Ericsson sues Samsung in patent dispute; warns of massive hit to income

Bad IP blood has resurfaced between Ericsson and Samsung.

The Swedish supplier has accused the South Korean behemoth of not playing ball in the renewal of patent licenses by "violating contractual commitments to negotiate in good faith." According to Ericsson, Samsung is not adhering to so-called FRAND (fair, reasonable and non-discriminatory) terms.

The upshot is that a lawsuit has been filed against Samsung in Texas, where Ericsson has its US headquarters. A wary Samsung spokesperson, as quoted by Reuters, said "once we receive the complaint, we will review it and determine an appropriate response."

Investors got spooked, however, when Ericsson warned that several license renewal negotiations "may delay the payment of IP royalties if they extend beyond the expiry of existing licenses into an unlicensed period."

The numbers involved are huge. Throw in the potential costs of litigation, along with delayed payments, and Ericsson reckons that the whole imbroglio could impact quarterly operating income by between SEK1 billion ($118 million) and SEK1.5 billion ($177 million), starting in the first quarter next year.

According to Liberum analyst Janardan Menon, as cited by Reuters, royalties from Ericsson's patent portfolio are expected to account for about a third of its forecast SEK29 billion ($3.4 billion) operating profit during 2021. This lawsuit could cut earnings by around 20% per quarter, said Menon.

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After digesting the news, the market chalked down Ericsson's share price by 7%. The upside is that licenses, once renewed, will see unpaid royalties recovered and recognized as revenue at the time of renewal.

Ericsson added in its statement, a few paragraphs down, that there are other non-Samsung factors which might impact operating income, namely "current geopolitical conditions impacting handset sales volumes, as is the shift from 4G to 5G handsets."

Old wounds opened

Ericsson took legal action against Samsung as far back as 2012 over alleged patent infringements. The matter was settled two years later when Samsung coughed up $650 million and made good on royalty arrears.

— Ken Wieland, contributing editor, special to Light Reading

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