Nokia/Apple suit could drag on for years

Lawyers get ready to wrangle

Nokia dominates the global handset market, but has lost ground to smartphone entrants like Apple, which has become one of the top handset vendors.

"It's not a David versus Goliath story, these are two Goliaths," Merritt said.

Nokia filed suit in the United States last week, saying Apple had infringed 10 patents in technologies such as wireless data transfer, a key factor in the success of iPhone. The suit accused Apple of trying to hitch a "free ride" on Nokia's technology investment.

In its 10-K annual report filed on Tuesday, Apple said it "intends to defend the case vigorously."

The patents cover wireless data, speech coding, security and encryption and Nokia says  all iPhone models shipped since the iPhone was introduced in 2007 infringe on them.

"It's the first card to be played, there's a lot more cards left. How this plays out will largely depend on Apple's response," Merritt said, adding the case was likely to continue for a couple of years.

"I'd be very surprised if anything gets solved in the short term. It's at least a year before some clarity," he said.

He said if Apple decides to just defend itself, or to countersue, the case would likely last two to three years, but if it takes the case to the US International Trade Commission (ITC), the decision could be quicker.

In its 10-K, Apple said it is defending more than 47 patent infringement cases overall, 27 of which were filed during the 2009 financial year. In certain cases, Apple said it may consider the "desirability of entering into licensing agreements."

InterDigital itself lost a case against Nokia at the ITC earlier this month, and Merritt said the company was likely to appeal the decision.

"We continue to move forward on that, it's not over," he said.

Apple could become one of the biggest net payers of royalties in an industry in which all vendors work under cross-licensing agreements. As a latecomer, it has limited intellectual property assets compared with rivals. Patents are playing an increasingly important role in the industry as cellphones are becoming increasing complex.

"These products are innovation-rich - we are not making hammers," Merrit said.

Most analysts estimate Nokia's demands for compensation range from $200 million to $1bn as it is one of the key patent holders in mobile technologies, alongside Qualcomm and Ericsson.

Merritt said the Nokia-Qualcomm legal battle which lasted from 2005 to 2008 was a bigger issue for the wireless industry than Nokia-Apple. "There's a lot of talk, but I don't think it will shape the industry."

Merritt said in addition to a royalty rate, the key issue will be how it is calculated, as iPhone's average selling price, $566 in the last quarter, is much higher than anything else in the industry.

Nokia's average selling price was $92.30 in the same quarter.

Interdigital said it has a licensing deal with Apple, adding it had used the price of a typical feature phone to calculate the rate, not the record-high average selling price.

Ericsson said it has a licensing deal with Apple, and Qualcomm said it was getting royalties for all 3G phones sold. Motorola declined to comment.

Merritt said likely most of the key patent holders have a deal with Apple.

"As there are no other legal actions, probably the number of unlicensed folks is very small," Merritt said.

- Reuters

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