - though not exactly the dinosaur days of mobility, those were still early days, and Nokia and RIM were in fact smart to sign a cross-licensing agreement back then. The deal was subsequently amended in 2008, but issues then arose between RIM and Nokia on royalties.

The court also noted the following in its ruling: "RIM has not contested that it manufactures and sells products using WLAN [WiFi, IEEE 802.11] in accordance with Nokia's WLAN patents…" This is key to the court's ultimate conclusion, that RIM is "not entitled to manufacture or sell products compatible with the WLAN Standard without first agreeing with Nokia on the royalty to be paid for its manufacture and/or sale of Subscriber Terminals compatible with such Standards…"

The key issue here for RIM is that the patents in question absolutely apply to the new BlackBerry devices the company is readying for launch on January 30, 2013. This is a serious issue for RIM and one that it can no longer sidestep. The bottom line is that RIM must come to terms with Nokia on licensing fees. The alternative - to have it banned from selling any products that make use of the patented technology - is not an option. 

The timing of this scenario is doubly unfortunate for RIM. It leaves Nokia holding all the cards in a discussion RIM must now have with Nokia. There is no reason for Nokia to go easy on RIM. Given the way the smartphone market has evolved and the way each vendor's markets have shaped up, Nokia and RIM are now head to head competitors for the third and fourth rungs on the smartphone ladder, behind Apple and Samsung, who totally dominate.

Back in the old days, Nokia and RIM dominated completely different segments of the mobile device world. That is no longer the case - Nokia and RIM now need to battle each other directly in the marketplace, and though Nokia cannot simply choose to not allow RIM to license the patents (due to their FRAND - fair, reasonable and non-discriminatory - nature), it will certainly be able to play hardball to extract the highest possible fees it can now squeeze out of RIM.

It was clearly a battle RIM shouldn't have chosen to battle. It can perhaps be argued that RIM needed to find ways to save dollars and cut costs, but it was foolhardy to think that it would come out ahead of Nokia here.

Whatever deal Nokia and RIM will now reach will clearly impact RIM's revenue streams. We're not sure what RIM might have to shell out in terms of back payments. Will it deliver enough of an impact that it can cause RIM to stall out even as it launches its new devices? It is certainly now very much the case that this can happen.

What might RIM's options then become? A good question.




Edited by Brooke Neuman



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Wireless    Apple    Smartphone
       

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