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On Friday morning, Nokia (NYSE:NOK) announced that it had entered into a new licensing agreement with Research in Motion (NASDAQ:RIMM) that will end the companies’ dispute and allow the struggling Finnish smartphone maker to use of its wealth of patents to shore up its finances.
What does this deal mean for Nokia?
The terms of the agreement were confidential, but Nokia stated in a press release that the financial structure of the agreement required a one-time charge and ongoing royalty fees to be paid by RIM.
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“We are very pleased to have resolved our patent licensing issues with RIM and reached this new agreement, while maintaining Nokia’s ability to protect our unique product differentiation,” said Paul Melin, chief intellectual property officer at Nokia. “This agreement demonstrates Nokia’s industry leading patent portfolio and enables us to focus on further licensing opportunities in the mobile communications market.”
Nokia has similar disputes with HTC (HTCKF.PK) and ViewSonic that have yet to be resolved.
CHEAT SHEET Analysis: Will this agreement be a positive catalyst for Nokia’s stock?
One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. As the company noted in its press release, Nokia has invested more than $60 billion in mobile research and development over the past twenty years, which has made it one of the top patent holders in the industry. Now, with both its sales and cash reserves decreasing, Nokia has turned to these patents to stay afloat in a competitive smartphone market dominated by Apple (NASDAQ:AAPL) and Samsung (SSNLF.PK). Nokia’s cash reserve problems were so dire that in October the company was forced to sell 750 million euros, or $978 million, in convertible bonds to address upcoming debt maturities.
But Nokia could benefit more from its patent library. As Reuters reported, Nokia earns 500 million euros a year from patent royalties, but some analysts have said it could earn hundreds of millions more if the company could “negotiate with companies more successfully.”
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