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Microsoft to Buy Nokia Handset Business

Issued: September 07 2013

Microsoft has announced it will spend US$5 billion to buy Nokia’s mobile phone and tablet division and an additional US$2.2 billion for a 10-year license of Nokia’s patents.

In September, Microsoft announced that it will spend US$5 billion to buy Nokia’s mobile phone and tablet division and an additional US$2.2 billion for a 10-year license of Nokia’s patents. The acquisition is the second largest one in company history, second only to the US$8.5 billion buyout of Skype in 2011. The move is considered as part of Microsoft’s attempt to rival industry leaders Apple and Google; Google was largely empowered by the 2011 acquisition of Motorola and its sizeable patent portfolio. Google, which started as a software-focused company, now has access to Motorola’s hardware technology. Observers suggest Microsoft was attracted to Nokia for similar reasons.


The deal will not be finalized until early 2014, but the collaboration has already taken place. Speaking at a session at the AIPPI conference in Helsinki, Susanna Mäkelä, director of legal and IP at Nokia refused to reveal more details of the deal and would say only that “it has been a very busy week.” She later invited the audience to Bing it – using Microsoft’s search engine – for more information.


In late 2011, the two companies decided to cooperate on Nokia’s Lumia smartphone series which runs Microsoft’s Windows operating system, just as Nokia was losing market share in the mobile phone sector and Microsoft was losing its dominance in global personal computer markets.


Even with the latest Windows 8 operating system, Lumia phones struggle to keep up on sales with Apple’s iPhone and various devices carrying Google’s Android system. In July, a year after the introduction of Surface, a series of tablets carrying Windows operating system, Microsoft reported a loss of US$900 million on the tablet’s account.


Microsoft’s separate approaches to dealing with the business and the patents are deemed “unusual” by industry observers. The deal allows Microsoft to “make use of Nokia’s inventions” while not “transfer[ring] ownership of the patents itself,” according to Brad Smith, general counsel at Microsoft.


Nokia is one of the largest owners of 2G and 3G mobile communication patents. By keeping ownership of these patents, Nokia retains the right to extract values from them in the future.


In an email to Reuters, Nokia spokesman Mark Durrant said that until now, Nokia has not widely licensed many of its patents, preferring instead to use them to protect its handset business against competitors.


“Once we no longer have our own mobile devices business, following the close of the (Microsoft) transaction, we would be able to explore licensing some of those technologies,” he said in the email.


Nokia has been viewed as IP-savvy player in the market. It has played the licensing game from both sides. In late 1980s, Nokia was sued by Motorola for patent infringement and ended up paying hefty royalties.


Having learned it the hard way, the Finnish company understands well that small patents could land big paydays. In the wake of iPhone’s massive success, it sued Apple for patent infringement in a case which was eventually settled. The details of the agreement were never disclosed, but estimates suggested that Apple paid Nokia some US$600.


Microsoft, which is already being paid royalties by 20 Android manufacturers, sees licensing a more strategic maneuver than buying, amidst massive industry-wide legal battles.


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