Microsoft pays billions to license Nokia patents
Microsoft has agreed to license around 30,000 patents owned by Nokia as part of a €5.44 billion ($7.16 billion) buyout of the Finnish company’s mobile phone division.
The computer software company will acquire Nokia’s devices and services business for €3.79 billion ($4.98 billion) and pay €1.65 billion ($2.17 billion) to license all of its utility patents over 10 years.
Microsoft will also acquire the Lumia and Asha brands, more than 8,500 design patents and sign a 10-year licence to use the Nokia brand on current Nokia products.
Announced on Tuesday, the deal is expected to close in the first quarter of 2014 and is subject to approval by Nokia shareholders and regulators.
“After a thorough assessment of how to maximise shareholder value ... we believe this transaction is the best path forward for Nokia and its shareholders," said Risto Siilasmaa, interim Nokia chief executive.
Microsoft chief executive Steve Ballmer added: “It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies.”
In a document outlining the rationale for the agreement, Microsoft said Nokia’s patent portfolio is “one of the most valuable in the tech sector” and “one of the two most valuable portfolios relevant to wireless connectivity”.
The patents will fall under a non-exclusive 10-year licence, which can be extended.
As part of the licensing deal, Nokia, once a leader in the mobile phone market, will also transfer more than 60 third-party patent licences to Microsoft from companies including IBM and Motorola Mobility.
Qualcomm, another of the third parties, is the “other company that ranks with Nokia at the top in having a valuable wireless patent portfolio”, the Microsoft document said.
The third-party licences come with attractive royalty arrangements, according to Microsoft, which already has licensing agreements with companies such as Apple, Samsung and LG.
The deal also sees around 32,000 Nokia staff, including chief executive Stephen Elop, transfer to Microsoft.
“We are excited and honoured to be bringing Nokia’s incredible people, technologies and assets into our Microsoft family,” said Ballmer, who is himself expected to leave the company within the next 12 months.
“Given our long partnership with Nokia and the many key Nokia leaders that are joining Microsoft, we anticipate a smooth transition and great execution.”
The agreement reemphasises the huge value that the mobile telecoms sector places on patents, said Mark Kenrick, partner at Marks & Clerk LLP.
“This is an industry that has seen many high-profile patent disputes, and companies realise that they need a robust portfolio of patents if they are to defend themselves and maintain or achieve greater market share.
“Microsoft has entered this sector relatively late, so gaining access to Nokia’s very established patent portfolio through a licensing deal makes real sense. Similar to Google’s tactic in purchasing Motorola Mobility [in 2011], this will help Microsoft level the playing field with the rest of the sector.”
Rodney Sweetland, partner at Duane Morris LLP, said the Nokia deal would be more successful than the Motorola acquisition, which cost Google $12.5 billion.
“Microsoft will pull off what Google failed – this is a more realistic price and there is greater worldwide coverage of the patents. Here, you can’t discount the value of the Nokia business.”
He added: “Microsoft wants the business; the patents are a plus.”
Nokia will now focus on three established businesses, one of which is called Advanced Technologies. As part of the division’s strategy, it will “continue to build Nokia’s patent portfolio” and “targets to expand its industry leading licensing programme”, the company said in a press release.
