It was Groucho Marx who is quoted with saying "I refuse to join any club that would have me as a member." It was a comedic take - and a little self-denigrating - on the idea that if the club wanted him, its standards were too low and it wouldn't be a worthy club to join in the first place. I can't help but wonder, however, if we should be applying, if only as a mental exercise, the same notion regarding today's announcements that Nokia Corporation (NYSE:NOK) had sold Vringo, Inc. (AMEX:VRNG) more than 500 patents and pending patents. Specifically, I have to wonder why Vringo would want something that Nokia didn't want?
See, Nokia Corporation is a mobile phone manufacturer.... for the time being anyway. It's struggling after it made the decision to dump its own smartphone operating system and strictly use a mobile phone OS made by Microsoft Corporation (NASDAQ:MSFT), since the Microsoft OS just couldn't hold a candle to the demand for the Apple Inc. (NASDAQ:AAPL) iPhone or devices powered by the Android OS, developed by Google Inc. (NASDAQ:GOOG). Still, as long as Nokia is in business, it's going to need something to protect the intellectual property it puts into its phones. Yet, the company just turned over a ton of what it calls a "broad range of technologies relating to cellular infrastructure, including communication management, data and signal transmission, mobility management, radio resources management and services."
Considering it needs patent-protection as much as the next guy, why would Nokia be willing to do that if the patents were worth anything? I'm just asking the question. That's it. I'll also opine a couple of possible answers, to get your internal discussion engine revving.
- Nokia is watching Vringo go after Google in a different patent war (related to search engines), and is hoping the company will use its wireless patents to go after Apple, Samsung, and other smartphone makers in the same way. Though that doesn't directly put cash in Nokia's pocket, anything that's bad for the other phone manufacturers is good for Nokia.
- Nokia really, really needs the money. Yet, the math doesn't quite jive. Nokia has $9.7 billion worth of cash or cash equivalents though, so despite last quarter's $1.4 billion loss, it's tough to imagine that the $22 million it's getting from Vringo is going to matter... and that's even with the combined sale of this patent portfolio, and a couple of other ventures it's in (like Vertu and Qt). Then again, Nokia will also receive 35% of any financial benefit Vringo can wring from the patents, so maybe Nokia is seeing this as a smart gamble.
If there's a third possibility, I'm not seeing it. Feel free to add it in below.
Now, with the pleasantries out of the way, let's get to the op-ed part you've been waiting for.... I don't think Nokia sold Vringo anything of any actual value. I think Nokia sold Vringo just enough IP to give Vringo enough ammunition to make life miserable for Apple, Google (again), Samsung, and Microsoft, along with a few other smartphone manufacturers.
If there's one thing the last, oh, four years or so have demonstrated is that patents are assets. It doesn't have to be a good patent, or really even an infringed patent. It just has to be enough of a threat to other companies that they're willing to settle before a patent infringement case goes to court (where a jury of ordinary people suddenly have to become technology-patent experts). Most defendants don't want to risk that, which is why AOL settled with Vringo in its search engine patent war. Google IS willing to risk a trial, however - and understandably - so it's (so far) refused to settle with Vringo.
Either way, between Samsung-vs-Apple and Google-vs-Vringo and Microsoft-vs-Google dozens of other patent battles being waged right now, it's pretty clear that patents are being treated like extortion tools rather than measures of protection. That's why quantity is as important as quality when it comes to a patent portfolio. Then again, who can blame the opportunists? The USPTO can and will issue a patent for anything and everything, overlap or not.
Bottom line? Nokia has built a clause into the agreement that says Vringo can't go after it in a patent war for seven years, after which time most of the patents will be obsolete anyway. I've got a feeling Nokia is simply hoping Vringo will apply the leverage of its new patent portfolio against other phone manufacturers because that's dirty work that Nokia doesn't want to do itself.