Nokia Sues Apple?

My first thought: WTF nokia?! You see someone trying to compete in you market and you sue em? Why didn't you do this when the first Iphone came out? You probably didn't think it would steal some of your market share and eventually take a sizable chunk.

If the suit goes on Apple will continue to sell their phones. What about the rest of the smart phone competitors? Motorola's Droid and Palm Pre isn't infringing on your patents? Hhmmm, I hope the suit gets thrown out. NOKIA - please innovate rather than crying foul. I digress.

Apple this week vowed to "vigorously" defend itself against an iPhone-related patent infringement suit from Nokia, the world's largest handset maker.

In its annual Form 10-K (PDF) with the U.S. Securities and Exchange Commission for the fiscal year 2009, Apple noted the lawsuit with Nokia, which alleges that the iPhone infringes on ten wireless technology related patents owned by the Finnish company. The suit was officially filed by Nokia in a U.S. District Court in Delaware last week.

"The complaint alleges that these patents are essential to one or more of the GSM, UMTS and 802.11 wireless communication standards, and that the Company has the right to license these patents from plaintiff on fair, reasonable, and non-descriminatory ("FRAND") terms and conditions," Apple said. "Plaintiff seeks unspecified FRAND compensation and other relief. The Company's response to the complaint is not yet due. The Company intends to defend the case vigorously."

Analyst Gene Munster with Piper Jaffray said he believes that Nokia seeks a 1 percent to 2 percent royalty on every iPhone sold, which would amount to $6 to $12 per phone. Nokia's patents are related to GSM, 3G and Wi-Fi, and cover wireless data, speech coding, security and encryption. Nokia has alleged that all iPhone models released since 2007 infringe on these patents.

Given the size of the two companies involved, Bill Merritt, head of mobile licensing firm InterDigital, told Reuters that he believes the patent infringement case is likely to last for more than a year. If Apple chooses to defend itself or countersue, he said, the case would likely last two or three years.

"It's not a David versus Goliath story," he said. "These are two Goliaths."

In a statement last week, Nokia accused Apple of "attempting to get a free ride" off of the company's 40 billion Euros in research and development over the past two decades.

As the iPhone has grown in popularity, Nokia has retained its status as market leader, but has lost significant share of the market it has dominated. As recently as August, Nokia's Symbian mobile platform was said to have a 50 percent market share, well down from the 72 percent the platform had in 2006. In the second quarter of 2009, the iPhone represented 14 percent of global smartphone sales.

The Nokia suit is among a number of legal proceedings noted in Apple's Form 10-K filed with the SEC. The company said that it is currently defending itself from more than 47 patent infringement cases, 27 of which were filed during the 2009 fiscal year.

"Regardless of merit," Apple said, "responding to such claims can consume significant time and expense."

Update: November 14, 2009

It's official, Apple surpassed Nokia in handset sales. I'm not surprise, although ecstatic, of Apples success as they have been innovating and improving the user experience. With the recent launch of Verizon's Droid, it wouldn't take long for Google to grab some more of the market.

From the Chicago Tribune:

Apple Inc. surpassed rival Nokia Oyj, the world's biggest maker of mobile phones, to become the most profitable handset vendor for the first time on the strength of its popular iPhone, according to Strategy Analytics.

Apple's third-quarter operating profit from iPhone sales was $1.6 billion, while Nokia had operating profit of $1.1 billion from its handset unit, Neil Mawston and Alex Spektor, analysts for the Boston-based research firm, wrote in a report.

Nokia is struggling to hang on to its leading position in smart phones as competition increases from Apple, Research in Motion Ltd.'s BlackBerry and Motorola Inc.'s Droid. Nokia lost 6 points of smart-phone market share in the third quarter as it posted its first-ever quarterly loss.

“Nokia's profit margin for its handset division has been shrinking during the global economic downturn in 2009,” Mawston said in an e-mailed release today. “We believe the United States, where Nokia now trails Apple in market share, is the key to Nokia's recovery in 2010.”

Espoo, Finland-based Nokia's market share in smart phones with advanced features such as Internet browsers fell in the third quarter to 35 percent from 41 percent, as it posted a $834 million loss, the company said Oct. 15. Nokia the next day replaced Chief Financial Officer Rick Simonson with sales chief Timo Ihamuotila, who had previously worked for Nokia in the U.S.

Ihamuotila this year helped convince AT&T Inc. to offer one of the Finnish company's most-expensive handsets, letting the device share shelf-space with the iPhone at Apple's exclusive U.S. carrier. In his sales job, he focused on making Nokia more open to changes from carriers, who have complained that Nokia was unwilling to let them customize phones with their own logos and software.

“A successful fight on Apple's high-profit home turf can simultaneously help to revitalize Nokia's margins and help put a check on Apple's surging growth,” Mawston said.

Apple had a 25 percent increase in revenue last quarter, compared with a 20 percent drop at Nokia. Apple was helped in the third quarter by high wholesale prices and good cost control, the analysts said.

The iPhone is sold in about 80 countries and last month went on sale in China, Nokia's biggest market by revenue. Nokia's handsets are available in more than 150 countries. In the third quarter, Nokia sold about 16.4 million smart phones, the most expensive category of mobile handset. Nokia also sells cheaper phones, down to a 20-euro model for emerging markets.

Nokia last month sued Apple in a U.S. court, claiming infringement of 10 patents and seeking royalties on the 33.7 million iPhones sold since its 2007 introduction.