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Nokia Beats RIM the Apple Way

Wednesday - 12/5/2012, 12:49pm  ET

Nokia’s share price has been following an upward trend after the announcement that it had won a contract dispute against Research in Motion in Sweden. The case was of such potential that it could have resulted in the cessation of sales of BlackBerry phones. This scenario brings the Apple-Samsung saga back to mind, in which Apple sued Samsung over copyright disputes and Samsung ended up losing the case.

The Dispute between Nokia and RIM

According to Nokia’s representatives, a Swedish arbitrator ruled that “RIM was in breach of contract and is not entitled to manufacture or sell WLAN products without first agreeing to royalties with Nokia.”

Where on one hand this news sent Nokia’s share price onto the positive track, it had a negative influence on RIM’s share price. The crisis does not stop here for RIM, as Nokia intends to sue RIM for breach of contract in other territories such as Britain, the United States, and Canada. According to Nokia’s officials, the two companies had agreed on cellular patents nine years ago and RIM did not honor the agreement by selling WLAN products without settling the extent of royalties to be paid to Nokia. Since the agreement had specific clauses in this regard, the case reached its resolution immediately and in favor of Nokia.

Research in Motion, the company behind the once extremely popular BlackBerry phones, agreed with Nokia in 2003 on a license that stated that RIM could use “standards-essential” technologies for mobile devices. According to RIM, the license also covered non-essential parts, and in order to pursue its claims RIM filed arbitration proceedings in 2011. Eventually, the arbitrator ruled against RIM’s claims.

Then Nokia decided to capitalize on the scenario by filing a suit to enforce the arbitrator’s rulings. Nokia’s officials stated that RIM is "not entitled to manufacture or sell products compatible with the WLAN Standard without first agreeing with Nokia on the royalty to be paid." In response to Nokia’s statement, RIM said it "will respond to Nokia's petitions in due course." According to analysts, it is highly probable that RIM will end up paying royalties to Nokia of $2 to $5 per phone. This would increase Nokia’s royalty income and therefore its profits. The widespread enforcement of this ruling could add a significant amount to Nokia’s net income and this could have a very positive impact on Nokia’s share price.

In the wireless industry, Nokia is one of the leading patent holders. Nokia also received a royalty payment amounting to $565 million from Apple last year in order to finalize a patent dispute. Nokia has also filed multiple claims against HTC Corp. and Viewsonic in the United States and Germany, stating that these manufacturers infringe multiple patents held by Nokia.

For RIM, the future once again looks grim. Investors had been anticipating the rise in RIM’s share price following the launch of BlackBerry 10 services, but this dispute with Nokia has had a negative impact. RIM’s global market share in mobile device sales has reached half of what it was last year. The new OS by RIM, BlackBerry 10, is expected to bring the company back in the battlefield where it would compete with iOS and Android.

Nokia’s Prospects Seem Bright

It is not only Nokia’s win against RIM that has set it on the right path. The successful launch of Microsoft's Windows Phone 8 OS is also great news for Nokia. Microsoft’s officials stated that Windows Phone 8 devices have a very high demand in the market. This statement can be validated by the fact that Nokia’s Windows Phone 8 devices have been sold out in a number of countries. The increasing acceptability of this new OS against the already established iOS and Android will surely ease Nokia’s struggles in the market.

In my opinion, after the analysis of necessary factors, investors should buy shares of Nokia. The share price of the company is expected to follow an upward trend and there is nothing on the horizon that suggests that the share price of the company will plummet once again. The company could earn very high revenues from its Windows Phone 8 devices, and this elevated revenue is expected to increase the profitability of the company in prospective periods.

This article was originally published as Nokia Beats RIM the Apple Wayon Fool.com

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