Research In Motion Ltd. is being swept up in the global smartphone patent wars.
The BlackBerry maker is getting dragged into court by Nokia Corp. over a patent infringement dispute at a time when the struggling Canadian technology giant needs every last dollar to orchestrate a turnaround by launching a new crop of smartphones.
Nokia, a stumbling mobile giant that still owns a powerful stable of fundamental mobile industry patents, has won an arbitration ruling in Sweden that could conceivably bar RIM from making or selling phones that use patents related to wireless local access network technology (WLAN), or WiFi – a feature in almost every modern cellphone.
The two companies have had an agreement since 2003, which was amended in 2008, but the Finnish firm is taking RIM to court in the U.S., the U.K. and Canada "with the aim of ending RIM's breach of contract."
The worst case scenario for RIM, which paid Nokia upfront fees and royalties in the past but sought arbitration in 2011, is an outright sales injunction, though that is a distant possibility and observers say a settlement is much more likely. One former RIM executive, who didn't want to be named, suggested the move is an attempt by Nokia to increase the perceived value of its patent portfolio at a time when sales of its Lumia smartphones are floundering. Florian Mueller, an industry consultant, said RIM was likely trying to draw out negotiations in which it was simply the much weaker party.
A RIM spokesperson said the company would not comment on pending litigation, but later sent a statement lauding its "industry-leading intellectual property portfolio" and said it would respond to Nokia's court cases "in due course."
When Nokia and RIM head to court, they will simply be the latest technology giants winding their way through one of the dozens of patent litigation lawsuits currently entangling the global smartphone industry's biggest players. Apple Inc. and Samsung Electronics Co. Ltd. recently fought a monumental battle in the U.S., telecom giant Telefon AB LM Ericsson recently sued Samsung, and Google Inc.'s $12.5-billion acquisition of Motorola Mobility Holdings Inc. is widely considered as a play on the company's patents.
Industry observers, including RIM's new chief legal officer Steven Zipperstein, have complained that lawsuits are a costly distraction.
Indeed, RIM and Nokia are already engaged in battle on a separate patent litigation issue in German courts.
However the legal battle unfolds, RIM is likely to wind up paying Nokia substantial fees for its patents.
"Nokia is desperate for all possible sources of revenue," says Kris Thompson, an analyst with National Bank Financial. "It looks like if RIM loses to Nokia the cost could be $5 to $10 per smartphone, so $175- to $350-million on our 35 million handset shipments forecast next year." It's possible, though, a settlement could include cross-licensing agreements, common in the industry, that would reduce the total royalties.
Legal disputes over patent infringements have been costly for RIM in the past: The company chose to battle NTP Inc. in court and ended up having to pay about $612-million (U.S.).
For that reason, Mr. Mueller, a patent consultant who works with companies including Microsoft Corp. and Oracle Corp., suggests RIM has been trying to leverage a sweeter package by bringing Nokia before an arbitrator, or else delay arduous payments until the Waterloo, Ont.-based company is in better financial shape. Mr. Mueller, who is based in Munich, has attended various hearings in a separate court battle between RIM and Nokia in Germany over unrelated patents, and says it seemed RIM's lawyers were trying to "delay, delay, delay." A RIM spokesperson acknowledged the German cases, but said she could not comment. Regardless, in both disputes, Mr. Mueller says, RIM is bargaining from a position of weakness.
"Simply put, Nokia has this advantage of having been a leader in this industry before RIM even became a new entrant, and that's the advantage Nokia is leveraging right now," Mr. Mueller said.