Nokia Scores Smartphone Patent Licensing Deal With Huawei

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By Malathi Nayak

Nokia Corp. has struck a multi-year smartphone patent license deal with Chinese handset maker Huawei Technologies Co., Ltd., enlarging its patent royalty business.

The companies did not disclose financial terms of the license agreement, announced Dec. 21. But under the deal, Huawei will pay licensing fees for Nokia’s technologies used in its handsets, including a non-recurring “catch-up” payment for Huawei’s past use of Nokia’s patents. Nokia, based in Espoo, Finland, will report the revenues beginning in the fourth quarter of 2017, it said.

Nokia Technologies, the company’s patent licensing division, only represents about 10 percent of total revenue but patent-related royalties come with high profit margins.

The deal with Huawei, its competitor in the network equipment business, comes on the heels of patent licensing deals Nokia has struck with other smartphone manufacturing heavyweights. Since 2016, Nokia has closed patent deals with Samsung Electronics Co. Ltd., Xiaomi Corp., Apple Inc. and LG Electronics Inc, resolving any related litigation.

Nokia’s patent licensing deal with Huawei could add $150 million of recurring revenue for Nokia Technologies, not including the one-time catch-up payment, according to Bloomberg Intelligence analyst Matt Larson.

Patent Revenue Boost

The deal underscores Nokia’s goal to ramp up revenues from phone patents even though it’s no longer in the handset-manufacturing business. Nokia sold its handset business to Microsoft Corp. in 2014 to focus on growing its share in network equipment market.

Nokia and other wireless network equipment makers are facing headwinds given phone makers have mostly completed buying equipment for their current technology systems and are yet to begin spending on the next-generation 5G wireless technology.

In October, the company said its third-quarter total revenue shrank 7 percent to $6.55 billion. Revenue from the Nokia Technologies unit, however, rose 37 percent to $567 million driven by licensing deals with Apple Inc. and other phone makers.

Patent Infringement Fight

The Nokia-Huawei deal likely resolves a patent litigation battle between the two companies.

Nokia sued Huawei in the United States District Court for the Eastern District of Texas in July, 2016, alleging that the Chinese company’s mobile phone and tablet products infringed its patents relates to high-speed Long-Term Evolution wireless communication technology. Nokia had argued that the patents were essential to a widely used LTE standard technology to which both companies are signatories.

The companies had sought to pause court proceedings in recent months, signaling that an out-of-court settlement was imminent.

To contact the reporter on this story: Malathi Nayak in Washington at mnayak@bloomberglaw.com

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bloomberglaw.com

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