UPDATE 1-Nokia-Apple row may last more than 1 year

Tue Oct 27, 2009 6:08pm EDT

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By Tarmo Virki, European technology correspondent

HELSINKI, Oct 27 (Reuters) - A legal battle between Apple Inc (AAPL.O) and Nokia Corp (NOK1V.HE) over patent infringement is likely to last for more than a year, said Bill Merritt, the head of mobile licensing firm InterDigital.

Nokia dominates the global handset market, but it has lost ground to smartphone entrants like Apple, which has become one of the top handset vendors. "It's not a David versus Goliath story, these are two Goliaths," Merritt said.

Nokia filed suit in the United States last week, saying Apple had infringed 10 patents in technologies like wireless data transfer, a key factor in the success of iPhone. The suit accused Apple of trying to hitch a "free ride" on Nokia's technology investment. [ID:nLM664007]

In its form 10-K annual report filed on Tuesday, Apple said it "intends to defend the case vigorously."

The patents cover wireless data, speech coding, security and encryption and are infringed by all iPhone models shipped since the iPhone was introduced in 2007, Nokia said.

"It's the first card to be played, there's a lot more cards left. How this plays out will largely depend on Apple's response," Merritt told Reuters in an interview, adding the case was likely to continue for a couple of years.

"I'd be very surprised if anything gets solved in the short term. It's at least a year before some clarity," he said.

He said if Apple decides to just defend itself, or to countersue, the case would likely last two to three years, but if it takes the case to the U.S. International Trade Commission, the decision would come somewhat faster.

In its 10-K, Apple said it is defending more than 47 patent infringement cases overall, 27 of which were filed during fiscal 2009. In certain cases, Apple said it may consider the "desirability of entering into licensing agreements."

InterDigital itself lost a case against Nokia at the ITC earlier this month, and Merritt said the company was likely to appeal the decision.

"We continue to move forward on that, it's not over," he said.

Apple is likely one of the biggest net payers of royalties in an industry in which all vendors work under cross-licensing agreements. As a latecomer, it has limited intellectual property assets compared with rivals. Patents are playing an increasingly important role in the industry as cellphones are becoming increasing complex.

"These products are innovation-rich -- we are not making hammers," Merrit said.

Most analysts estimate Nokia's demands for compensation range from $200 million to $1 billion as it is one of the key patent holders in mobile technologies, alongside Qualcomm Inc (QCOM.O) and Ericsson (ERICb.ST). [ID:nLN464459]

Merritt said the Nokia-Qualcomm legal battle which lasted from 2005 to 2008 was likely a bigger issue for the wireless industry than Nokia-Apple. "There's a lot of talk, but I don't think it will shape the industry."

Merritt said in addition to a royalty rate, the key issue will be how it is calculated, as iPhone's average selling price, $566 in the last quarter, is much higher than anything else in the industry.

Nokia's average selling price was 62 euros ($92.30) in the same quarter.

Interdigital said it has a licensing deal with Apple, adding it had used the price of a typical feature phone to calculate the rate, not the record-high average selling price.

Ericsson told Reuters it has a licensing deal with Apple, and also Qualcomm said it was getting royalties for all 3G phones sold. Motorola MOT.N declined to comment.

Merritt said likely most of the key patent holders have a deal with Apple.

"As there are no other legal actions, probably the number of unlicensed folks is very small," Merritt said.

(Additional reporting by Sinead Carew in New York, Mayumi Negishi in Tokyo, Jens Hack in Munich, Nicola Leske and Marilyn Gerlach in Frankfurt, and Gabriel Madway in San Francisco; Editing by Steve Orlofsky and Richard Chang)

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