December 28, 2009 Cellphone Companies Rush to Sue One Another By KEVIN J. O’BRIEN
BERLIN — When Nokia, the world’s largest maker of mobile phones, sued Apple, Samsung, LG and eight other competitors within six weeks beginning in October, it said it was conducting a routine defense of its intellectual property.
But for cellphone makers and suppliers accustomed to swapping valuable technologies, the suits filed by Nokia were far from standard.
Like many cellphone makers, Nokia is fighting the economic downturn. The company, which is based in Finland, has laid off thousands of employees this year to counter falling sales and profit and its slipping share of the global market, which fell to 35 percent in the third quarter, from 41 percent in the second.
Bill Tai, a partner at Charles River Ventures, a technology investment firm, said the new legal aggressiveness was “a natural evolution” similar to what took place in the semiconductor and desktop computer businesses during difficult or competitive times.
“As competition has intensified and margins have deteriorated, companies are trying to put up barriers to protect their positions,” said Mr. Tai, whose firm has invested about $2 billion in technology start-ups since 1970.
The mobile industry, since its inception, has been a legal battleground. In 2008, Nokia settled a suit with Qualcomm, a United States maker of mobile phone chips, and agreed to pay an estimated $400 million a year for Qualcomm patents over 15 years. According to recent financial reports, nearly all cellphone makers are suing or being sued.
Research In Motion, the maker of the BlackBerry, is suing Motorola, accusing it of using 20 of its patents; Motorola has countersued. Palm is being sued by Saxon Innovations, a patent licensing company in Tyler, Tex., over a third-party application processor. In March, Apple won a ruling in Japan against Shigeru Saito Architecture Institute, which had sued over touch-screen patents.
“Nokia has been very active of late, and in general, there has been an increase in litigation in the industry,” said Clive D. Thorne, an intellectual property lawyer at Arnold & Porter in London. “There is an attempt to gain technical advantage. Mobile technology is fast-moving. The commercial life of products is limited. There is urgency in ensuring that I.P. rights are protected.”
In October, Nokia filed suit against Apple in United States District Court in Delaware, accusing the company of violating 10 of Nokia’s third-generation wireless patents with the iPhone. Then, in the United States and Britain, Nokia accused Samsung, LG, Philips, Sharp and others of operating a cartel to keep LCD screen prices high.
Louise Pentland, Nokia’s chief legal officer, said the company’s legal strategy had not changed. What has, she said, is the dynamics of the mobile phone business: increasing boundary testing by industry newcomers and suppliers, in addition to convergence of mobile Internet, information technology and other industries.
“The litigation is not the driver,” Ms. Pentland said in an interview. “It is the business environment that has changed.”
Another reason for the rise in litigiousness is the increase in the number of patents sought by makers of mobile phones and equipment in their relentless quest for the cutting edge, said Ian Drew, an executive vice president at ARM, a company in Britain that has licensed its Cortex cellphone chip designs to most of the world’s cellphone makers and parts suppliers.
ARM’s clients, in turn, use its designs for their own products, which they inevitably seek to protect through patents. This so-called patent differentiation, Mr. Drew said, of everything from chips to touch-screen input methods, has created a legal landscape prone to conflict.
“In the mobile phone industry, there are lots of semiconductor and handset players jockeying for position at the moment,” Mr. Drew said. “Because there are so many smaller players, it is a more dynamic business and you are going to get the odd skirmish.”
As cellphones become more like tiny computers, intellectual property will take on increasing importance to equipment makers in their quest for market advantage.
For example, the Rosum Corporation, a technology company that developed a method for pinpointing the physical location of mobile devices in dense urban areas with the aid of television broadcast signals, is vigorously protecting its investment.
Rosum, which is privately owned and based in Sunnyvale, Calif., has only 24 employees but has already obtained or applied for 71 patents.
“We have taken a great deal of care to protect our technology,” said Todd Young, a vice president for business development at Rosum. “We think it is critical to our business.”
Such investments can be risky. When a company makes a patent infringement claim, it is often countersued by its opponent. And often, the costs can be so high as to make the legal victories almost worthless.
Nokia filed its suit against Apple more than two years after the iPhone went on sale, which suggested that the suit was a symbolic line in the sand, said Jan Ihrfelt, an analyst at Swedbank, one of the largest Swedish banks.
“There is no expectation that Nokia will gain a financial windfall from these lawsuits,” he said. “I think it was more Nokia trying to send a message.”
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