Apple, Ericsson Clash on LTE Patents

Apple and Ericsson have come to blows over the use of the Swedish equipment maker's LTE patents in iPhones and iPads, with the device maker accusing Ericsson of charging exorbitant royalties for the technology.

Licensing disputes have bedeviled the mobile telecoms market over the past few years, inevitably flaring up whenever agreements are due to expire.

The latest set-to appears to have followed two years of fruitless negotiations between Apple Inc. (Nasdaq: AAPL) and Ericsson AB (Nasdaq: ERIC) over the terms of the LTE licensing agreement. Ericsson says the deal has now expired and that Apple is making use of its technology illegally. (See Ericsson Goes to Court Over Apple Licensing.)

Apple, however, appears to have initiated legal proceedings, filing a lawsuit in a US court on January 12 to prove that it has not infringed a subset of Ericsson's patents and should pay lower royalties than the networks giant has demanded.

The device maker believes royalties should be based on the cost of the chips used in its devices, according to Reuters, but says Ericsson has been calculating licensing fees as a percentage of the value of the whole device.

Ericsson defended its approach in an email sent to Light Reading.

"Our view is that royalties should be based on the value that the technology in the device brings to the end-user," said an Ericsson spokesperson. "The price of the chip-set has nothing to do with the value the technology brings to the end-user."

Ericsson has also called on US legal authorities to determine whether its licensing offer to Apple is fair, reasonable and non-discriminatory.

The company pointedly notes that it spends more than $5 billion each year on R&D, implying that Apple is riding on the back of its investments.

The final few paragraphs of its statement, however, are couched in mollifying language. Ericsson is obviously keen to remain on good terms with a company that still rules the roost when it comes to high-end smartphones and tablets.

For all the latest news from the wireless networking and services sector, check out our dedicated Mobile content channel here on Light Reading.

"Our goal is to reach a mutually beneficial resolution with Apple," said Kasim Alfalahi, Ericsson's chief intellectual property officer. "They have been a valued partner for years and we hope to continue that partnership."

The case could be a long-running affair, judging by previous patent disputes, and a troubling one for Ericsson, which is determined to increase the revenues it generates from intellectual property rights.

Yet to report 2014 results, the company said that 4.7% of its revenues came from intellectual property rights in 2013, up from just 2.9% in 2012.

Those figures were boosted by a lucrative agreement with Samsung Electronics Co. Ltd. (Korea: SEC) in January 2014 that put an end to a year-long patent dispute over the use of 2G, 3G and LTE standards in networks and handsets.

Under the terms of that agreement, Samsung agreed to pay Ericsson a one-off settlement fee and to make ongoing royalty payments over the duration of a new multi-year deal, boosting Ericsson's sales and net income in the final three months of 2013 by 4.2 billion Swedish krona ($520 million) and SEK3.3 billion respectively. (See Ericsson Flatlines in 2013, Trails Huawei.)

Apple has also clashed with Samsung over patents relating to smartphone technology. The two companies agreed to end their various legal battles outside the US in August last year but said they would continue to pursue cases in US courts.

— Iain Morris, News Editor, Light Reading

Susan Fourtané 1/15/2015 | 6:17:11 AM
Re: cost of doing business I agree with chechaco. The value of the technology it provides has to be considered in the equation. Ericsson has a quality R&D. 

MordyK 1/14/2015 | 3:20:37 PM
Re: cost of doing business I need to side with Sarah on this. The value of the technology is in teh chip, and Apple or the device creation ecosystem are spending R&D dollars in creating the added value.

4G is largely the same technology in the LTE roadmap prior to the iPhone launch, but the value increased due to Apple and their ilk, which means the added value should be attributed to the Apple R&D dollars and not Ericsson's.

Obviously a side effect of improved user experiences in the need to further advance LTE IP, but that is compensated by the sale of additional devices with additional chipset royalties.
chechaco 1/14/2015 | 1:54:31 PM
Re: cost of doing business Disagree. Cost of a chip would likely to go down as volumes grow but the value of technology it provides more likely to remain the same. If one find the royalties too high why wouldn't the company develop alternative solution? Don't want to invest in R&D with risk of loosing the investment? Then play it safe and pay the royalty to those who dared.
kq4ym 1/14/2015 | 11:29:54 AM
Re: cost of doing business It's still amazing how companies with highly paid lawyers to propose and make contracts later end up in court on how to interpret clauses in those same contracts. One would think that lawyers could write contracts that would not lead to later expensive disputes. Or it is really a matter of companies getting too greedy and trying to get out of disadvantageous agreements?
Mitch Wagner 1/14/2015 | 11:11:22 AM
Re: cost of doing business SReedy - "... pay for what the chip costs, not the perceived value of it... "

In the market, prices are set not by the cost or perceived value, but rather by what people are willing to pay for it. Customers will often complain if a vendor sells a product at too high a markup over cost -- but the customers will pay anyway if they want the product. 

However, this isn't the market setting a price. It's a court. How will they do that? Ow my head. 
Mitch Wagner 1/14/2015 | 11:08:29 AM
Tough needle to thread This is a tough needle to thread for Ericsson. They can't afford to be paid too little for their technology, but they also can't afford to alienate the biggest customer of that technology.
sarahthomas1011 1/14/2015 | 10:58:30 AM
cost of doing business Seems to be a lot more about money than it is actual patents. I think I'm with Apple on this one; pay for what the chip costs, not the perceived value of it. It's all a little arbitrary.
iainmorris 1/14/2015 | 8:41:44 AM
Re: Little strange! Good question. Reports at the time suggested a) there was a lot more at stake in terms of financial compensation in the US and b) that extricating themselves from the US legal quagmire has proven difficult. It warrants further investigation, though.
nasimson 1/14/2015 | 8:29:46 AM
Little strange! > Apple has also clashed with Samsung over patents relating
> to smartphone technology. The two companies agreed to end
> their various legal battles outside the US in August last year
> but said they would continue to pursue cases in US courts.


Why end the cases outside US, but continue to run the cases inside US? Little strage.
iainmorris 1/14/2015 | 8:29:12 AM
Patent complexity Thorny issue, patents. On the one hand, technology players understandably want to protect their investments -- and don't want rivals ripping them off -- but on the other patents have long been seen as a barrier to innovation.
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