Two giant smartphone manufacturers mix it up in a Delaware federal court

Fifty days after Nokia (NOK) sued Apple (AAPL) for allegedly stealing its intellectual property, Apple has returned the favor.

Nokia's suit, filed in October, claimed Apple was infringing on 10 patents Nokia holds on the integration of GSM, UMTS and wireless LAN — technologies at the heart of Apple's iPhone.

In a press release issued Friday morning, Apple claimed in turn that Nokia has infringed on 13 of its patents. Digital Daily has posted a list of the disputed patents, as well as the company's 78-page filing. (Download it here.)

"Other companies must compete with us by inventing their own technologies, not just by stealing ours," said Apple general counsel Bruce Sewell in a prepared statement.

His words echoed Nokia's rhetoric, when it charged Apple with trying to get a "free ride on the back of Nokia's innovation."

"The basic principle in the mobile industry is that those companies who contribute in technology development to establish standards create intellectual property, which others then need to compensate for," said Nokia vice president Ilkka Rahnasto at the time. "Apple is also expected to follow this principle." (link)

Apple shares closed at $194.67 down 1.76 points (0.9%) for the day. Nokia gained $0.25 (1.99%).

Below the fold: Excerpts from Apple's suit:

"In 2007, Apple introduced the iPhone a ground-breaking device that allowed users access to the functionality of the already popular iPod on a revolutionary mobile phone and Internet device. The iPhone is a converged device that allows users to access and ever expanding set of software features to take and send pictures, play music, play games do research, serve as a GPS device and much more … The iPhone platform has caused a revolutionary change in the mobile phone category.

"In contrast, Nokia made a different business decision and remained focused on traditional mobile wireless handsets with conventional user interfaces. As a result, Nokia has rapidly lost share in the market for high-end mobile phones. Nokia has admitted that, as a result of the iPhone launch, “the market changed suddenly and [Nokia was] not fast enough changing with it.

"In response, Nokia chose to copy the iPhone, especially its enormously popular and patented design and user interface …

"As Anssi Vanjoki, Nokia’s executive Vice President and General Manager of Multimedia, stated at Nokia’s GoPlay event in 2007 when asked about the similarities of Nokia’s new offerings to the already released iPhone: “[i]f there is something good in the world, we copy with pride.” True to this quote, Nokia has demonstrated its willingness to copy Apple’s iPhone ideas as well as Apple’s basic computing technologies, all while demanding Apple pay for access to Nokia’s purported standards essential patent. Apple seeks redress for this behavior."

See also:

• Daniel Eran Dilger's The real patent story behind Apple vs Nokia
• Nokia vs. Apple: $12 per iPhone

[Follow Philip Elmer-DeWitt on Twitter @philiped]

The iPhone leads the pack, Android is gaining, everybody else is losing share

Click to enlarge. Source: AdMob

It's been a year since Google (GOOG) released Android OS, the open-source smartphone operating system widely perceived as the most likely to overtake Apple's (AAPL) iPhone in the long run.

As it happens, Google this month also purchased AdMob, the world's largest purveyor of mobile phone advertising. So this seemed as good a time as any to take a snapshot of the changing smartphone marketplace, as measured by ad requests to AdMob's network.

We reviewed a year's worth of AdMob data — including the October numbers released Monday — and charted it on the graph at right (reproduced full-size below the fold).

There's a bias in the data, since AdMob ads run better on iPhone OS and Android devices than on, say, Research in Motion (RIMM) BlackBerries. But the trends are clear.

Over the past year, Nokia's (NOK) Symbian has lost the largest raw market share, down to 25% last month from 59% the same month a year earlier. In percentage terms, Windows Mobile (MSFT) is the biggest loser, down 70% in 12 months, with Symbian, Palm's (PALM) Web OS and BlackBerry OS close behind.

These numbers are based on worldwide ad requests. Apple's lead is even greater when AdMob zeroes in on the U.S. and U.K. markets. For a look at how the iPhone's share of the U.S. and worldwide markets have grown, see the chart prepared by MacRumors' Erik Slivka here.

