Nokia Corporation's
(
NOK
) patent licensing agreement with
Research in Motion
(
RIMM
) is in disarray as the struggling Finnish handset manufacturer
has sued the Blackberry maker for breach of contract in Britain,
US and Canada. If Nokia manages to win, then Research in Motion
will become the second closest rival after
Apple Inc.
(
AAPL
) to loose a legal battle with the company in the last 15 months.
Back in 2003, Nokia entered into a patent licensing agreement
with Research in Motion which allows the later to use some of the
industry standard technologies for mobile devices. As per the
agreement, Nokia will receive a royalty payment from the maker of
Blackberry. However, Nokia claimed that Research in Motion has
sell products compatible with its Wi-Fi technology without
agreeing on the royalty payment details and has filed a
patent-infringement suit against research in Motion in Germany.
Research in Motion has argued that it does not need to pay
additional royalty as the patent agreement with Nokia provides it
the right to use the Wi-Fi technology. In that context, the
Canadian company has filed an arbitration process in the
Stockholm Chamber of Commerce in March 2011.
Earlier in the month the Stockholm chamber of commerce declared a
ruling against Research in Motion. To make matters worse, Nokia
filed an enforcement suit that will impose the tribunal's ruling
to stop research in Motion from selling Wi-Fi enabled products
without first agreeing on the terms of royalty payment.
If Research in Motion loses it will have to pay an additional
royalty of $2-$5 per phone to Nokia. Losing the legal tussle
could be a major blow for the Blackberry maker on the wake of its
much anticipated launch of BB10-based smartphones. A smartphone
without Wi-Fi will significantly reduce the value of its
BB10-based devices.
Nokia's impressive patent portfolio is the only jewel left in its
crown. The company has the strongest patent portfolio in the
wireless industry and has spent almost $62 billion in research
and development in the last two decades. Furthermore, the company
has patent licensing agreements with around 41 mobile handset
manufacturers, who use its patents. The company receives a
healthy royalty from this licensing agreement.
We believe this patent dispute provides Nokia a win-win
situation. If Nokia allows Research in Motion to sell Wi-Fi
enabled products then it will provide a steady cash flow stream
to them. On the flip side, if Research in Motion losses it will
provide an opportunity for Nokia to win some of the Blackberry
customers as a smartphone without Wi-Fi will be less attractive
to the data hungry customers.
We retain our long-term Neutral recommendation on Nokia Corp.
However, it holds a Zacks #2 Rank, implying a short-term Buy
rating.
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