Nokia's latest patent strike on Apple a risk, but may pay off

A customer tries out the new iPhone 3GS on the first day it is being sold at the Apple Store in Zurich in this June 19, 2009 file photo.

HELSINKI (Reuters) - Nokia's latest patent strike against Apple underscores the changing dynamics of the cell phone market, with the sector leader no longer holding the whip hand over rivals in terms of product development.

But analysts believe the risks involved in stepping into a legal minefield to help make up lost ground, notably in the fast-growing smartphone market, could pay dividends given the huge stock of patents Nokia has built up as a founding father of the handset industry.

Nokia raised the heat on Tuesday with a new patent challenge against the iPhone maker, and the chance of a tit-for-tat response from Apple as the two companies seek an advantage ahead of possible settlement talks appears high.

"To some degree it is a desperate move, but Nokia has been in the mobile handset business from the very beginning and has many more patents than Apple, so it's likely that Apple to some extent at least has used some of Nokia's patents, and maybe some others' too," said analyst Greger Johansson at Redeye.

In its complaint filed with the U.S. International Trade Commission, Nokia alleged Apple infringes its patents in "virtually all of its mobile phones, portable music players, and computers" sold.

Nokia expects the ITC, which investigates trade matters including intellectual property infringement, to decide whether to pursue the case in around 30 days.

MARKET SHARE

The aggressive move comes as Nokia, which has stumbled badly in the fast-growing smartphone sector, tries to win back market share from the likes of Apple and Blackberry maker Research in Motion.

"It's probably (happening) because Nokia has had a tough time in the last 1-2 years ... if Nokia had been making great progress in the smartphone market I don't think (the patents) would be a big issue," Johansson said.

Relative newcomer Apple trails Nokia in cell phone shipments, but has gained a lot of ground against the market leader in the smartphone segment thanks to the iPhone.

Apple, which entered the industry in mid-2007, overtook Nokia last quarter as the cell phone maker generating the highest total operating profit.

Both firms earlier this year launched patent infringement suits against the other.

Analysts say the dispute, potentially involving hundreds of millions of dollars in annual royalties, reflects the shifting balance of power in the mobile industry as cell phones morph into handheld computers that can play video games and surf the Web.

POSTURING

The ITC move by Nokia added a new wrinkle to an ongoing dispute that some analysts believe could take years to settle.

"This is all part of the posturing as they move toward getting a resolution to this further down the road," said Ben Wood, director of research at CCS Insight.

Analyst Hannu Rauhala at Pohjola Bank added: "This is like arm wrestling and Nokia is trying to strengthen its position in negotiations with Apple."

For Nokia, the battle against Apple represents its third major legal battle following past tussles with Motorola and Qualcomm.

"Nokia is well-versed in the tactics it can use in these kind of disputes having had so much experience with Qualcomm ... this is just another avenue that Nokia is exploring," CCS Insight's Wood said.

"I do believe that Nokia wants a quick closure on this, because the Qualcomm litigation in particular was a significant drag for both parties ... it was a complete distraction from the core business," he said.

Apple declined to comment on Nokia's ITC move, referring only to its patent countersuit earlier this month, but analysts said a robust response was likely.

"Probably Apple will respond with some counter claim and it will go back and forth," Redeye's Johansson said.

(Additional reporting by Terhi Kinnunen in Helsinki and Gabriel Madway in San Francisco; editing by John Stonestreet)