Below the fold: A full-size fever chart of AdMob's worldwide data for all the major smartphone operating systems.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Source: AdMob

The trouble with being number one in any industry is that you have nowhere to move but down. Few companies know this better than Nokia (NOK), the Finnish telecommunications giant that has dominated cell phones for so long that in some parts of the globe the brand itself has become synonymous with the device.

Nokia has long excelled at making beautiful phones, but in today’s competitive smartphone market, beauty is just a start. The devices that make consumers salivate are the ones that have great software, offer the most games and social networking features, get great service, and come attached to fast networks. Oh, and they have to be cheap.

One company has shaped this new competitive environment, and it’s not Nokia—nor was it even a telecommunications company until 2007 when it debuted the iPhone.

Apple (AAPL) is eating Nokia’s lunch.

With the iPhone, Apple created a consumer lust for smartphones by showing us we could browse the web from our palms and enjoy it. It launched a device so perfect in form that it has become the gold standard by which all other devices are measured. And it moved the global hub of telecommunications innovation from Asia, where form factors had previously trumped all else, to Silicon Valley, where software makers now race each other to come up with the coolest applications.

None of this has been good for Nokia, which had already lost substantial ground in the North American cell phone market (see “Nokia’s North America Problem”). Their struggle for market dominance in the age of the iPhone has been less about nailing an innovation strategy than playing a hardcore game of block and tackle.  Enter the latest move: on October 22, Nokia filed suit against Apple in a Delaware federal court claiming infringement on 10 patents it holds on the integration of several technologies at the heart of Apple’s iPhone.

As my colleague Philip Elmer-deWitt points out, you can’t blame Nokia for having its nose out of joint.  Apple, according to Nokia, has gotten a free ride since the iPhone launched—a very fast ride. Apple commands 22% of the smartphone market in the US, according to IDC. Globally, it holds 12% of the market, more than doubling its share from last year.

Meanwhile, despite its best efforts, Nokia has steadily lost ground. It holds 40% of the market, down from 43% last year, according to IDC. And in the competitive North American market, Nokia is barely holding its own with just 3%.

Recognizing that the North American market is more crucial than ever, Nokia has spent the last couple years retooling its strategy. It installed its chief financial officer in the U.S. It opened new offices in Atlanta to be close to AT&T Mobility (AT&T) and in Parsippany, N.J., to be near Verizon Wireless (VZ). And it put several hundred product developers in its San Diego design center to work in collaboration with AT&T and Verizon Wireless on some new products.

The efforts have begun to yield dividends as North American carriers have started to support a slew of new cell phones—and even a couple of smartphones—but progress is slow going. “We’ve not been good at delivering promises in the past,” Niklas Savander, who heads up Nokia’s services division, told me recently, in describing Nokia’s relationships with the carriers. “It’s a trust thing and it doesn’t go away easily.”

Savander said he's also stepping up the company’s efforts with its Ovi store by making strategic acquisitions, mostly as a way to hire new software development talent. In September, Nokia bought social networking company Plum Ventures and traveling startup Dopplr.

So far, these changes have not been enough to jumpstart Nokia’s smartphone growth. On October 15, the company reported a third-quarter loss of $836 million as sales fell 20% from a year earlier (in North America, sales dropped 25%). And as the Christmas season approaches, bringing a gaggle of gadgets for Santa to deliver, Nokia has a paltry smartphone offeri. It’s easy to understand why the telecommunications giant, explaining that it has sunk $60 billion into the research and development that has helped enable the devices to take off, might at least want Apple to share the wealth.

The iPhone's had a "free ride" on its patents since 2007, claims a Nokia lawsuit

Who can blame Nokia (NOK) if its nose is out of joint. The Finnish telecommunications giant is used to dominating the global cellphone market, and it still commands a 36.8% share, according to Gartner.

But that's down from 39.5% a year ago. Worse still, Nokia has been getting its clock cleaned by Apple (AAPL) and Research in Motion (RIMM) in smartphones, the fastest growing part of the business. Last week it reported a loss of $886 million as its smartphone share fell from 41% to 35% in the space of three months

So on Thursday it struck back, filing suit against Apple in a Delaware federal court claiming infringement on patents it holds on the integration of GSM, UMTS and wireless LAN — technologies at the heart of Apple's iPhone.

