Beleaguered handset manufacturer Nokia Corporation (NOK) has reached a patent licensing agreement with Research In Motion (RIMM), whereby the companies decided to end all patent-related disputes between them.
Nokia boasts an industry-leading patent portfolio and agreements of this nature will certainly help it generate cash inflow. For quite some time now, Nokia has been struggling in the smartphone business due to stiff competition from Apple Inc.’s (AAPL) iOS and Google Inc.’s (GOOG) Android platform. Nokia has the strongest patent portfolio in the wireless industry but have been offloading its assets to boost its cash position. Thus, this settlement is a positive for Nokia as Research in Motion will need to pay cash to Nokia.
As per the new agreement, Research in Motion will make a one-time payment and will also continue to make payments to Nokia for use of its patents. However, the financial terms of the deal were not disclosed.
This settlement comes after the Finnish handset manufacturer settled a long-standing patent dispute with Apple Inc. Nokia has also filed claims against HTC Corp and Viewsonic Corp., accusing these two for infringement of patents in the U.S. and Germany.
Back in 2003, Nokia had entered into a patent-licensing agreement with Research in Motion, which allowed the latter to use some of the industry-standard technologies for mobile devices against royalty payments. However, Nokia claimed that Research in Motion sold products compatible with its Wi-Fi technology without adhering to the payment terms.
Research in Motion argued that it does not need to pay additional royalty as the patent agreement with Nokia provides it the right to use the Wi-Fi technology. In that context, the Canadian company filed an arbitration process in the Stockholm Chamber of Commerce in March 2011.
Last month, the Stockholm Chamber of Commerce declared a ruling against Research in Motion. To make matters worse, the handset manufacturer field an enforcement suit against Research in Motion to stop them from selling Wi-Fi enabled products without agreeing on royalty terms.
We believe that settling the patent dispute exhibits a major triumph for Nokia. Allowing Research in Motion to sell Wi-Fi-enabled products will provide a steady cash flow stream to Nokia, thereby improving its ailing liquidity situation. However, if the sales of new Blackberry phones fail to impress, then Nokia’s cash benefit could be limited.
We retain our long-term Neutral recommendation on Nokia Corp. Currently, it holds a Zacks #3 Rank, implying a short-term Hold rating.
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