What’s Really at Stake in the Nokia/Apple Skirmish?

[WSJ_law_blog]

IPhone users, you can relax — at least for now.

The suit filed on Thursday by Nokia Corp. against Apple, maker of the iPhone, doesn’t request injunctive relief. So even if the Finns win — to paraphrase Paul Simon — Mama’s not gonna take your iPhones away.

But that’s not to say the case isn’t big — and that the stakes aren’t high for Steve Jobs and his mates up in Cuptertino. The suit, filed federal court in Wilmington, Del., alleges that the iPhone infringes 10 patents that cover technologies Nokia said are essential for connecting cellphones to the most widely used wireless networks. Click here for a copy of the complaint, filed by lawyers at Alston & Bird in Atlanta and Morris Nichols in Wilmington. Click here for the WSJ story; here for the NYT story; here for the FT story.

The suit asks the court to award Nokia appropriate compensation and damages for past and future use of its patents, and subsequently enjoin Apple from infringing its patents until it has paid Nokia. No dollar amounts were specified.

“By refusing to agree to appropriate terms for Nokia’s intellectual property, Apple is attempting to get a free ride on the back of Nokia’s innovation,” said Ilkka Rahnasto, Nokia’s vice president for legal and intellectual property at Nokia.

An Apple spokesman declined comment.

Nokia said it has spent $60 billion in research and development. It added that the patents at issue cover wireless data, speech coding, security and encryption and affect all Apple iPhone models shipped since the iPhone was introduced in 2007.

So what do we make of the suit? It’s a fact of life that litigation is often used as a business tool — a set of flashing lights to get a competitor to sit up and take notice, or a cudgel to bring a more powerful company to the negotiating table. Analysts say such could be the case with Nokia here.

“I really think this is more a function of Nokia trying to compete with Apple more than anything even if it’s through the courts,” said Shaw Wu, an analyst with Kaufman Brothers, adding that Nokia may be taking action now because the iPhone is starting to gain ground in Europe and Asia. “It’s a non-event for Apple. It’s immaterial even if they pay a lump sum,” he said.

Maybe so. But the NYT writes that the potential return to Nokia could be enormous. Typically, the royalties for essential patent portfolios in cellphones make up 1 percent to 2 percent of the wholesale price. The wholesale cost to wireless carriers of the iPhone is estimated to average about $600. A 2 percent royalty would represent $12 for each phone sold. In just the most recent quarter, Apple sold 7.4 million iPhones. It has sold more than 34 million total.