The other day Peter Pachal of PCMAG.COM reported on a battle that is raging in the International Trade Commission, over some smartphone patents, between Apple and Nokia. He further reported that this battle is not the first between these electronic device Titans, but rather one of many in their struggle to achieve domination over the mobile electronics market. ( see PACHAL, P. Patent Wars begin as Apple, Nokia Square Off, PCMAG.COM (November 29, 2010)).

Now, it just so happens that this holiday season, I finally decided, under pressure from my family and many esteemed colleagues, to shop around for a wireless communications device. You know. . . a smartphone. So, the news kind of took me by surprise. Maybe it shouldn’t have. I mean after all, I am a patent attorney. But it did. So much so in fact, that it got me curious enough to go scavenging for information through the Federal Court and the International Trade Commission Systems, to see for myself as to what the whole hullaballoo was all about. Here is what I found:

a) On October 22, 2009 Nokia Corporation initiated a lawsuit against Apple Inc. by filing a Complaint in the United States District Court for the District of Delaware. In its Complaint Nokia alleges that Apple is making, using, selling and offering to sell one or more products and services, such as the Apple iPhone, the Apple iPhone 3G and the Apple iPhone 3GS, which in order to comply with the GSM, UMTS and/or IEEE 802.11 Standards, infringe on at least ten of Nokia’s patents.

b) According to Nokia’s Complaint, “ GSM and UMTS standards, as well as other mobile radio standards, were developed under the patronage of the European Telecommunications Standards Institute (“ETSI”). ETSI is a non-profit institution that was founded in 1988 through an initiative of the European Commission by several companies active in mobile communication with the objective to develop a common mobile radio standard for Europe. Among these members are virtually every company active in the mobile radio sector, who together account for a substantial share of the supply of mobile telecommunications equipment and services. Nokia and Apple are both members of ETSI.”

c) Further, according to Nokia’s Complaint, “Within the context of ETSI, the members develop technical standards, which often lead to a factually binding standard. In some cases, national or international regulatory bodies require adherence to particular ETSI standards.” However, when ETSI adopts these technical standards, it sometimes incorporates within them, elements of technologies that are the intellectual property of many of its members, including Nokia. This creates a tension between ETSI’s needs to adopt these standards and its members’ rights to their intellectual property. Further, other members who wish to exploit these standards may need licenses for use of these essential property rights.

d) Accordingly, ETSI has adopted an intellectual Property Policy (the ETSI IPR Policy) to govern the manner by which ETSI achieves a balance between the need for standardization for public use in the field of telecommunications and the rights of the owners of intellectual property rights.

e) The provisions of the policy are explained in the ETSI Guide on Intellectual Property Rights. Such provisions, place the burden on the members of the ETSI so that if a member of the ETSI believes that its intellectual property rights are essential to the standards formulated by the ETSI, then that member must notify the ETSI of such belief and its preparedness to grant licenses on terms and conditions dictated by the policy.

f) Likewise, the Institute of Electrical and Electronics Standards Association (IEEE-SA) is a developer of industry standards in a number of industries, including telecommunications, information technology, nanotechnology, and information assurance. Among the standards developed by IEEE-SA is IEEE 802.11, the standard for WLAN and IEEE 802.16 the standard for WiMax. And like ETSI, the IEEE-SA has adopted an intellectual property policy similar to ETSI’s.

g) According to Nokia’s Complaint, Nokia has submitted notifications to both the ETSI and the IEEE-SA that it is its belief that ten of its patents are essential to the implementation of the organizations’ standards and that it is prepared to grant licenses to any members that wish to use Nokia’s IPR for implementation of such standards in connection with their electronic devices; licenses that contain Fair, Reasonable and Non-Discriminatory (“F/RAND”) licensing terms. Further, prior to filing such complaint, Nokia negotiated in good faith over the F/RAND licensing terms with Apple. Yet, Apple rejected of all of Nokia’s offers and continues to use Nokia’s technologies, leaving Nokia no choice but to file the lawsuit.

h) On December 11 2009, Apple filed its Answer to Nokia’s Complaint. Not surprisingly, Apple asserted that: its electronic devices are not infringing Nokia’s patents; Nokia’s patents are not essential to any of ETSI or IEEE-SA’s standards; none of Nokia’s licensing offers comprised Fair, Reasonable and Non-Discriminatory terms; and one of more of the claims in Nokia’s patents are invalid and therefore unenforceable. Further, Apple counterclaimed against Nokia for Breach of Contract, Breach of Promissory Estoppel, Unfair Competition under California Business Law, Declaratory Judgment of No entitlement to Injunctive Relief, Declaratroy Judgment of Patent Misuse, Declaratory Judgment of Non-infringement of all of Nokia’s asserted Patents, and Declaratory Judgment of Invalidity of all of the asserted Patents.

i) Even more importantly, Apple counterclaimed against Nokia for Infringement of Apple’s own U.S. Patents, nine(9) in total.

j) Now, you would think that this would give pause to Nokia. Well, it did not. Instead, in response, on December 29, 2009, Nokia initiated a second suit against Apple asserting that Apple is infringing another seven patents, collectively referring to these patents as the implementation patents as opposed to the essential patents asserted in the first suit. Further, on the same day Nokia also filed a Complaint with the International Trade Commission (“ITC”) for Apple’s alleged infringement of the same seven Nokia Patents.

k) Things did not stop there. On January 15, 2010 Apple also filed an ITC Complaint for Nokia’s alleged infringement of not only four patents out of the nine that it had asserted in its counterclaims but five more.

l) Presently, Nokia’s second suit against Apple for infringement of Nokia’s implementation patents (see paragraph “j” above) has been stayed pending the outcome of the ITC proceedings, and Nokia’s first suit against Apple is proceeding to mediation.