What's at stake, according to Piper Jaffray's Gene Munster, is 1% to 2% of the cost of an iPhone, or in the worst case, about $12 per unit.

Nokia vice president Ilkka Rahnasto, in a prepared statement, put it more grandly:

"The basic principle in the mobile industry is that those companies who contribute in technology development to establish standards create intellectual property, which others then need to compensate for. Apple is also expected to follow this principle. By refusing to agree appropriate terms for Nokia's intellectual property, Apple is attempting to get a free ride on the back of Nokia's innovation."

The operative phrase in that statement is "appropriate terms." According to Munster, Nokia has been in talks with Apple over royalty payments for more than a year. Forty other manufacturers have ponied up, but someone in Cupertino — Steve Jobs? Tim Cook? — must have told Nokia to go jump in a fjord.

Nokia is not claiming ownership of GSM, UMTS and WLAN per se. The GSM protocol, for example, is an internationally adopted standard based on the work of a Norwegian engineer, Torleiv Maseng.

Rather, Nokia is invoking 10 patents on technologies that enable devices to integrate those standards. "The patents," according to Nokia, "cover wireless data, speech coding, security and encryption and are infringed by all Apple iPhone models shipped since the iPhone was introduced in 2007."

Munster believes Nokia is looking for a "commercial settlement" and won't take the extreme step of seeking an injunction that would bring iPhone sales to a halt.

See also:

• The Apple of Nokia's eye

Daniel Eran Dilger finds anti-Apple bias in Gartner's research

"Looking into its crystal ball, Gartner Group has predicted that Google’s Android will become the second largest smartphone platform by 2012," writes Daniel Eran Dilger in the one-man blog he grandly calls Roughly Drafted Magazine. "Problem is, nobody’s talking about how terrible Gartner is at predicting things, or that Gartner’s 'research' has historically been paid for by special interests."

So begins Dilger's reaction to an interview with Gartner analyst Ken Dulaney that appeared Tuesday in Computerworld and was picked up uncritically by more than half a dozen tech websites.

Drawing on historical records and making generous use of internal Microsoft documents made public during antitrust proceedings, Dilger attacks not only Dulaney's numbers, but the credibility of the entire Gartner research group.

The result is a 1,700-word screed that may be the most thorough take-down of a tech industry analyst — and his employer — since Eliot Spitzer went after Henry Blodget.

At issue is Dulaney's forecast that has the major smartphone operating systems divvying up the 2012 market as follows:

• Nokia's (NOK) Symbian: 203 million devices (39% market share)
• Google's (GOOG) Android: 76 million (14.5%)
• Apple's (AAPL) iPhone: 71.5 million (13.7%)
• Microsoft's (MSFT) Windows Mobile: 66.8 million (12.8%)
• Research in Motion (RIMM) BlackBerry: 65.25 million (12.58%)
• Miscellaneous Linux devices: 28 million (5.4%)
• Palm's (PALM) WebOS: 11 million (2.1%)

Dilger finds it hard to believe that Android market share will grow 400% while the iPhone's stands still, but he is hardly a disinterested observer. He pens a pseudonymous column for AppleInsider and has written a book about Mac OS X Snow Leopard to be published next month by Wiley. His blood runs Apple red.

But he knows his stuff, and he has mined those Microsoft documents for some pure gold. He points to evidence, for example, that Microsoft paid Gartner — along with IDC and Forrester — to tilt results and publish reports putting Microsoft products in a favorable light.

One document, according to Dilger, shows that Microsoft spent hundreds of thousands of dollars in an effort that “successfully lobbied and changed the Gartner Group TCO [Total Cost of Ownership] model to show Windows as providing the lowest overall TCO [in comparison to so-called Network Computers].”

Now, Dilger claims, Microsoft's support for Windows Mobile is running dry and Gartner is looking for a new customer with equally deep pockets. Someone like Google.

The best quote in the piece, taken from Microsoft’s manuals on evangelism (and not necessarily directed at Gartner in particular):

"Analysts sell out – that’s their business model. But they are very concerned that they never look like they are selling out, so that makes them very prickly to work with."

