Timing of Nokia agreement suggests a 'favorable outcome' for Apple

Posted:
in AAPL Investors edited January 2014
Though Apple will pay Nokia a one-time sum and ongoing royalties as a result of their new settlement, one analyst believes the timing of the agreement suggests Apple was able to negotiate a favorable outcome.



Analyst Maynard Um with UBS Investment Research believes Apple may have been in a favorable position in negotiations with Nokia because of a ruling in the iPhone maker's favor made by the U.S. International Trade Commission in March. That early victory may have allowed Apple to reach a better royalty agreement with Nokia than the Cupertino, Calif., company had expected.



In March, the ITC ruled that Apple did not infringe on five patents owned by Nokia. It was a preliminary ruling in a sprawling legal conflict between the two companies, with both accusing the other of multiple patent violations.



But in April, the ITC staff also voiced its support for Nokia, causing a setback for Apple. Officials at the commission recommended that Nokia not be found liable of infringing on Apple's patents.



That legal battle came to an end this week, as Nokia announced it has entered into an agreement with Apple and both companies have withdrawn their complaints from the ITC. Through the deal, Nokia will receive a one-time payment from Apple, as well as ongoing royalty payments.



Um said in a note to investors on Tuesday that both Nokia and Apple are likely to remain tight-lipped over the sums involved in their agreement, as is standard with industry cross-licensing. But he believes Apple's one-time payment to Nokia probably amounts to several hundred million dollars.







Based on the presumption that Apple was accruing liability funds related to its dispute with Nokia, Um said the outcome could be even more favorable for the iPhone maker. For example, Apple may have been "over-accruing" for a higher potential cost of a licensing deal with Nokia, and a settlement will also reduce legal expenses by avoiding a courtroom showdown that was expected to last for years.



UBS Investment Research sees a benefit to Apple of about 6 cents in earnings per share for each quarter as a result of the settlement. The firm has maintained its "buy" rating for AAPL stock, and reiterated a 12-month price target of $510.
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Comments

  • Reply 1 of 41
    cloudgazercloudgazer Posts: 2,161member
    Two of the five were back in play as Nokia had appealed the decision - but three were definitely right out. With a settlement at this stage the reason for the three being excluded may never become public - which might very well benefit Nokia with other licensees.
  • Reply 2 of 41
    gatorguygatorguy Posts: 20,749member
    Quote:
    Originally Posted by cloudgazer View Post


    Two of the five were back in play as Nokia had appealed the decision - but three were definitely right out. With a settlement at this stage the reason for the three being excluded may never become public - which might very well benefit Nokia with other licensees.



    Apple's response doesn't sound like they feel they've "won":



    ?Apple and Nokia have agreed to drop all of our current lawsuits and enter into a license covering some of each others? patents, but not the majority of the innovations that make the iPhone unique,? the company said. ?We?re glad to put this behind us and get back to focusing on our respective businesses.?



    http://allthingsd.com/20110613/break...e-patent-spat/
  • Reply 3 of 41
    wovelwovel Posts: 956member
    Quote:
    Originally Posted by Gatorguy View Post


    Apple's response doesn't sound like they feel they've "won":



    ?Apple and Nokia have agreed to drop all of our current lawsuits and enter into a license covering some of each others? patents, but not the majority of the innovations that make the iPhone unique,? the company said. ?We?re glad to put this behind us and get back to focusing on our respective businesses.?



    http://allthingsd.com/20110613/break...e-patent-spat/



    What about that tells you anything. Very dry non-reaction. Pretty typical of Apple in legal cases.
  • Reply 4 of 41
    Apple paid Nokia several hundred million dollars? Some Nokia executive just made his bonus for the quarter, and sold the company down the river in the process. With the patent arrow removed from their quiver, Nokia is now officially disarmed.



    Good job!



    This is what happens when a company is run by someone who's just in it for the paycheck.
  • Reply 5 of 41
    hattighattig Posts: 830member
    Quote:
    Originally Posted by Gatorguy View Post


    Apple's response doesn't sound like they feel they've "won":



    ?Apple and Nokia have agreed to drop all of our current lawsuits and enter into a license covering some of each others? patents, but not the majority of the innovations that make the iPhone unique,? the company said. ?We?re glad to put this behind us and get back to focusing on our respective businesses.?



    http://allthingsd.com/20110613/break...e-patent-spat/



    Sounds even better for Apple, they've cross licensed a lot of stuff, including everything they need from Nokia, but they haven't licensed everything they have ("the majority of the innovations that make the iPhone unique") to Nokia.
  • Reply 6 of 41
    Quote:
    Originally Posted by Wovel View Post


    What about that tells you anything. Very dry non-reaction. Pretty typical of Apple in legal cases.



