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Nokia's Patent Settlement With Apple Won't Help Much

Apple and Nokia buried the hatchet over a patent feud Tuesday and dropped all the litigation between them. But Nokia has bigger problems.

Nokia and Apple have ended their legal fight over patents, which should make life easier for Nokia, right? No, it won't. While Nokia will gain some short-term cash and on-going royalty payments of unknown value, this settlement does not solve any of the very real problems facing Nokia right now.

The lawsuit, which began when Nokia sued Apple in October 2009, concerned roughly 40 patents that Nokia said covered a wide range of wireless technologies used in Apple's iPhone. Apple later countersued in December 2009. Both companies filed grievances with the U.S. International Trade Commission, and asked that the others' products be barred.

Though the fight continued with minor victories here and there, the two announced a settlement Tuesday. Reports suggest the one-time payment Apple is making to Nokia is about $600 million. Not chump change, to be sure, but a drop in the bucket for Apple. Moving forward, Apple will pay Nokia royalties and all the lawsuits go away.

In a statement, Apple said, "Apple and Nokia have agreed to drop all of our current lawsuits and enter into a license covering some of each other's patents, but not the majority of the innovation that makes the iPhone unique. We are glad to put this behind us and get back to focusing on our respective businesses."

According to that statement, Apple didn't just settle with Nokia. It also struck a cross-licensing agreement. That means Nokia will use some of Apple's technology, too. In other words, Apple didn't lose entirely to Nokia in this case.

One thing the settlement does is to legitimize Nokia's patents and given them an approximate value. Nokia can now throw its weight around and sue other companies (Google, Android?) if they feel the same set of patents are being violated. That means Nokia might win future lawsuits and eventually be rewarded more cash and/or royalties. This could generate some nice income for Nokia down the line.

But right now, it has much bigger problems to worry about.

First, Nokia's crashing handset sales. Now that it has settled its future product roadmap on Microsoft's Windows Phone 7 platform, sales of its Symbian-based handsets have all but dried up. This will affect cash flow and earnings in the short term.

Nokia's leadership has been volatile, with executives leaving--of their own will or not--left and right. With an inconsistent team of leaders at the helm, it becomes more difficult to move things along in a positive direction. Shareholders aren't happy. Nokia's stock is at its lowest point in recent memory. The company is going to lose its number one smartphone provider status. The company is shedding hundreds of jobs. Morale at Nokia's offices surely is abysmal.

Truth to tell, $600 million is nothing to sneeze at. But Nokia's many other problems remain, and $600 million isn't going to fix them.

The company needs to button down, focus on getting its first Windows Phone 7 smartphones to market, and make sure all its ducks are in a row come the launch of those devices. Now that the litigation with Apple is behind it, perhaps Nokia will have an easier time doing this.

That remains to be seen.

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