Brett McGuire

Brett McGuire: Apple-Nokia Spat Reveals Patent Value

Apple and Nokia have been slogging it out in a veritable clash of the patent titans. Nokia claims that Apple’s iPhone infringes on various patents that it owns. Apple has fired back with its own patent-infringement claims against Nokia. There’s a lot at stake. Nokia has asked the US International Trade Commission to stop Apple from shipping phones, adding to speculation that Nokia is using its patents to piggy back on the enormous success of the iPhone.

However, it may be more a case of Apple building its success on Nokia’s innovation. As a pioneer in mobile communications, Nokia has been central to the development of wireless technology, investing billions of dollars in research and development. Nokia claims that its patented technology is fundamental to making mobile devices compatible with GSM, 3G and WLAN standards. Since the iPhone uses all three standards, Nokia argues that Apple should pay royalties like everyone else.

Apple has admitted that it may have unwittingly infringed on Nokia’s patents but insists that it will vigorously defend the case. It has accused Nokia of “patent hold-up” — that is, demanding exorbitant royalties knowing it would cost Apple less to pay than to incur the cost of switching. The accusation is a bit unfair. Nokia is asking for royalties of 1 percent to 2 percent on every iPhone sold. The various authorities that administer wireless standards allow patent holders to charge a fair amount for the use of their technology.

Don’t expect to see this case decided any time soon. It could take years for the lawyers to wrangle over the patents.

Patents are used by companies to protect new technology they have invented. Similar to copyright, patents are used to prevent others from copying an invention. This gives the patent holder an opportunity to earn a profit from its investment in research and development by either licensing the invention to others or developing new products itself.

The catch is that the patent holder has to disclose how the invention works. This information becomes public and is often used for further research and development. Patents have formed the basis for major medical breakthroughs in vaccines and medicines. In mobile communications, patented inventions often become industry standards. The flip side is that your competitors learn what products you are developing. To combat this, companies like Apple often file dummy patents to confuse their competitors.

In Indonesia, it is possible to patent both a product and the processes used in its manufacture. Some things cannot be patented, such as business and medical procedures and computer software. An Indonesian inventor learned this the hard way when he claimed that Garuda’s ticket-payment system infringed on one of his patents. Garuda responded by successfully canceling the patent because it sought to protect a business system.

Like other forms of intellectual property, patents do not last forever. In Indonesia, patents expire after 10 or 20 years, depending on the type of patent.

Not all inventions are worthy of patent protection. In 1885, Frenchman Frederic Auguste Bartholdi patented the system he designed to assemble the Statue of Liberty. The statue was broken into 350 pieces in France, packed into 214 crates and reassembled in New York. Nothing like this had been done before, and most likely will never be done again.

The patent issued to Alexander Graham Bell for his invention of the telephone is often considered to be the most valuable in history. But the telephone did not catch on at first as people saw it as a mere novelty. How things have changed.

Brett McGuire is a consultant for Rouse. His Web site is HAKItree.com/brettmcguire

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