Tuesday 3 September 2013

Microsoft Acquires Nokia Handset Business and Licenses Related Patents: Microsoft's Strategic Rationale

Microsoft has acquired Nokia’s handset business for about $5 billion and has licensed related Nokia patents for about $2.18 billion (supposedly 8,500 design patents and 30,000 utility patents and applications).  Discussion about the deal can be found here, here, here and here.  Interestingly, The New York Times notes that, as partners, Microsoft and Nokia have not been very successful, but that Microsoft’s acquisition of Nokia may “make things run more smoothly.”  Why?  The New York Times states that the issue concerned slow development in the fast moving mobile market because of “friction” caused by intellectual property rights. 

According to Microsoft’s Strategic Rationale document, Microsoft is acquiring “Nokia’s Qualcomm and other key IP licenses”; “licens[ing] Nokia’s patents for use across all of Microsoft’s products”; and “licens[ing the] ability to use Nokia’s HERE broadly in its products.”  The document notes that “Nokia retains NSN, HERE, its CTO Office and its patent portfolio.”  The document also states:

IP Acquisition and License Agreements with Nokia

                Intellectual property is an important element of the smart devices business

                                Unless managed proactively patent issues can create uncertainty for smartphone shipments

                                Unless managed creatively, patent royalties can add over 10 percent to the costs of a smartphone Bill of Materials

                Microsoft is acquiring over 8,500 design patents, ownership of the Lumia & Asha brands, and a ten-year license to use the Nokia brand on feature phones.

                Microsoft is paying 1.65 billion [Euros] for a fully paid-up license to Nokia’s utility patents

                                Covers all of Nokia’s patents and patent applications as of the closing date (except NSN)

                                The total license price includes an option to convert coverage from a ten-year to a perpetual license

                                The agreement provides for a broad, five-year, two-way standstill, including NSN

                Nokia’s patent portfolio is one of the most valuable in the tech sector

                                Nokia’s portfolio has approximately 30,000 utility patents and patent applications; we consider it to be one of the two most valuable portfolios relevant to wireless connectivity

                                The license also provides significant value for Microsoft’s existing businesses, replacing after 2014 Microsoft’s existing annual license payment to Nokia

Microsoft also secures other Valuable Patent Benefits

                Nokia is assigning to Microsoft benefits under more than 60 patent licenses with third parties

                                Nokia is assigning its existing license with Qualcomm, which is the other company that ranks with Nokia at the top of having a valuable wireless patent portfolio

                                Nokia is also conveying rights under its agreements with IBM, Motorola Mobility and Motorola Solutions

                                These give Microsoft the benefit of attractive royalty arrangements Nokia negotiated

                Microsoft will combine the new Nokia license and these agreements with its existing patent agreements

                                Microsoft’s agreement with Samsung will provide coverage for these additional devices without added payments

                                Microsoft will also benefit from its prior or continuing agreements with Apple, LG, Nortel, Kodak, and others at no additional cost

                                Put all together, Microsoft will have the most cost-effective patent arrangements for smart devices

Another interesting point is that this deal may take Microsoft out of contention for the BlackBerry patent portfolio.  And, at least one commentator placed the highest value for the BlackBerry portfolio as a potential target for Microsoft for around $5 billion.  BlackBerry’s stock is up since the Microsoft and Nokia announcement. 

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