Nokia's fourth-quarter performance was under pressure, and it signed a 5G patent cross-licensing agreement with OPPO

On January 24, 2024, OPPO announced that it has signed a global patent cross-licensing agreement with Nokia, which covers the standard essential patents of both parties in 5G and other cellular communication technologies. The parties will conclude all pending litigation in all jurisdictions upon the signing of the agreement. The specific terms of the agreement shall be kept confidential as agreed by both parties.

This means that after two years and seven months, the global patent dispute between OPPO and Nokia has come to an end. Behind this global patent dispute in the past three years is an all-round contest of intellectual property rights and corporate strength between the two sides. The OPPO and Nokia patent case has attracted the attention of the global technology industry, and has also become a case model for Chinese companies to confront the unreasonable patent fees charged by global telecommunications giants.

Feng Ying, Chief Intellectual Property Officer of OPPO, said: "We are pleased to enter into a global patent cross-licensing agreement with Nokia that includes 5G SEPs. The agreement reflects the recognition and respect of each other's intellectual property rights and lays the foundation for future cooperation between the two parties. OPPO always respects intellectual property rights, advocates reasonable fees, advocates the establishment of a long-term and healthy intellectual property ecosystem, resolves intellectual property disputes between licensors and licensees through friendly negotiation, and respects the value of patents with each other. ”

Jenni Lukander, President of Nokia Technologies, said: "We are pleased to enter into a cross-licensing agreement with OPPO. The agreement reflects mutual respect for each other's intellectual property rights and Nokia's investment in advanced R&D and contribution to open standards. OPPO is one of the leading companies in the global smartphone market, and we look forward to working together to bring more innovations to its global users." This new licensing agreement, along with other significant smartphone licensing agreements entered into by Nokia over the past few years, will provide long-term financial stability to our licensing business. ”

OPPO诉讼反击,逐步拆除诺基亚防线

In 2018, OPPO signed a three-year license agreement with Nokia, covering 2G, 3G and 4G standard-essential patents. At the end of June 2021, the licensing agreement between the two parties expired and no agreement was reached on a renewal agreement. As a result, Nokia launched dozens of infringement lawsuits against OPPO in many countries around the world before the expiration of the previous agreement between the two parties and on the first day of expiration, trying to force OPPO to accept high and unreasonable patent fees through litigation.

OPPO based on Nokia's unreasonable 5G SEP rate OPPO launched counterclaims in many countries around the world, up to now, Nokia has dozens of patents in Germany, France, Sweden, China and other countries in the corresponding legal procedures have been declared invalid or determined by local courts OPPO is not infringed, and the lawsuits in Indonesia have been rejected by local courts in Indonesia.

According to a report by Strategy Analytics, 5G phones will generate nearly $20 billion in global patent royalties annually for patent holders by 2025, with Ericsson, Nokia and Qualcomm accounting for the vast majority of these royalties.

The increasing number of patent owners and the rising cost of 5G patents are becoming a burden for mobile phone manufacturers and companies in emerging industries such as new energy vehicles and the Internet of Things. Once the head mobile phone manufacturers compromise, the possible "stampede" effect is enough to make industry practitioners feel anxious.

In early December 2023, the Chongqing No. 1 Intermediate People's Court issued a judgment in the case of OPPO v. Nokia SEP royalty dispute, confirming the global fair, reasonable and non-discriminatory (FRAND) rates for Nokia's 2G-5G SEPs: for 5G multi-mode mobile phones, the single license fee is US$1.151 per unit in the first region of the world, and US$0.707 per unit in the second (Chinese mainland) and third regions. For 4G multi-mode handsets, the license fee for a single unit in Zone 1 is $0.777 per unit, and for a single unit in Zones 2 and 3 is $0.477 per unit.

In addition, for the first time, the judgment determined that the standard cumulative rate of 5G in the mobile phone industry is 4.341%-5.273%. According to this ruling, regardless of the proportion of multi-mode systems, the upper limit of 5G patent fees charged for a $200 pure 5G mobile phone is $10.55.

This judgment is the first time that a Chinese court has rendered a global rate judgment on a SEP lawsuit. In 2021, the Supreme People's Court ruled for the first time in the OPPO Sharp Standard Essential Patent Licensing Dispute that Chinese courts have global rate jurisdiction over standard patents.

After Nokia sued OPPO for patent infringement, OPPO also launched counter-prosecution activities one after another. OPPO filed nine patent infringement lawsuits against Nokia in Germany, in Hamburg, Mannheim and Munich.

A month after the Chongqing verdict was issued, OPPO's counterclaims in other countries and regions have also come to fruition.

On January 16, the German Federal Patent Court announced that all of OPPO's 5G standard essential patents EP3445093 valid. The patent was used by OPPO to sue Nokia in a court in Munich, Germany, and to apply for an injunction against Nokia, which invalidated the patent, resulting in a stay of the previous infringement lawsuit.

This means that once the patent remains valid, the proceedings will resume in April 2024, and unless Nokia can prevail in the FRAND defense, Nokia will face the risk of an injunction.