    Pretty typical of any legal case, to be honest.



    I have a theory that this might suggest a prelude to a purchase by MS. Apple has cross licencing agreements with MS, so if Nokia had been bought by MS, they would have got no royalties from Apple.



    Its possible that Nokia decided to reduce their royalty charges to a level Apple was comfortable with, in order to get something, before they merge with MS.
  • Reply 7 of 41
    nofeernofeer Posts: 2,422member
    Quote:
    Originally Posted by addicted44 View Post


    Pretty typical of any legal case, to be honest.



    I have a theory that this might suggest a prelude to a purchase by MS. Apple has cross licencing agreements with MS, so if Nokia had been bought by MS, they would have got no royalties from Apple.



    Its possible that Nokia decided to reduce their royalty charges to a level Apple was comfortable with, in order to get something, before they merge with MS.



    cool insight
  • Reply 8 of 41
    gqbgqb Posts: 1,934member
    Probably enough in the settlement to keep Nokia on life support for a few extra days.

    It'll allow the company's value to slide more until MS buys them in a fire sale.
  • Reply 9 of 41
    Quote:
    Originally Posted by Hattig View Post


    Sounds even better for Apple, they've cross licensed a lot of stuff, including everything they need from Nokia, but they haven't licensed everything they have ("the majority of the innovations that make the iPhone unique") to Nokia.



    When this all started, Apple indicated it was willing to pay RAND rates for the technologies that Nokia was to license, but that Nokia wanted a higher rate than they were getting from other licensees and that Nokia was demanding a full cross-license for Apple's iPhone centric patent portfolio.



    Apple explicitly stated that the settlement didn't include the stuff that made the iPhone distinct, the one-time payment was probably to settle the back terms that Apple had so far not paid and then the rest is probably similar to the RAND terms that they had agreed to pay all along. We won't know exactly because the terms before and after won't be available for inspection, but I suspect that Nokia got at best a Pyrrhic victory. Since the settlement terms could have been worse than the original RAND terms, Nokia could have outright lost even though recording their "victory" in court. The final answer is as Sunspot42 says:



    Quote:
    Originally Posted by sunspot42 View Post


    Christmas in June!

    Apple paid Nokia several hundred million dollars? Some Nokia executive just made his bonus for the quarter, and sold the company down the river in the process. With the patent arrow removed from their quiver, Nokia is now officially disarmed.



    Good job!



    This is what happens when a company is run by someone who's just in it for the paycheck.



  • Reply 10 of 41
    Quote:
    Originally Posted by addicted44 View Post


    Pretty typical of any legal case, to be honest.



    I have a theory that this might suggest a prelude to a purchase by MS. Apple has cross licencing agreements with MS, so if Nokia had been bought by MS, they would have got no royalties from Apple.



    Its possible that Nokia decided to reduce their royalty charges to a level Apple was comfortable with, in order to get something, before they merge with MS.



    Actually... this is a prelude to Apple purchasing Nokia... with Nokia being the first company to licence iOS. This settlement helps Nokia stay afloat (and therefore keeps the valuation higher) until the papers are signed.
  • Reply 11 of 41
    Quote:
    Originally Posted by addicted44 View Post


    Its possible that Nokia decided to reduce their royalty charges to a level Apple was comfortable with, in order to get something, before they merge with MS.



    At the price at which they are currently trading, it will probably be an outright cash acquisition, rather than a 'merger'.....
  • Reply 12 of 41
    In my early reading about the case, it seemed like the underlying issue was not whether Apple would pay licensing fees for these patents or not but rather, at what cost. Nokia was likely trying to gouge them in order to inflict revenge through onerous terms. Most news accounts spin it as Apple trying to get out of paying anything at all, but don't believe it. This was just a hardball negotiation tactic.



    Probably not a coincidence that with Elop in charge, that Nokia has become more reasonable in order to get it behind them, benefit by a bit more cash flow now and cut the cost of the legal battle. All that will only help them get focused, it they are up to it.



