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Nokia, LG agree to smartphone patent licensing deal

Nokia may not sell smartphones anymore, but the company has a solid patent portfolio that LG will now have access to.

LG has become the first company to license Nokia's mobile portfolio since the Microsoft sale.

Nokia is still making money on smartphones -- just not its own.

Nokia Technologies and LG have agreed to a smartphone patent licensing agreement, the companies announced on Tuesday. Under the terms of the deal, LG will pay royalties to Nokia for use of its patents on mobile communications. The companies didn't say exactly what patent technologies LG has licensed from Nokia.

With the deal, LG has become the first company to join Nokia's mobile licensing program since the company sold its devices and services business to Microsoft for $7.2 billion. Nokia has approximately 30,000 patents. Those patents relate to 2G, 3G, and 4G mobile communications technologies, and are licensed by over 60 companies.

The deal highlights the importance Nokia still plays in the smartphone space. While the company no longer produces devices, its patent portfolio is broad and for some companies, a required resource, in order for them to build products. The deal also suggests Nokia is now a critical behind-the-scenes player in how smartphones operate.

When Nokia sold its smartphone business to Microsoft in 2014, the software giant agreed to pay $2.2 billion for access to Nokia's patent portfolio. The deal was important for Microsoft, as it looked to build out its smartphone business with help from Nokia's technology, and crucial to Nokia as it looked beyond building handsets for its future.

Indeed, Nokia's patent portfolio is one of the most heralded in the mobile business, due in large part to its size and depth of technologies. It includes everything from major mobile features, including how devices connect to 4G networks, to the design of mobile phones.

The depth of Nokia's patent portfolio and the fact that the company would no longer sell smartphones became a cause for concern among regulators in the European Union in 2013. The euro zone's competition commissioner at the time, Joaquin Almunia, said that he hoped Nokia wouldn't "behave like a patent troll, or to use a more polite phrase, a patent assertion entity."

"Patent troll" has become a putdown for companies that don't build products, but use patents to make money off other companies' inventions. Almunia was concerned that Nokia would attempt to leverage its patent portfolio to capitalize on the smartphone market and launch frivolous lawsuits. His concerns turned out to be unfounded: the company has largely focused its efforts on its core businesses of mapping technology and mobile networks. Its patent-licensing program has remained static.

The LG deal, like another Nokia signed nearly two years ago with Samsung, includes an arbitration clause, meaning LG and Nokia could not come to terms on the cost of the patent royalties and will now seek arbitration to determine a proper royalty rate. The companies didn't say why they couldn't come to an agreement, but acknowledged that the arbitration could take one to two years to complete. In the meantime, LG will have the right to use Nokia's technologies.

"We are pleased to welcome LG Electronics to our licensing program," Ramzi Haidamus, president of Nokia Technologies, said in a statement. "We've worked constructively with LG Electronics and agreed to a mutually beneficial approach, including the use of independent arbitration to resolve any differences. This agreement sets the scene for further collaboration between our companies in future."

Neither Nokia nor LG immediately responded to a request for comment.