You can read the Roughly Drafted piece in its entirety here.

Gartner has not yet returned a request for comment.

[Follow Philip Elmer-DeWitt on Twitter @ philiped]

Company wants to make its Flash technology available everywhere — and that means penetrating mobile devices.

Flash is coming to most mobile phones - except the one that starts with "i." Image: Adobe

Flash is finally coming to your smartphone—and so is Adobe (ADBE). With today's launch of the newest version its software, Adobe Flash Player 10.1, the San Jose-based company is making an aggressive push to get its product onto any gadget that allows for web browsing–Blackberry devices, netbooks, increasingly even TVs.

Crucially, Adobe has signed on a number of key launch partners for the product including Google (GOOG) and Research in Motion (RIMM). By the first half of next year, consumers can expect Flash on nearly every smartphone operating system including Google’s Android, Nokia’s (NOK) Symbian, Palm’s (PALM) webOS and Microsoft’s (MSFT) Windows Mobile.

This is great for developers, who have long had to use different software to make their applications work on different devices. And it’s even better for consumers, for whom web browsing will get faster and more consistent regardless of the device.

Flash is the graphics-rich software responsible for many of our most alluring web experiences. Three-quarters of online videos are delivered in Flash. Nearly as many of the web games we play are created using it. And it’s also responsible for some of the best graphics online. One tech analyst who enjoys the Washington Redskins is constantly annoyed that he can’t read Washington Post coverage of the team on his ‘berry because parts of the paper's online version, washingtonpost.com, are delivered in Flash.

Until now, Adobe has offered separate products for the personal computers and mobiles. Developers had to rely on Adobe Lite, a dumbed down version that didn’t allow for the rich experience of the web.

The new version of Flash has been in the works since Adobe launched its Open Screen Project in May 2008. Started with 25 partners, the project now has more than 50 that include everyone from chipmakers like Qualcomm (QCOM) to content providers like MTV networks.

With this move, Adobe hopes to transform Flash from a simple developer’s tool to a platform in and of itself. “Instead of writing for tv or phone or computer, developers can write in Flash across multiple screens and locations,” says Michael Gartenberg, an analyst with market research firm Interpret.

But just because an application will run on any device doesn’t mean it will be optimized for every device. There is still much work to be done before developers can truly create and deliver one application for any platform. And there is one Flash holdout, a company that has managed to deliver great video experiences and superb graphics on its phones so far without Adobe’s help: Apple. (AAPL)

Source: AdMob

Apple (AAPL) now has a substantial — if not the largest — share of the smartphone market in every region of the world except Asia and Africa, according to a report issued Wednesday by AdMob.

Overall, the iPhone's worldwide share grew to 40% from 33% over the last six months. In North America, its share of the smartphone market is 52%, as measured by hits on AdMob's ads.

AdMob, which bills itself as the world's largest mobile advertising marketplace, delivers ads displayed on smartphone screens, so its statistics tends to favor phones heavily used for Web surfing. "AdMob does not claim that this information will be necessarily representative of the mobile Web as a whole or of any particular country market," it warns at the bottom of the report. "AdMob’s traffic is driven by publisher relationships and may be influenced accordingly."

Among the report's other findings:

• Although its marketshare has been declining, Nokia (NOK) continues to hold 12 of the top 20 smartphone devices in AdMob’s network. Nokia’s N97 and 5800 XpressMusic touchscreen devices were the fourth and fifth most popular smartphones in the UK in August.
• Research in Motion's (RIMM) BlackBerry share declined only slightly over the last 6 months. There are 7 RIM models in the top 20 smartphones in North America.
• Google's (GOOG) Android is growing rapidly in North America and Western Europe. The HTC Magic (my Touch) is a Top 10 smartphone in both North America and Western Europe.
• Palm's (PALM) Pre also had a strong month due to the addition of new publishers to the AdMob network.

To read AdMob's report, click here. For an analysis of why it may unrepresent Apple's competitors, see Silicon Alley Insider's Dan Frommer here.

