Ericsson Eyes Sales From Mobile Industry’s Top Patents Trove

Ericsson AB, the world’s largest maker of mobile-phone networks, aims to increase revenue from its more than 27,000 patents as devices from toys to energy meters get wireless access, its chief executive officer said.

“By 2015 two thirds of all consumer electronics devices will have some sort of connectivity,” Hans Vestberg said in an interview at the company’s headquarters in Stockholm. “Any company or manufacturer that wants to get in there will need an agreement with Ericsson.”

Ericsson, which helped develop the global system for mobile communications that enables handsets to latch onto networks from London to Jakarta, holds the industry’s largest portfolio of wireless communication patents. Generating more revenue from rights would help smooth out fluctuations in network orders.

The intellectual property covers “basically everything in the telecom industry,” including the world’s largest collection of WiFi patents, Vestberg said. Revenue from patents more than doubled to 4.6 billion kronor ($704 million) last year from 2 billion kronor in 2006.

“If we are going to get 50 billion connected devices in 2020 it’s not only going to be handsets,” Vestberg said yesterday. “It’s not going to be practical for us to make bilateral negotiations with all the manufacturers. We need new business models and we need to work in groups.”

Bilateral Agreements

Connected devices may include shipping containers that transmit their position and interior temperature, as well as appliances that are hooked into a network, Vestberg said. Heating systems, health monitors and automobile traffic management are among the applications that are already being seeded with sensors and wireless transmitters.

Ericsson plans to get royalties from intellectual property in areas it hasn’t monetized before, such as Web search and optical transmissions, Vestberg said.

Ericsson has relied on bilateral agreements and industry standards consortia to establish cross-licensing and fair royalty rates among handset and infrastructure vendors. Going through chipmakers may be the most efficient way to secure royalties from a broader range of products, Vestberg said.

In July, Ericsson joined a group of companies including Apple Inc. (AAPL), Microsoft Corp. and Sony Corp. to buy more than 6,000 patents from Nortel Networks Corp. for $4.5 billion. The transaction was important for Ericsson because it didn’t have a deal covering those patents, Vestberg said.

$15.5 Billion?

A month later, Google Inc. (GOOG) agreed to buy Motorola Mobility Holdings Inc. for $12.5 billion, gaining mobile patents and expanding in the hardware business. Helena Nordman-Knutson, a Stockholm-based analyst at Pareto Oehman, estimates that Ericsson’s patents could be valued at as much as $15.5 billion, based on the price Google paid for Motorola’s intellectual property.

Before today, Ericsson had fallen 10 percent this year in Stockholm trading. Paris-based Alcatel-Lucent SA has slumped 30 percent on the Paris exchange, while Cisco Systems Inc. (CSCO) has dropped 9.5 percent in the U.S.

Ericsson fell 3.6 percent to 67.45 euros at 11:22 a.m. in Stockholm. The company told investors today that operators may be more cautious on short-term spending, repeating comments it made last month.

Founded by L.M. Ericsson in 1876 to repair telegraph equipment, Ericsson already has more than 90 licensing deals for its core technologies with handset companies and infrastructure producers, Vestberg said. The company was a founding member of 3GPP which shares intellectual property for the wireless industry, making sure that licensing fees for necessary patents are fair and reasonable.

‘Sit On Them’

Ericsson, which sold its first telephone in 1878, last month agreed to divest its stake in its handset venture Sony Ericsson Mobile Communications AB to partner Sony. The sale will permit Ericsson to concentrate on selling infrastructure gear as well as network and customer management services to phone companies and others.

As part of that deal, Sony will pay 1.05 billion euros in cash, and will get cross-licensing of Ericsson intellectual property and ownership of five essential patent families, the companies said on Oct. 27.

The patents being transferred to Sony are peripheral to Ericsson’s portfolio and are an example of “selective” sales of intellectual property it doesn’t need, Vestberg said. The company also sold some patents in 2008, but that is not the usual pattern, he added.

“We are not into selling patents,” he said. “We want to get the recurrent revenue and we want to sit on them.”

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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