Beyond smartphones, Xiaomi is also a leading IoT player and under the agreement, the companies are poised to explore opportunities for further cooperation in areas such as Internet of Things (IoT), augmented and virtual reality and Artificial Intelligence (AI).
The deal could be an important breakthrough for Xiaomi, which has struggled to build on an initial phase of explosive growth in its home market that once made it the world's most valuable startup. Having briefly been the biggest-selling smartphone brand in China, it slumped to fifth place in 2016 according to figures from IDC and conspicuously failed to publish its own annual sales figures.
Outside China, Xiaomi's expansion has been restricted by its relative paucity of intellectual property. Its expansion into India stalled temporarily in 2014 after being challenged in the country's patent courts by Sweden's Ericsson. Nokia's patents could help its suite of connected and mobile devices overcome that problem.
According to a joint statement, the two companies will license standard essential patents (those that make it possible for new products to conform to existing industry standards) to each other.
"Xiaomi is committed to building sustainable, long-term partnerships with global technology leaders," Xiaomi's chairman and CEO Lei Jun said in the statement. "Our collaboration with Nokia will enable us to tap on its leadership in building large, high-performance networks and formidable strength in software and services."
Nokia CEO Rajeev Suri said he was "delighted" to have sealed the agreement with "one of the world's leading smartphone manufacturers."