In the showdown with the old communication giants, OPPO's infringement litigation patents have undergone litigation and invalidation tests, and it is no accident that they can finally be recognized by the court, but the results of its intellectual property strategy and years of insistence on intellectual property accumulation, which is enough to prove OPPO's patent strength.

As of December 31, 2023, OPPO has deployed 5G communication standard patents in more than 40 countries and regions around the world, completed a total of 5,900+ global patent applications, declared 3,300+ 5G standard patents in ETSI, and submitted more than 11,000 standard manuscripts in 3GPP. According to the Global 5G SEP Research Report (2023) released by the China Academy of Information and Communications Technology (CAICT) and the Global 5G SEP Strength Report released by IPlytics in October 2023, OPPO's 5G SEP strength ranks among the top in the world.

Behind the Nokia compromise

For Nokia, whether it is the patent licensing business that constitutes the basic market, or the main business, Nokia's current situation is very difficult, and investors are losing patience and confidence in Nokia. This may be one of the reasons why Nokia has returned to rational asking prices and abandoned its aggressive global litigation strategy.

According to people familiar with the matter, Nokia's choice to settle is behind the compromise under multiple factors such as the Chongqing judgment, the German 1.16 judgment, and financial pressure. Nokia is about to release its 2023 financial report, and OPPO's patent fees can be included in this year's revenue, in fact, according to the terms of the agreement finally signed by the two parties, its fees are much lower than Nokia's asking price.

According to the financial report, Nokia's total revenue in fiscal year 2022 declined compared with the same period last year, down 0.23%. However, net profit attributable to the parent and net profit margin both increased significantly. Among them, the net profit attributable to the parent company increased from US$1.929 billion in the same period last year to US$4.415 billion at the end of the reporting period, an increase of 128.88% year-on-year. The net profit margin also increased, from 7.35% in the same period last year to 16.86% at the end of the reporting period, an increase of 129.39% year-on-year.

At present, Nokia's patent licensing business has been an important asset and a stable source of cash flow for Nokia in four business groups: network infrastructure, mobile network, cloud and network services, and Nokia technology. According to the analysis, in 2022, Nokia's technology division (which manages the monetization of patent portfolios and intellectual property) achieved a year-on-year increase of 82%, patent licensing-related revenue of 1.595 billion euros, operating profit of 1.208 billion euros, cost of sales of only 5 million euros, and a gross profit margin of 99.7%. The growth of patent licensing business has become the main source of Nokia's net profit in 2022.

In the first quarter of 2023, Nokia's total revenue increased by 4.77% compared to the same period last year, from $6 billion to $6.286 billion. At the same time, the net profit attributable to the parent increased by 57.07%, from US$191 million to US$300 million. Net profit margin also increased, from 3.18% to 4.78%.

During the quarter, Nokia earned €242 million from licensing patents. In addition to domestic mobile phone manufacturers, Nokia has also filed patent lawsuits against Apple, Samsung, Blackberry, HTC, Lenovo and other companies, and has launched patent infringement lawsuits against car manufacturers such as Mercedes-Benz. Patent licensing revenue still accounts for an absolute proportion of Nokia's net profit in the first quarter of 2023.

In the following second and third quarters, its total revenue decreased by 0.58% and 13.74% year-on-year, and the net profit attributable to the parent company decreased by 35.83% and 63.96% year-on-year. It is worth noting that Nokia's patent licensing business has also shown a downward trend after Q3.

Nokia said on Oct. 19, 2023, that it would lay off 14,000 employees as part of a new cost-saving plan due to a 20% drop in sales of 5G equipment in the third quarter due to a slowdown in sales of 5G equipment in markets such as North America.

Previously, the US telecommunications giant AT&T signed a $14 billion five-year contract with Ericsson, a major Swedish network equipment manufacturer, in December 2023, choosing to use the open wireless network technology provided by Ericsson to replace all the network equipment currently supplied by Nokia to AT&T. Nokia's partnership with AT&T, which has historically accounted for 5-8% of its mobile network business, has forced Nokia to cut its earnings forecast, lowering its 2026 operating margin target from 14% to 13%, while also planning to reduce operating expenses.

According to Nokia's previous forecast, full-year 2023 net sales will be between 23.2 billion and 24.6 billion euros. However, in an official press release in January 2024, Nokia claimed that its financial estimates for 2023 fell short of its targets due to "patent renewals not yet completed", and that its net sales, operating margin and cash flow did not meet its previous expectations.

As the patent licensing business has always been an important asset and a stable source of cash flow for Nokia. According to Nokia's official statement, its patent portfolio is the result of an investment of more than 140 billion euros in R&D expenditure, containing more than 20,000 patents, of which more than 6,000 are related to key 5G technologies. Some analysts have pointed out that if Nokia cannot obtain sufficient revenue from the patent licensing business, it will further exacerbate the decline of Nokia's business and affect Nokia's 5G global business layout.

Leifeng.com