Why Nokia's Patents Won't Save The Company

Being innovative is better than sitting on old patents.

Stomping its feet, the world's once dominant cell phone manufacturer now says that Apple infringes a total of 46 Nokia patents in virtually 'all' of its patents and launched a new attack on Apple via the ITC. The problem is that these complaints are just scatter shooting that won't solve Nokia's problem that it missed to actually apply its own patents in a clever way.

I get it. If you are tangled up in a high-volume business segment, then lawsuits are just part of your daily business. There will always be some who want a share of the pie and some that won't give up their slice. Even if you screwed up and missed a critical innovation cycle, even the hint of an opportunity of obtaining license revenue from products that highlight your lost ability to innovate is always worth a shot.     

Nokia's complaints against Apple are, however, confusing. It's not just the ridiculous extent of the patent war, which approaches the complexity of a WWII battlefield, it's the argument of Nokia's failure and disadvantage in the marketplace that keeps me scratching my head. We hear that Apple violates 46 Nokia patents (I assume that this is just a guess, since some of those patents are frequently withdrawn  before a final ruling by the suing party, which indicates that some companies don't understand their own patents) and Nokia is now in tears that the $61 billion the company invested in research over 20 years and 10,000 patent families is being raided by Apple. In the current scenario, Apple and Nokia are fighting each other in 22 procedural pending cases in six different venues in the U.S. and Europe.

Of course, Nokia did not file complaints against Apple until the company noticed its own fortunes to evaporate and until Apple's iPhone product line emerged as a substantial competitive threat. The first lawsuit was filed on October 22, 2009 in Delaware. Did it take Nokia more than two years to figure out that Apple could be infringing on its patents and about ten years that the iPod might be in violation as well? What can Nokia get out of this strategy?

A Homemade Problem

While Nokia has every right to defend its patents, the lawsuits are a distraction from Nokia's core problem: Lack of innovation. A few weeks ago, there was an emotional letter from former-Microsoft-executive-and-now-Nokia-CEO Stephen Elop that was leaked to the media that outlined Nokia's "burning platform". Elop heavily criticized Nokia's past and its inability to set and run with new trends. Within a few years, the company has been surpassed by all of its rivals and is now left with, well, a burning platform - Symbian, which has become a casualty of time. That memo may have been intentionally leaked to level the playing field and build acceptance for a Microsoft deal, but the note did not exactly complain that the competition is taking unfair advantage of Nokia's innovation. What it said - I am taking the freedom to interpret Elop's words - is that there was no innovation at Nokia. Nokia simply missed the boat on a critical new cycle in the cell phone business that nearly killed the company. Only the fact that it is deeply entrenched in some lower-end market segments give it an opportunity to still see a flickering light on the horizon.

In the fourth quarter of 2010, Nokia sold about 124 million phones. However, only 28.3 million of those were smartphones and only 2.6 million were sold in the U.S. Nokia’s smartphone sales climbed by 36% year over year, while the entire market climbed by 72% and the stars of the industry increased their sales by almost 100% (Apple) and almost 900% (Google), according to Gartner. 

Since the release of the iPhone, Nokia has tried to follow an accelerating market trend toward touchscreen smartphones. But despite its research and manufacturing power, Nokia never produced a single competitive device and was not able to evolve Symbian into a competitive platform - despite its 10,000 patents and experience how to use them.

Some may remember the 5800 Xpress Music model, which was promised to be a revolutionary device, but arrived too late and when it did it under-delivered and was riddled with hardware and software bugs. Much later, Nokia decided to collaborate with Intel to develop MeeGo as a high-end smartphone platform. MeeGo never materialized either and may, if we are lucky result in one or two devices buy the end of the year. Given Nokia's need to catch up with the rest of the market, it is simply amazing how far the company is behind. We know that Microsoft tends to oversleep trends as well and screw up in the role of an old dinosaur, but the company usually gets its act together and comes roaring back. Nokia has not.

Of course, if Apple violates Nokia's 46 patents and has to pay back license fees and future license fees to Nokia on all sales of iPods, iPhones and iPads, it's going to be a windfall of epic proportions for Nokia. However, there's a long way to go before we could see something like that happen. We have seen the ITC throw out Nokia's initial complaint already, while the final ruling is still to be made, however. There is no smoking gun, as far as we know, which is also due to the limited amount of information that is made available to the public (which is a bit suspicious in itself) and there is the discussed possibility that at least the ITC battle could end in a draw for Nokia and Apple. Patents are added, patents are dropped and the current consideration of the ITC suggests that neither company can score a win against the other. In that case, the fight may move to other venues and there is a good chance that this is a patent war that will last for several years and include additional requests to reevaluate patents by the U.S. PTO.

If it is years, then it is not the time frame Nokia can depend on to survive. Such lawsuits, especially lawsuits against Apple, never guaranteed  the future of a company and it is unlikely that they ever will. Remember Creative Labs' suit that Apple violated its Zen patent - a patent the described the user interface of a music player? Creative is still around and it is, who would have guessed, selling tablets  (among some other things) now. Did you know?

Innovation

Creative received $100 million from Apple - for an interface design that is common sense and should not have been granted a patent in the first place. Creative hasn't used the windfall to innovate. Like everyone else, Creative is following markets that are being created Apple. Nokia has been trying to follow Apple, but as others succeeded in building platforms and devices similar to the iPhone, Nokia failed. The deterioration of its market and market shares created an urgency the company could not deal with, so it was fortunate enough to have Stephen Elop as its new CEO, who buddied up with his old boss Steve Ballmer to position Nokia on Windows Phone 7.

It's way too early to predict how this game will be played, while we know that Windows Phone 7 (WP7) sales are well below expectations, but the analysts from IDC expect the platform to overtake Apple's iOS by 2015. My personal thought is that WP7 will be an uphill battle for Nokia and Microsoft, as the preferential treatment of Nokia is likely to alienate current WP7 device manufacturers and WP7 simply has not the credibility in the market to take on Android and the iPhone yet. In any case, WP7 is not the solution of Nokia's problems by itself. Nokia may now have a partner that assumes the responsibility of developing a competitive platform and provide marketing support Nokia so desperately needs, but it is Nokia's responsibility to look at WP7 much more closely than anyone else and figure out what it can do with it. In that view, Nokia needs Microsoft just as much as Microsoft needs Nokia. Simply building an iPhone alternative will not cut it for either company.

If Nokia's patent portfolio is as strong as it claims and if that patent portfolio apparently enabled the success in all of Apple's products, we should see some great products come out from Nokia in the future, since the company initially came up with those ideas. Chances are, however, that those ideas have been replaced by other ideas and Nokia needs to return to a state of mind when the company created new products, not its rivals. Nokia's patent portfolio may, in a best case scenario, support the company, but it won't save it. Nokia will need entirely new ideas that are setting trends again and are not just copying what we already have.