Microsoft bolsters its patent access with Nokia deal

Microsoft didn't pick up Nokia's entire patent collection as part of its acquisition plan, but it's got more patents under its belt for the next decade and potentially beyond.

Josh Lowensohn Former Senior Writer
Josh Lowensohn joined CNET in 2006 and now covers Apple. Before that, Josh wrote about everything from new Web start-ups, to remote-controlled robots that watch your house. Prior to joining CNET, Josh covered breaking video game news, as well as reviewing game software. His current console favorite is the Xbox 360.
Josh Lowensohn
4 min read
Nokia's headquarters in Espoo, Finland,
Nokia's headquarters in Espoo, Finland. Roger Cheng/CNET

While much of the attention around Microsoft's $7.2 billion planned acquisition of Nokia's devices and services business is on hardware, a big part of the deal is the almost 40,000 patents and patent applications Microsoft's getting access to over the next 10 years and beyond.

That could come in handy as the two companies -- now lined up to be one --- aim to unseat Google and Apple's grip on the top of the smartphone market.

Tuesday's deal gives Microsoft use of more than 8,500 Nokia design patents, as well as a 10-year licensing deal on around 30,000 feature patents and patent applications. That's expected to become a perpetual deal following a close of the sale next year.

All told, it boosts Microsoft's access to intellectual property into one of the top spots among its technology peers, says Chris Marlett, CEO of MDB Capital Group.

"After Nokia licenses this to Microsoft, there are no other big portfolios available other than BlackBerry," Marlett said. "Nokia is one of the last big ones."

Such deals can be lucrative in the long-term, giving technology companies not only protection, but an additional source of revenue from other companies that buy licenses. That's become especially true with the boom of smartphones and tablets, which have converged the functionality of multiple products into one. In Microsoft's case, licensing out its technology to Android device makers is already estimated to be close to a billion-dollar-a-year business.

Inside Scoop: Will acquiring Nokia devices give Microsoft an edge?
Watch this: Inside Scoop: Will acquiring Nokia devices give Microsoft an edge?

How the deal stacks up
To be clear, Nokia is keeping most of its patent portfolio as part of the deal. Microsoft's just gaining the design patents, along with licenses to its entire patent portfolio and an important existing agreement with Qualcomm.

According to MDB, Microsoft's portfolio before the deal consisted of around 24,000 patents and 10,414 patent applications, putting it behind Samsung's 47,676 patents and 21,916 patent applications. Trailing both is Google, which has a little more than 14,000 patents, and about 3,500 applied for patents, as well as Apple and its 8,222 patents and 4,315 applications.

Those patents won't last forever, but about two-thirds of Nokia's portfolio will still be valid and functional over the next decade, Microsoft said early Tuesday. That includes what it said were around 1,200 patent families for "essential" communications that have been licensed out to more than 40 others.

Nokia has taken years to get to its current patent collection. Through its various companies, Nokia has been granted 491 utility patents this year alone, according to IFI CLAIMS Patent Services. Last year it was granted 741, and has received as many as 822 in a single year, like it did in 2010. Those numbers are impressive, but not indicative of quality, Marlett noted.

"With big portfolios like this, the big corporations look at it thematically, rather than patent by patent," he said. In Nokia's case, the majority of its patents cover telecommunications and handset technologies.

Nokia's patents over the past decade.
Some of Nokia's patents over the past decade. IFI Claims Services

During a conference call with analysts early Tuesday, Microsoft executive vice president and general counsel Brad Smith called Nokia "one of the smartest" and "most sophisticated" device companies in securing patent rights to its devices. Moreover, Smith said that one of the integral parts of the deal was Microsoft acquiring Nokia's 15-year licensing agreement with Qualcomm, which began in 2008 and followed a bitter legal fight between the two companies that threatened Nokia's consumer business.

Why it matters
Patents have, for years, been an integral part of the technology business, allowing companies to protect ideas, as well as profit by licensing them out to others for use. The former has been a hot topic in recent years, with tech heavyweights including Apple and Samsung, suing one another for billions over the technologies found in smartphones, tablets, and other gadgets.

Nokia's been no stranger to that, and has been involved in lawsuits against numerous rivals, including Apple, BlackBerry, and HTC. Some of those complaints included as many as 45 different Nokia patents, and most have led to major settlement deals with cross-licensing agreements. Ahead of those settlement deals, companies risked having to pay heavy fees, or getting their products barred from being sold in the U.S.

Like many technology companies, Microsoft has spent the past few years gobbling up patents. It's been a part of several recent landmark patent deals that have put large collections of intellectual property in the hands of multiple companies through third-party consortiums. That includes 2011's $4.5 billion deal tobuy bankrupt telecommunications giant Nortel's entire patent collection, a deal that was brokered by Apple, Microsoft, and four other technology companies. There was also a deal last April where Microsoft spent more than $1 billion for 800 patents from AOL, most of which it sold to Facebook just days later.

Looking ahead, Microsoft appears less intent on selling anything it might end up with from Nokia, versus using it to make more deals, and bring in more money as a result.

"We really believe that Nokia has one of the two most valuable portfolios in the industry," Smith told investors on Tuesday, noting that Qualcomm is the other.

Whether that value will be derived in pursuing licensing deals, or selling off some of the collection it's acquiring once the deal closes, remains to be seen. Microsoft, for its part, has been both an aggressor as well as a target of patent litigation in the past, though has publicly pointed to licensing as its end goal in recent months.

"We should fix what is broken but not break what is working," Smith said in February.