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Nokia sues Apple over iPhone's use of patented wireless standards


Global handset leader Nokia announced Thursday it has filed a lawsuit against rival Apple, alleging that the iPhone infringes on GSM and wireless LAN related patents owned by the Finnish company.

The cell phone maker has alleged that Apple has violated ten patents owned by Nokia. Specifically, the company claims ownership of technology relating to the Global System for Mobile communications, or GSM; wireless local area network, or WLAN; and Universal Mobile Telecommunications System, or UMTS.

In a press release, the world's largest cell phone manufacturer said it has invested more than 40 billion Euros in research into research and development in the last two decades, earning it one of the "strongest and broadest patent portfolios in the industry." Nokia said it has entered into license agreements with about 40 companies for these patents.

"The basic principle in the mobile industry is that those companies who contribute in technology development to establish standards create intellectual property, which others then need to compensate for," said Ilkka Rahnasto, vice president of Legal & Intellectual Property at Nokia. "Apple is also expected to follow this principle. By refusing to agree appropriate terms for Nokia's intellectual property, Apple is attempting to get a free ride on the back of Nokia's innovation."

The ten patents relate to devices compatible with GSM, UTMS (3G WCDMA) and wireless LAN standards, and cover wireless data, speech coding, security and encryption. Nokia has alleged that all iPhone models released since 2007 infringe on these patents.

The suit was filed in a U.S. District Court in Delaware.

Analyst Gene Munster with Piper Jaffray reacted to the news Thursday with a new note to investors. He said that Nokia's endgame with the suit is patent royalties from Apple.

"We believe that Nokia is not seeking an injunction; rather, we believe that the company has been in talks with Apple concerning a patent royalty payment for over a year," Munster said. "With today's announcement, it appears that the companies have not come to a resolution and Nokia is attempting to hasten the process. Nokia is likely looking to obtain a patent royalty of 1%-2% ($6 to $12) on every iPhone sold in compensation for its IPs concerning GSM, 3G and WiFi technologies on mobile devices."

He went on to say that the most extreme scenario of $12 per iPhone is unlikely, and any unfavorable resolution for Apple would not change his stance on the stock. Piper Jaffray has an overweight rating on AAPL with a price target of $277.

As the iPhone has grown in popularity, Nokia has retained its status as market leader, but has lost significant share of the market it has dominated. As recently as August, Nokia's Symbian mobile platform was said to have a 50 percent market share, well down from the 72 percent the platform had in 2006. In the second quarter of 2009, the iPhone represented 14 percent of global smartphone sales.

Though Nokia still controls the market, competitors Apple and Research in Motion are said to have profit margins that far exceed their market share. In its fourth financial quarter of 2009, Apple saw its profits surge 46 percent, bolstered by a record quarter for iPhone shipments.