On the basis of all of the foregoing it is evident that, between the first and second lawsuits and all of the proceedings at the ITC, Nokia is alleging that Apple is infringing at least seventeen of Nokia’s patents. Apple, in turn, is alleging that Nokia is infringing a total of at least thirteen of Apple’s patents. This means that the total number of patents at issue in all of these proceedings is at least thirty (30) patents.

The process that the Court and/or the ITC will follow in connection with all of these proceedings includes conducting hearings (known among patent practitioners as Markman Hearings) for each and every one of these patents, so that the Court can determine the scope, or metes and bounds, of each and every one of the claims, of each and every one of the patents. If the Court holds one hearing per patent, it may very well hold at least 30 of these Markman Hearings. That’s a lot of billable hours!

And it does not stop there. More billable hours will be necessary, because at the conclusion of the Markman Hearings, the process includes determining, with the help of a jury (Nokia and Apple have both requested juries for their cases) whether Apple is infringing Nokia’s patents, and whether Nokia is infringing Apple’s patents literally, or by the doctrine of equivalents. Oh, and by the way, let’s not forget that throughout this whole process, more billable hours will be expended trying to declare each and every one of these patents invalid and unenforceable.

And therein is the problem, i.e., what will happen if each and every one of these patents is declared invalid and unenforceable. In an article printed by Reuters on October 22, 2009, Avian Securities analyst Matthew Thornton was quoted stating as follows: “It’s too early to tell, but it’s likely to be a drawn out battle. We have a hard time seeing a material risk to either company. . . They’re both big companies, they have lots of cash and they can fight it and in the end I don’t really see a dramatic impact to Apple’s financial profile.” REUTERS, Nokia Sues Apple over iPhone Patents, PCMAG.COM (October 22, 2009).

This is a particularly obtuse observation. While it is true that both parties have a lot of cash to fight with, (and as is shown above, fight they will have to, for many billable hours, to the benefit of their attorneys’ pockets) their financial profiles will not remain unaffected. If, as Peter Pachal observed on November 29, 2010, Nokia wins, Apple could lose the right to sell the iPhone in the U.S.; unless of course it ends up going to Nokia for licensing rights to continue marketing its devices. That will most certainly have an effect on Apple’s financial profile, because instead of owning the technology, it will be licensing it. Likewise, if Apple wins, Nokia’s devices could be shut out of the U.S. market altogether, forcing Nokia to go to Apple for licensing rights. That, in turn will have an effect on Nokia’s financial profile. If news of the filing of Nokia’s October 2009 suit could have an effect on both Apple and Nokia’s shares (see REUTERS, Nokia Sues Apple over iPhone Patents, PCMAG.COM (October 22, 2009)), news of Apple’s or Nokia’s loss will most certainly have an effect on their shares as well.

And, what about the consumers on the street? Where does all of this leave them? Will they have to deal with higher prices or lower prices for items incorporating Nokia’s and Apple’s technology? Well, if one party wins over the other, their monopoly over the market will be strengthened, which more likely than not will cause the prices to rise; maybe not by much, but they will rise. But what if they both lose because all 30 patents are declared invalid and unenforceable, what then? Well, not only will the value of their Intellectual Property portfolios become diminished to the detriment of their shareholders, but all of the technology will fall into the public domain, thereby allowing all of the companies participating and competing in this area worldwide to use the technologies without paying a cent for license fees to anyone. If that happens, then that in turn should result in lower prices for among other things, the smartphone.

Hmmmmm! Maybe I should wait some more (a few years by the looks of it) to buy my wireless device. Or maybe Nokia and Apple should get their act together and take advantage of that Mediation Proceeding coming up, in the first suit, to think outside the box and settle their differences to the benefit of their shareholders. Because from where I am sitting, the risks are way too high, and anything to the contrary will most certainly be a bad business decision. What do you think?

Tags: Apple, Declaratory Judgment, ETSI, European Commission, European Telecommunications Standards Institute, GSM and UMTS standards, IEEE-SA, Inc., Institute of Electrical and Electronics Standards Association, intellectual property rights, International Trade Commission, license, Markman Hearings., mobile radio standard, Nokia Corporation, patent, patent attorney, patent infringement, United States District Court for the District of Delaware

This entry was posted on Saturday, December 4th, 2010 at 8:06 pm and is filed under PATENTS AND PATENT INFRINGEMENT. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.