Nokia receives favorable arbitration award on patent license with LG Electronics

On Monday, September 18th, the Finnish communications company Nokia (NYSE:NOK) announced that it received a positive decision in a patent arbitration case decided by the International Chamber of Commerce’s International Court of Arbitration (ICA). The binding arbitration resulted in an award and license agreement for Nokia, the terms of which are undisclosed, with settles royalty payment obligations stemming back to a June 2015 smartphone patent licensing deal with South Korean consumer electronics firm LG Electronics (KRX:066570).

According to the press release issued by Nokia, licensing revenue from the agreement with LG will be reflected in the Finnish telecom’s earnings report for the third quarter of 2017 even though the expected revenues remain confidential at this time. The press release quotes Maria Varsellona, Nokia’s chief legal officer, as saying: “The use of independent arbitration to resolve differences in patent cases is a recognized best practice. We believe that this award confirms the quality of Nokia’s patent portfolio.” Varsellona also noted that Nokia sees additional opportunities for patent licensing agreements in at least the mobile communications market.

The binding arbitration award is the latest news regarding Nokia’s patent licensing deals with major Asian consumer electronics companies. This July, Nokia and Chinese telecom firm Xiaomi announced a multi-year cross-licensing deal which gives both companies access to their collective portfolios of standard essential patents (SEPs) in the cellular space. The collaborative agreement involves Nokia providing network infrastructure to Xiaomi which meets high capacity and low power requirements useful to large web providers and data center operators. The companies also agreed to explore collaborative opportunities in the Internet of Things, augmented reality, virtual reality and artificial intelligence. Last July, Nokia announced a cross-licensing agreement with another Korean tech giant, Samsung Electronics (KRX:005930), which gives those two companies access to certain portions of each other’s patent portfolios.

Nokia’s patent litigation strategy is also bringing the company some business success in America. This July, reports indicated that Nokia received a $2 billion upfront payment from Cupertino, CA-based consumer electronics titan Apple (NASDAQ:AAPL) and will continue to receive royalties from that company after the two firms agreed to a settlement this May which ended ongoing patent litigation between the two companies. As part of the settlement agreement, Nokia is providing certain network infrastructure products and services to Apple while Apple will resume carrying Nokia digital health products in Apple’s retail and online stores. Interestingly, the Apple situation looks like the kind of successful litigation outcome most patent owners are looking for when they file suit against an infringing company. Given the fact that Nokia sold its phone business to Microsoft in 2014 and retained its patent portfolio, it would seem that Nokia could fit some people’s description of a “non-practicing entity.” When individual inventors and other licensing entities pursue the same kind of strategy, they’re typically called “trolls” by unscrupulous members of the tech media.

Although Nokia is looking at the recent binding arbitration award from LG as positive news, the company has seen disappointing financial results after similar licensing deals in the past. Reports from this February indicated that Nokia missed on financial analyst expectations of the amount of intellectual property revenue that would be seen coming from the patent deal with Samsung. Nokia’s estimate of €800 million ($955 million USD) in annual licensing revenue from that deal was €100 million ($120 million USD) less than the forecast.

Nokia’s earnings report for the second quarter of 2017 indicated that Nokia Technologies, Nokia’s IP licensing arm, saw its net sales increase by 90 percent over the same period during 2016. Most of the €369 million ($442.7 million USD) in Nokia Technologies’ net sales during the second quarter came from patent and brand licensing, which contributed a total of €357 million during the quarter. Nokia’s report states that the year-over-year increase in net sales was primarily related to two new license agreements completed during the most recent quarter as well as the expansion of a license agreement completed during 2016’s third quarter. About 40 percent of the €175 million ($210 million USD) year-over-year increase in net sales during the second quarter were non-recurring net sales.