Below: AdMob's graphs showing the changes in worldwide OS share and the distribution of that share by region.

Source: Gartner August 2009

Sales of Nokia's (NOK) Symbian smartphones are drifting. Apple's (AAPL) iPhone is gaining on RIM's (RIMM) BlackBerry. Microsoft's (MSFT) Windows Mobile is still sinking. And the launch of the Palm (PALM) Pre barely made a ripple in the gobal smartphone market.

Those were the headlines from the smartphone portion of Gartner's 2009 Q2 mobile phone report, which saw smartphone sales grow 27% even as overall mobile phone sales, feeling recessionary pressure, fell 6%.

In this context, Apple was the clear winner. Its iPhone sales, as Gartner counts them, grew more than 500% year to year, and its market share, as we figure it, grew 375%. (See chart below the fold.)

"Apple's expansion into a larger number of countries in the past year has produced a clear effect on sales volumes, as have the recent price adjustments on the 8GB 3G iPhone," according to Gartner's press release. "Apple brought its much-anticipated new device — the iPhone 3G S — to market at the end of the second quarter of 2009, but its full potential will only start to show in the sales figures in the second half of 2009."

Gartner made note of the declining market shares of Symbian and Windows Mobile, but it expressed particular concern about the Palm Pre.

"This device attracted a lot of media attention but showed mixed results at the cash register as sales only reached 205,000 units," said Gartner principal analyst Roberta Cozza. "Palm currently ranks tenth in the smartphone market and Gartner remains concerned about its ability to gain traction outside the US market, where its brand is less strong."

The PC maker widely rumored to be pursuing a phone for Chinese market. Is that a smart call?

Will Dell go mobile in China? Photo courtesy of Dell.

Will Dell (DELL) be able to get a smartphone off the ground in China?

The mobile world is abuzz once again over rumors that the No. 2 PC maker has plans to do just that. According to a Techcrunch report and an article on Chinese news portal 163.com, Dell may soon offer an "oPhone" device featuring Google's (GOOG) Android mobile operating system. The reports say the phone will be called the "mini3i."

OPhone is the name for China Mobile's customized version of Android, an open mobile operating platform. The phone reportedly is "iPhone like," with a touchscreen and no physical keypad. Dell is not commenting on the rumors. A spokesperson will only say: "Any mention of Dell in context with smartphones would be speculation."

But that speculation has been occurring for some time. Speaking at the company's annual financial presentation in Texas last month Dell consumer division president Ronald Garriques said the company would work with the top three or four wireless carriers to identify their needs. Garriques, who was former chief of Motorola's cell phone efforts, didn't identify the carriers by country.

The China Opportunity

What's certain is that China offers a great and mostly untapped opportunity to handset makers, particularly those that might be late coming to the North American market, which has become increasingly crowded. With more than 600 million current customers, China has the world's largest cell phone market. As of last year, Nokia (NOK) was the top mobile phone seller in China with a 46% share of shipments into China, but Nokia has yet to come up with a killer smartphone. The market remains wide open. What's more, mobile phone sales overall in China next year are predicted to hit 192 million units, up from 180 million this year, according to Gartner analyst Carolina Milanesi.

But for Dell to be successful, it will have to conquer the myriad challenges of a Chinese market. Most important, according to Milanesi: strong relationships with the two main carriers, either China Mobile or China Unicom. "They pretty much control the market," she explains. If the early reports are correct, China Mobile will distribute the device.

And as companies from Apple (AAPL) and RIM (RIMM) to Acer and HTC eye the Chinese market, Dell will have to manufacture well-designed competitive devices. That might be hard for the company, which has long specialized in hardware, because the strongest smartphone manufacturers combine deep knowledge in both hardware and software.

As more computing takes place on handheld devices instead of PCs and laptops, Dell clearly has to look at new form factors. But analysts expect the move to mobile won't be easy for the Round Rock, Texas-based company. "Increasingly differentiation in the handset market is more about software than hardware, and Dell does not have a strong software background — especially in handheld devices," says Forrester Research analyst Charles Golbvin. "That lack of expertise exacerbates the challenge they'd face significantly. "

In other words, it won't be an easy call.