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Apple (AAPL) & Nokia End Patent Row, Forge New Partnership

Apple Inc AAPL and Nokia Corp NOK announced that they have settled their patent dispute and forged a new business partnership.

The two tech giants have chosen not to carry forward the patent wars which are characterized by long-drawn litigation in the tech space. Apple’s chief operating officer, Jeff Williams, said, “We are pleased with this resolution of our dispute and we look forward to expanding our business relationship with Nokia.”

Though details haven't been disclosed, under the agreement, Nokia will supply “certain network infrastructure product and services” to the Cupertino-based giant, while Apple will once again start selling Nokia’s digital health products in its retail and online stores. Apple also stated that Nokia will receive an “up-front cash payment” with “additional revenues during the term of the agreement.”

Nokia is expected to use the cash to fund its capital allocation plans. Details are likely to be available when the company reports its third-quarter 2017 results.

Patent Dispute Backdrop

In Dec 2016, Apple filed a lawsuit against certain patent assertion entities (PAEs) claiming that Nokia partnered with these to extract more money. It emerged that Apple had a license for some standard essential patents that Nokia held. However, Nokia refused to license certain others that it uses, possibly because it was asking for higher rates than would be required under the fair, reasonable  and non-discriminatory (FRAND) policy typically used in case of standard essential patents. Nokia then transferred some patents to PAEs that are not bound by FRAND rules.

Apple had stated in its lawsuit: “With its cell phone business dying, Nokia began to seek out willing conspirators and to commence its illegal patent transfer scheme in full force; that scheme has continued in full effect to the present. The driving force behind Nokia's strategy was to diffuse its patent portfolio and place it in the hands of PAEs. Acacia and Conversant were its chief conspirators.”

Apple Inc. Price

Apple Inc. Price | Apple Inc. Quote

Meanwhile, Nokia also filed separate lawsuits directly against Apple in Germany and the U.S., including with the International Trade Commission (ITC). The lawsuits covered 32 patents covering features such as user interface, antenna, software, video coding, display and chipsets. The company filed lawsuits in the Regional Courts in Dusseldorf, Mannheim and Munich in Germany and the U.S. District Court for the Eastern District of Texas. Later, Nokia filed lawsuits in nine other countries (Finland, UK, Italy, Sweden, Spain, the Netherlands, France, Hong Kong and Japan), with the number of alleged patent infringements extending to 40.

Zacks Rank & Stock Price

Currently, Apple carries a Zacks Rank #3 (Hold). Over the past six months, shares of Apple have returned 57.07% compared with the Zacks categorized Computer Mini industry’s gain of 56.53%.

Stocks to Consider

Better-ranked stocks in the broader tech space include TiVo Corp. TIVO and MercadoLibre MELI. Both sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the trailing four quarters, TiVo and MercadoLibre delivered average positive earnings surprises of 67.56% and 26.74%, respectively.

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