It’s generally accepted that Apple’s entry into the mobile space has forced the industry’s traditional players to up their game. But could the success of the iPhone also be the catalyst for a more subtle – yet arguably more profound – shift in the industry?
There is evidence of this in Nokia’s recent legal action against Apple over alleged patent infringements. In its complaint, the Finnish handset giant argues that Apple has been able to move into mobile without compensating Nokia for many of its patents that are fundamental to making the iPhone work. Or, to quote Nokia’s own statement, by “attempting to get a free ride on the back of Nokia’s innovation.”
The fact that this case has come to light some two and a half years since the first iPhone was launched suggests that the two parties have been wrestling over the level of patent royalties for some time. But with the iPhone now shipping in serious numbers – possibly surpassing 50 million units by year-end – it seems the matter has come to a head.
So what will the outcome of this case mean for the industry? It is, of course, entirely right that the likes of Nokia and Qualcomm – companies that have invested millions in mobile R&D over the years – should be compensated for moving the industry forward. But because many of these fundamental patents are controlled by a relatively small group of traditional players, which license each other’s technology back to each other, it can set a very high financial bar for new market entrants. Analysts estimate that the current patent royalties system in mobile devices often forces new market entrants to pay around 15 percent of the sale price of 3G phones to patent holders, compared to just a few percent for established players.
It’s unfair to suggest that the mobile devices industry is a cosy cartel (Nokia and Qualcomm spent the best part of this decade arguing about patent royalties in the courts). But it will arguably take a company as mighty as Apple – and a product as good as the iPhone – to challenge what many potential new entrants see as injustices in the current system.
So any kind of victory for Apple against Nokia could have deep implications for how mobile technology is used and licensed. Many of Apple’s rivals in the computer industry looking to take the plunge into smartphones – from PC makers to software vendors – will be watching closely.