Richard Lloyd

The dispute between Nokia and Apple that effectively kicked off the smartphone litigation wars in 2009 included many familiar tactics from the operating company v operating company patent dispute playbook. The Finnish tech giant sued first in district court before Apple countersued and both brought cases in the International Trade Commission for extra leverage. Eventually, after two years, the pair settled with Apple agreeing to take a licence.

The fracas was loaded with plenty of symbolism, which lent its own box-office appeal – Apple, the mobile newcomer, whose launch of the iPhone just two years before redefined mobile technology, against Nokia, one of the mobile pioneers that was in the process of being eclipsed by a bevvy of new kids on the block.

Shortly before Christmas 2016 it all kicked off again between the two, as Nokia accused the iPhone giant of infringing 40 patents in a series of cases across 11 countries. “After several years of negotiations trying to reach agreement to cover Apple’s use of these patents, we are now taking the action to defend our rights,” Ilkka Rahnasto, head of Nokia’s patent business, commented in a statement

Apple has once against countered, but this time by going after Nokia as well as Acacia and Conversant, two non-practising entities that are in the process of monetising former Nokia patents following privateering deals. An extra frisson is added to Apple’s assault by the fact that last year the tech giant lost infringement suits against both NPEs and that former Apple patent executive Boris Teksler has recently been appointed CEO of Conversant.  

But the fact that Apple has taken this approach says much about Nokia’s current position. The once iconic device manufacturer is now, of course, out of the handset making business having agreed a $7 billion disposal to Microsoft in 2013. It has since restructured into three divisions with Nokia Technologies responsible for monetising its thousands of patents. Plus in 2015 it bought Alcatel Lucent in a deal which added more than 15,000 patents in the US alone to Nokia’s stockpile.

The scope therefore for Apple to countersue Nokia alleging infringement of its own patents – as it did when the case was handset manufacturer against handset manufacturer – was presumably limited; hence the decision to pursue Acacia and Conversant (although the complaint Apple filed in the Northern District of California leaves no doubt that it is Nokia that is in its crosshairs).

The Cupertino-based tech giant has brought its case on antitrust grounds claiming that the two NPEs, “colluded with Nokia Corporation to obtain from Nokia thousands of patents as part of a plan to extract and extort exorbitant revenues unfairly and anticompetitively from Apple and other innovative suppliers of cell phones and ultimately from consumers of those products.”

According to one observer Apple’s case might be a stretch. Earlier this week, Professor Mark Lemley of Stanford Law School spoke about IP and antitrust at the annual conference of the Association of American Law Schools. His speech wasn’t recorded but he was happy to relay to IAM a summary of the main points as they relate to Apple v Nokia. Here’s what he had to say:

Most antitrust cases against PAEs challenge aggregation of patents as monopolization or as a violation of Clayton Act section 7. Those claims usually fail.  

Apple v Notia is different because the alleged harm is disaggregation of patents to different entities, not concentration. Apple alleges a conspiracy between product company and privateer to attack a competitor, allowing it to avoid monopolization law and allege a violation of section 1. But it's not clear what Nokia's incentive is to do this now that Nokia is itself an NPE. [A more plausible argument is that Nokia is trying to avoid its FRAND commitments, something it shouldn't be allowed to do].  One question is whether the alleged agreement really exists. It is not clear why there would have to be an express agreement between Nokia and Acacia when Nokia could simply rely on the privateer’s incentives to sue defendants of interest. 

Dividing up patents in this way raises rivals costs by deliberately increasing the inefficiency of licensing. This is a real competitive problem. But it is one that is very hard to tackle with antitrust tools, because it is disaggregation, not aggregation, so Clayton Act section 7 doesn’t fit very well, and it is single firm conduct that is at issue.

Upshot: privateering of the sort alleged here is a real problem, but it is one antitrust isn’t well suited to tackle.

Lemley has a point about privateering adding inefficiency to the market, but the other side might argue that licensing is hardly made more efficient by recalcitrant licensees who are happy to drag out negotiations and turn to the courts to resist taking a licence. Plus there’s more than a hint of hypocrisy in Apple going after another company for parking patents in a third party monetisation vehicle. After all that is exactly what it did, along with a bunch of other tech companies as part of the Rockstar consortium, when it won the 2011 auction for the Nortel assets.

It would seem that Apple’s claim is a new addition to the litigation playbook and some sort of negotiated settlement would still appear to be the most likely outcome. But, if the last eight years have taught us anything, it is that few other tech companies are prepared to fight as aggressively as the iPhone giant; while if ever there was a time in the US to be making Apple’s case today’s anti-patent climate is it.

What’s worth remembering in all of this, though, is that the patents Nokia transferred to both Acacia and Conversant, as well as the ones it has licensed to the likes of Microsoft, were created as a consequence of huge investments made in R&D. If those that invent are to be limited as to how they make use of the fruits of their labour, what incentives do they have to carry on making the investments that they do?