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Apple vs. Nokia: Who's Right in the Patent Battle?

Every business outlet is covering the ongoing Nokia/Apple patent fight, but few have been willing to hedge any bets on which of the two companies is actually justified. Someone must be in the wrong; which smartphone maker is it?

If you're not caught up, here's the story: late last year, Nokia [NOK] sued Apple [AAPL] for some alleged technology patent infringements. Apple countersued, saying Nokia copied the "enormously popular and patented" iPhone interface frameworks. (The original filings are here and here.) Nokia responded by filing a complaint with the U.S. International Trade Commission in late December 2009, requesting it halt the import of not only the iPhone, which it saw as the original patent offender, but also the rest of Apple's computers and music players. Then Apple filed a similar ITC complaint on January 17.

Popular opinion seems to be flowing Apple's way; the Nokia suit comes off as jealous, and brings into stark relief Nokia's comparatively craptastic smartphone lineup. But poke around the intellectual property blogosphere, and you'll quickly find that Nokia may actually be justified.

First, let's define what we're actually talking about. Nokia's suit has to do with wireless standards that it developed (or helped develop), and which the rest of the industry (i.e., Apple) has conveniently adopted. Those standards are GSM (aka "digital" or "2G" wireless), UMTS (aka "3G"), and 802.11 (aka WiFi), and the patents relate to data and voice coding, encryption and security. Nokia claims it offered to license the relevant technologies to Apple, and that "Apple has rejected Nokia's offers" like the aloof Valley punks they are. (About 40 other OEM phonemakers do license these technologies from Nokia, but not all do.)

But wait. Apple says it's the one who's innovating, and that Nokia's E71, 5310 and N900 handsets are the patent freeloaders. Among Nokia's 13 alleged infringements against the iPhone: power-saving software, GUI patterns and colors, and syncing configurations.

Nokia's suit is in the right, if only because of the age-old "finders-keepers" rule, say the experts. IP consultant Andrew Watson says on his firm's blog:

Poor Apple, like RIM, was late into the 2 and 3G Standards game and the incumbents (Nokia, Ericsson and Qualcomm for 3G) are so embedded in the setting of Standards (and by the way do not intend to let go of that position) that the successful non Nokia handsets find themselves paying a tax to the incumbents on every handset.
Nokia, Watson says, is fully entitled to its licensing fees, but also notes that they way these standards pioneers enforce these fees needs more regulation. Referring to Nokia, Watson says: "They know (perfectly) how to play the standards game, and stop others playing the same way." He also notes that about 60% of the world's phones operate unlicensed under 2G technology, simply because the licensing fees are too difficult to collect. Apple is being targeted because of its success, its threatening stature and its deep pockets.

Reuters has also reported that the Nokia suit has some merit, and may prompt Apple to cough up nearly $1 billion dollars in back fees. Over at the Intellectual Asset Management blog, Joff Wild says that the Apple-Nokia suits may be big enough to become "one of those rare patent cases that could enter the general public consciousness" because of its potential effect on the street price of the iPhone. Should Apple "pull hard on the public's heart strings," Wild says, it may be able to paint Nokia as a bully; should it lose in court, then, it may still win in the forums of public opinion.

And what of Apple's patents, supposedly infringed upon by Nokia? Most outlets agree that Apple's patents have also been infringed upon, and not just by Nokia; its multi-touch patents, for example, have also been ignored by Palm. So if no side is clearly in the right, then what are we supposed to learn from this debacle?

Some might say this fight highlights a patent system that is desperately antiquated and in need of reform. Nokia has one of the broadest IP portfolios in the telecom industry with over 10,000 families of patents, and yet there's no comprehensive patent system allowing a competitor to easily keep tabs on them during their own product development. A portfolio that big drastically increases the odds of a company like Apple "overlooking important patents which could come back at a future date in the form of lawsuits or claims," says Muthu Ramalingam at the PatentInsightPro blog.

If these companies seem loath to settle with each other, it may be that they're waiting for an obscure Supreme Court decision to render the whole argument moot. The court's decision In re Bilski may alter the patentability of so-called "business methods" patents, which include software, and if the lower courts' rulings are upheld, most (if not all) software code will soon be deemed unpatentable. Arguments were heard by the court this past November; it is expected to render a decision in July.

As for the dual ITC complaints to "ban" import of the companies' respective products? The ITC does indeed have the power to bar imports from both companies, and a decision is expected relatively quickly. But it's hard to imagine a scenario in which a government agency would allow itself to enforce patent regulations so selectively.

Apple (along with RIM [RIMM]) is also facing an IP infringement suit from Kodak as of last week, relating to the way the iPhone's camera previews images. But then, perhaps that's the price of business when you're moving 7.4 iPhones in a quarter.

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