RIM’s Nokia Settlement: A Necessary Hardship?

The rate at which innovation and competition have grown in recent years has spawned numerous patent infringement lawsuits as technology companies attempt to bolster their competitive edge with patents. While Apple (NASDAQ:AAPL) and Samsung’s (SSNLF.PK) legal battles have provided the physical proof of the level of rivalry that characterizes the smartphone industry, the recent patent settlement between Nokia (NYSE:NOK) and Research in Motion (NASDAQ:RIMM) demonstrated the importance of these patents to the success of their respective businesses.

Here are the details of Nokia and Research in Motion’s patent settlement

On December 21, Nokia revealed in a press release that it had entered into a new licensing agreement with Research in Motion that will end the companies’ dispute and allow the struggling Finnish smartphone maker to use its wealth of patents to shore up its finances.

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The amount of the settlement was not disclosed by Nokia, but RIM’s statement of operations for the third quarter of fiscal 2013 reflected an initial one-time payment that amounted to 50 million euros, or approximately $65 million. Royalty payments, for the company’s licensed use of various Nokia patents covering mobile wireless local area network technology, are expected to come to $50 million annually over the next 10 to 15 years.

CHEAT SHEET Analysis: Will this agreement be a positive catalyst for RIM’s stock?

One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. Research in Motion’s third quarter earnings report, which was released after the market closed last Thursday, revealed the difficult position in which the company finds itself; over the three month period, the company’s profit fell 97 percent and its subscriber base shrunk by 1 million. While the results beat analysts’ estimates, with these poor financials and the company’s efforts to bolster its cash reserves ahead of the release of BlackBerry 10 at the end of January, it would appear that RIM could ill-afford this new charge.

But the alternative was worse; had Nokia and the BlackBerry manufacturer not reached an agreement, the company would have been prevented from selling its new BlackBerry phones, which would have been a severe setback for the company. As The Wall Street Journal reported Friday, the launch of the BlackBerry’s updated operating system and new hardware design could make or break Research in Motion.

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