Nokia Patrols Patent Turf

Nokia (NOK Quote) is getting a little louder about its patent fight with Qualcomm (QCOM Quote).

During its conference call with analysts after reporting less-than-stellar third-quarter cell phone sales, Nokia launched into a surprisingly strong defense of its intellectual property rights.

Nokia executives touted their formidable technology portfolio, which apparently includes some "11,000 patent families." Nokia acknowledged Qualcomm's huge role in the development of wireless standards, but said that technology's strength was largely in voice and becoming less relevant as the industry moves toward data.

"Future licensing agreements should reflect this," Nokia executives said on the call.

Qualcomm says it "strongly disagrees" with Nokia's assertion. "We believe our patent portfolio has only become more applicable and more valuable. We have consistently been a leader," a Qualcomm rep said.

Nokia fell 60 cents to $19.27 Thursday, while Qualcomm was down 42 cents to $37.70.

To be sure, with nearly a billion cell phones being sold this year worldwide, the royalty revenue at stake is staggering. And as cell phones take on much more of a mobile PC role in day-to-day applications like email, music and even mapping, the growth opportunities seem huge. That's probably why the patent turf battles seem to be growing even more contentious.

"Their statement was a bit more aggressive than I was expecting," says Sanford Bernstein analyst Paul Sagawa.

The comments come as Nokia and Qualcomm square off over the future of patent licensing fees. The Espoo, Finland, mobile phone giant and the San Diego wireless standard-bearer are negotiating a new licensing agreement that will determine the royalty rate Nokia will have to pay Qualcomm.

The current agreement ends in April. And in some worst-case scenarios, if an accord isn't struck, Qualcomm could seek an injunction -- not only against Nokia, but all its other phone customers as well.

Nokia says it just wants to be fairly compensated for its patents, but didn't rule out a stronger legal tactic if necessary.

"We could seek injunctions against Qualcomm chips," Nokia said on the call.

But as even Nokia points out, injunctions are extremely rare in the mobile phone industry, especially when both parties continue to negotiate in good faith.

Qualcomm says the discussions have been "difficult," but that "real progress" will probably come "closer to the date" of the expiration.

So while all the bumping for position might suggest a the possibility for a brutal battle, some observers say a deal will get done.

"Ultimately, Nokia's WCDMA franchise is too valuable for them to go to the mat to get 100bp of royalty reduction," says Sagawa, referring to basis points on royalty rates. And a victory wouldn't be all that satisfying, since Nokia's competitors would reap the rewards of the rate cut, Sagawa says.

"I suspect the end deal will keep the device royalties the same," says Sagawa. "But it would charge royalties to Qualcomm's chipset business."