True Colors
Concerns that Nokia will attack Korean handset makers as a Non-Practicing Entity (NPE), or patent troll, are about to become a reality. As the Korea Fair Trade Commission (FTC) is examining the effects of the merger between Nokia and Microsoft, its results are drawing a lot of attention.
“As far as I know, Nokia has recently been demanding that Samsung and LG Electronics pay a large amount of patent fees,” remarked a source familiar with intellectual property rights in Korea on July 27. An official at Samsung Electronics echoed the same sentiments by saying, “Nokia demanded a large sum of patent royalties. So, we are now negotiating with the company in the US.”
Many predicted that that Nokia would turn itself into an NPE when the Finnish smartphone maker sold its handset unit to Microsoft. The Redmond-based software company decided to acquire Nokia's mobile phone business for US$7.2 billion in September of last year. At that time, Microsoft let the Finnish firm have and use its patents related to smartphones over the next 10 years. Due to the M&A deal, Nokia can freely exercise its patent rights without manufacturing mobile phones.
In fact, the mobile phone industry has raised concerns that Nokia would be transformed into a NPE. Usually handset makers reduced the burden of patent fees by signing broad cross-licensing deals. However, since the Finland-based firm no longer manufactures cell phones, it can only demand payment for its patents.
Most of Nokia's patents are standard-essential patents (SEPs), and thus it is said to be difficult to avoid Nokia's demand. As a result, local companies are adopting a strategy that lowers patent fees as much as possible through negotiations rather than lawsuits. A Samsung associate explained, “Nokia's patents are difficult to avoid, since most of them are utility patents or SEPs.”
The Finnish company reportedly demanded that smartphone vendors abroad pay high patent fees as well. According to overseas media outlets, Nokia asked a smartphone vendor in China to pay as much as 20 times greater patent fees. Owing to growing concerns that Nokia will exercise its patent rights more and more, the Chinese government approved the M&A transaction under the condition that Microsoft not ban Android device makers in the country from selling phones, even if they infringe on Microsoft's SEPs. It was also agreed that after the merger, the software giant will not raise licensing fees, and will also maintain similar terms for its standards-setting patents.
The local electronics industry expressed its concerns to the Korea Fair Trade Commission (FTC) over potential higher patent fees from the deal. The industry is demanding that the FTC approve Microsoft's purchase of Nokia by imposing stricter conditions on the Finnish handset maker. The country’s anti-trust regulator is still reviewing the deal.