    I suspect that Apple is pleased with the outcome ...
  • Reply 13 of 41
    al_bundyal_bundy Posts: 1,525member
    Quote:
    Originally Posted by Hattig View Post


    Sounds even better for Apple, they've cross licensed a lot of stuff, including everything they need from Nokia, but they haven't licensed everything they have ("the majority of the innovations that make the iPhone unique") to Nokia.



    and that is what?



    touch screen phones are everywhere these days
  • Reply 14 of 41
    ahrubikahrubik Posts: 80member
    All lawsuits cost money. Both companies decided that the cost to litigate was more than the cost to settle so they settled. Nokia gets royalty payments for something and Apple gets access to something they were probably already using.



    It's almost the same as the HP/Palm vs. Apple debacle from a couple of years back. Both sides decided it wasn't worth it so they lets things be. In that particular case they didn't even bother using lawyers.
  • Reply 15 of 41
    boeyc15boeyc15 Posts: 986member
    Quote:
    Originally Posted by island hermit View Post


    Actually... this is a prelude to Apple purchasing Nokia... with Nokia being the first company to licence iOS. This settlement helps Nokia stay afloat (and therefore keeps the valuation higher) until the papers are signed.



    you say in jest, but I wonder if they played that card....
  • Reply 16 of 41
    maestro64maestro64 Posts: 4,599member
    Quote:
    Originally Posted by sunspot42 View Post


    Apple paid Nokia several hundred million dollars? Some Nokia executive just made his bonus for the quarter, and sold the company down the river in the process. With the patent arrow removed from their quiver, Nokia is now officially disarmed.



    Good job!



    This is what happens when a company is run by someone who's just in it for the paycheck.



    Not really, this my help Nokia since they are suing everyone in the industry, other companies will fall right behind the Apple decision. Apple has more money than any of the competitors and if apple settle than the competitors will have to settle since they can not afford to fight. They most likely will not get the best deal on licensing since the first one who comes to the table usually gets the better deal and everyone else is punished for waiting.



    I think Nokia rather compete with Apple than all the Android Me Too guys since they are more likely eat Nokia lunch. Apple is not going after Nokia core business but the other guys are so if Nokia can possible hand tie them on licensing agreement it put them in a better position. This is far more complicated than you realize.
  • Reply 17 of 41
    bigpicsbigpics Posts: 1,375member
    Quote:

    Originally Posted by Hattig

    Sounds even better for Apple, they've cross licensed a lot of stuff, including everything they need from Nokia, but they haven't licensed everything they have ("the majority of the innovations that make the iPhone unique") to Nokia.



    Quote:
    Originally Posted by al_bundy View Post


    and that is what?



    touch screen phones are everywhere these days



    In the original iPhone keynote Jobs pointedly said Apple had over 200 patents on the technologies that made the iPhone unique and that the company was prepared to defend them "vigorously" (I believe that was the word).



    Touch screens as such had already been in existence for some time and though something about Apple's variant might have represented one or more of the patents, being a touch screen device per se was certainly not one.



    Thanks for playing the home game. Do feel free to try again tho'.....
  • Reply 18 of 41
    Quote:
    Originally Posted by Hattig View Post


    Sounds even better for Apple, they've cross licensed a lot of stuff, including everything they need from Nokia, but they haven't licensed everything they have ("the majority of the innovations that make the iPhone unique") to Nokia.



    Like what? Grid of icons?



    Nokia got all the need patents they need for their upcoming devices in WP7. I wonder when Apple will start paying for that camera roll in the viewfinder that MSFT patented big time...





    "There is, however, one feature in iOS 5 which is exactly, and I mean exactly, like a feature on Windows Phone 7: Camera Swipe to Camera Roll."

    http://appft1.uspto.gov/netacgi/nph-...DN/20110119619
  • Reply 19 of 41
    Quote:
    Originally Posted by martimus3060 View Post


    I suspect that Nokia got at best a Pyrrhic victory



    Maybe not. Nokia knows that the real money is in going after HTC, Samsung, etc., who have literally no IP to fight back with.



    Pull off a MSFT, and make more money off Android sales than Google does themselves.
  • Reply 20 of 41
    steven n.steven n. Posts: 1,120member
    Quote:
    Originally Posted by sunspot42 View Post


    Apple paid Nokia several hundred million dollars? Some Nokia executive just made his bonus for the quarter, and sold the company down the river in the process. With the patent arrow removed from their quiver, Nokia is now officially disarmed.



    Good job!



    This is what happens when a company is run by someone who's just in it for the paycheck.



    My bet is Nokia made about 1 billion dollars and a continued stream of 100+ million each quater.



    You are right that this takes 1 patent quiver out of play.
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