Microsoft’s $2B patent license: why the Nokia deal won’t change the outcome of the smartphone wars

Today’s big tech news, Microsoft’s(s msft) $5 billion acquisition of Nokia’s(s nok) phone unit, came with a big side note: the struggling software giant’s decision to license, not buy, Nokia’s patent portfolio for about $2 billion more.

While the patent deal has been treated as part of the larger marriage of two turkeys, the size of the licensing deal merits consideration on its own. Specifically, will total access to one of the world’s biggest patent portfolios give Microsoft fresh ammo in the worldwide court battles over smartphones?

Same players, same weapons

The short answer is no. While the deal will bring Microsoft more money, in the form of licensing benefits that Nokia now receives from companies like IBM(s ibm), it doesn’t confer a new strategic advantage.  That’s because Nokia and Microsoft already appear to have been working hand-in-glove to pursue the same aggressive litigation strategy, known as privateering, to harass rivals in the smartphone industry.

Under the privateering model, which resembles so-called “patent trolling,” firms funnel intellectual property into shell companies, some of them backed by private investors, which then look for targets to sue. The tactic has proved controversial, and had led Google(s goog) and BlackBerry(s bbry) to call on federal regulators to use their anti-trust powers to stop it.

Microsoft and Nokia have not only been pursuing a seemingly coordinated privateering strategy, they also both have ties to Intellectual Ventures, the giant-patent holding company run by a former Microsoft VP, Nathan Myhrvold. In other words it doesn’t seem like a licensing deal can bring Nokia and Microsoft much closer on the legal front than they already were.

As a result, Microsoft’s access to the Nokia patent portfolio is unlikely to increase the amount of legal fire that it can train on smartphone rivals; instead, the deal is more like a shuffling of existing lawyers rather than adding more of them. And recall that Microsoft is already paying to license Nokia’s patents in the first place.

License vs buy

If this is the case, it’s fair to ask, why didn’t Microsoft simply buy the portfolio outright — especially since Nokia is already assigning the benefits it receives from existing patent licenses? The most likely answer is that the rump company (what’s left of Nokia) can point to the Microsoft deal to talk up the value of its portfolio when it approaches other licensing targets; Microsoft may get a cut of these future deals (it’s unclear) or, at the least, get to watch Nokia inflict more lawsuit misery on its rivals.

And what about the opportunity, described in the slide below, for Microsoft to “convert coverage from a ten-year to a perpetual license” in regard to Nokia’s utility patents? That part seems near meaningless since patents expire after twenty years, and it’s a good bet that most of Nokia’s patents are already long in the tooth.

The bottom line is that, while $2 billion sounds like a lot to spend on a licensing deal, the transaction feels more like an internal accounting shuffle than it does a strategic shift in the smartphone patent wars.

Here are screenshots of two slides, reported by All Things D, that describes how Microsoft see the intellectual property dimensions of the deal:

Screen shot re NOKIA IP

Nokia IP screen shot