Nokia invokes a 'NATO defense' strategy against Apple's iPhone

The usual reason commonly given for the creation of technology standards is to enable a more open, seamless process for licensing and adoption. But in its lawsuit filed last week against iPhone maker Apple, Nokia is attempting a rather interesting spin on this definition, a spin which may very well reflect reality: It argues that standards are broadly licensed in order to increase the size of the market which those standards can address.

As a result, when a transgression against the standard comes about -- for instance, by way of failure to pay royalties -- the rights holders throughout the market enabled by that standard, have a duty to come to its defense. An attack against one, in other words, is an attack against the whole portfolio.

In its lawsuit filed last Thursday, Nokia alleges that it has been actively negotiating with Apple for fair and reasonable licensing terms ("F/RAND") for the use of GSM technologies in all of Apple's iPhones. Nokia is an acknowledged rights holder, not only for GSM but for HSPA (a.k.a. HSDPA), the 3G platform behind the iPhone 3G S. It claims, "Apple has rejected Nokia's offers for the F/RAND terms and conditions both on a portfolio and on a per-patent basis and thereby refused to compensate Nokia on F/RAND terms for the use of Nokia patented technology, including the [eleven] patents-in-suit."

Nokia did not specify dates, so conceivably Apple could have rejected Nokia as early as 2007; however, a good defense lawyer might argue that if Nokia didn't act on that refusal then, it lost its right to do so two years later. So the likeliest scenario is that Apple refused Nokia more recently.

But Nokia's theory of Apple's infringement is perhaps less important with regard to future legal precedent than its statement that it has a duty to the market at large to defend against that transgression, inevitably using the broadened size of that market as a factor in evaluating the scale of the infringement.

"Standards Setting Organizations ('SSOs') are formed to allow wide promulgation and utilization of commonly defined standards," begins Nokia's reasoning. Not to create the standards, not to develop the technology, but specifically and expressly to broaden the market. "These standards must be available and accessible in order to produce the intended efficiency gains and benefits and thereby for the standardization process itself to comply with competition law." In other words, it was antitrust law that forced companies to certify that standards were available for everyone to license in the first place, implying that it is therefore the duty of smaller competitors that wish to become competitive, to either play by the rules of the standard or build its own technology platform and try to compete that way.

"Intellectual Property Rights policies ('IPR Policies')," Nokia's suit continues, "provide essential IPR holders committing to license on F/RAND terms with the benefit of collecting F/RAND compensation from a far larger market than they would have enjoyed if the protected technology had not been incorporated in the standard. Because competing proprietary technologies and systems have been abandoned in favor of a single, universal, and standardized system and set of technologies, a holder of an essential IPR can collect royalties on a large volume of standards-compliant products from a wide variety of manufacturers worldwide. In contrast, if the IPR holder's protected technology was only used in one of a number of competing systems or proprietary technologies, the patent holder could only generate returns on its R&D investments through differentiation and -- if it chose to license -- only collect royalties from manufacturers who chose to market and sell products for the narrow proprietary technology. This is why committing to F/RAND licensing is advantageous and rarely refused by essential IPR holders."

A rights holder such as Nokia, the suit goes on, by definition waives the right to exclude any other company in partaking in the standard. Thus Nokia can't exactly withhold licensing as a way of compelling, or extorting, a company such as Apple into compliance. Implementers have a duty to enter into a licensing arrangement, and rights holders in the standard have a duty to negotiate with them. If an implementer refuses, since the only other course of punitive action against that implementer is to seek a court injunction barring the sale of its products, then a rights holder has no other alternative but to defend the standard as a whole.

"Nokia has irrevocably undertaken the obligation to grand license(s) on F/RAND terms and conditions to its essential patents, including the patents-in-suit, and Apple has the corresponding right to claim licenses on F/RAND terms on the basis of Nokia's undertakings," the lawsuit complaint continues.

So to review: A kind of "globalization," if you will, has forced a situation where there must be one set of standards in order to level the playing field between competitors. Thus whenever a competitor transgresses against that set of standards (the unspoken word here being "platform"), the principal rights holder must come to the defense of those standards as a whole. It's as though Nokia has drawn a NATO-like boundary around all of GSM, saying that if you enter into that realm it's with the intention of leveraging GSM as a platform, and if you don't pay your respects to the superpower in the region, then you don't respect the platform.

On the other hand, there's the much simpler issue of Nokia apparently never being paid. Not knowing yet the nature of Apple's rejection of Nokia's terms, but knowing the extent to which Nokia is regarded as the principal rights holder to GSM technology, one does have to wonder just what Apple was thinking by withholding any kind of royalties whatsoever from Nokia. Anyone doubting Nokia's ability to defend GSM could have simply looked it up in Betanews, under "Nokia" and "Qualcomm."
Perhaps Apple might have thought Nokia's terms unfair; in which case, it had ample opportunity to raise objections. Of course, doing so in a public court during the iPhone's formative period would have given away Apple's secrets; but it's had nearly three years now to make amends.

But if Nokia eventually succeeds in defending GSM, even through a settlement, the possibility exists that Nokia's arguments with respect to what is a standard may be perceived as setting legal precedent: a way to make markets bigger and more centralized, and to clearly establish the principal rights holders in those markets, so it's clearer to everyone involved where to send the checks.