Nokia may be getting out of the device business, but the struggling Finnish company just made a killing on its patents.
As part of this week's deal with Microsoft, Nokia will receive about $2.17 billion in exchange for granting Microsoft a 10-year license to its intellectual property, which is said to be worth some $6 billion. The company's patent portfolio is so highly prized, Microsoft officials called it "one of the two most valuable" in the entire wireless industry.
Selling Microsoft its smartphone business could clear the way for Nokia to enforce its patents more aggressively. It will also make the former cell phone company look disconcertingly like a patent troll.
For the past year, Nokia been open about using its patents as a way to make more money. One way that's happened is through licensing deals such as the agreement just announced with Microsoft; Nokia already hauls in some $658 million annually in patent royalties and the company's chief financial officer said last year he saw "good opportunities" in Nokia's pool of unlicensed patents.
But Nokia has also been unafraid to fire off lawsuits alleging patent infringement. Nokia lays claim to an estimated 30,000 utility patents and 8,500 design patents, according to Microsoft. Last year, it filed lawsuits against device manufacturer HTC in both Germany and the United States, accusing HTC of infringing on dozens of Nokia patents.
Yet Nokia has been deterred from asserting its patents too aggressively by the risk of retaliation by competitors. Nokia's rivals have patents of their own, and if they felt the Finnish company was making unreasonable demands, they could have filed patent infringement lawsuits themselves.
The key to the patent-trolling business model is to avoid having any products for competitors to sue over. And Nokia's deal with Microsoft is a big step in that direction. If Nokia isn't selling smartphones, then it won't be vulnerable to lawsuits over smartphone patents. And that could free the firm to demand larger royalties from other firms in the smartphone industry, and to sue those that don't pay up, without having to worry about retaliation.
To be fair, Nokia doesn't quite fit the conventional definition of a patent troll. It will still have a handful of products left after it sells is phone business to Microsoft. One is HERE, Nokia's mapping platform that is used in Windows Phones and some automobile systems. Another is NSN, Nokia's telecom and network infrastructure subsidiary. But it's the patent portfolio that's arguably Nokia's most valuable possession.
The patent agreement with Microsoft is non-exclusive, meaning that Nokia is still free to license its patents to other companies. But what's less clear is whether the company will become more litigious in hopes of drumming up more licensing revenue. Attempts to reach Nokia for comment Tuesday were not returned.