Apple, Ericsson Sue Each Other Over Phone Patent Royalties

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Apple Inc. and Ericsson AB are suing each other in U.S. courts after failing to reach an agreement over the pricing of wireless-technology patents used by the maker of the iPhone and iPad.

Apple, saying that Ericsson is seeking excessive royalty rates, asked a federal court in California Jan. 12 to rule that Ericsson’s patents aren’t essential to long term evolution, or LTE, standards. Stockholm-based Ericsson said today it filed a complaint in a district court in Texas, asking for a verdict on whether its fees are fair.

While Apple’s iPhone and iPad have won over users in recent years, Ericsson helped pioneer the mobile-device market with its handsets in the 1990s. The company sold its mobile-phone business to Sony Corp. in February 2012, five years after Apple introduced the iPhone, which is now its largest revenue source.

“Ericsson seeks to exploit its patents to take the value of these cutting-edge Apple innovations, which resulted from years of hard work by Apple engineers and designers and billions of dollars of Apple research and development -- and which have nothing to do with Ericsson’s patents,” Cupertino, California-based Apple said in its complaint.

Ericsson said two years of negotiations to renew a licensing agreement failed because of fundamental disagreements of how patents on standard-essential technology should be valued. It’s part of a broader fight roiling the technology industry, between the older companies that created some of the basics of wireless and those who make the devices using it.

“We couldn’t get any further in the negotiation,” Gustav Brismark, Ericsson’s vice president of patent strategy, said in an interview. Apple’s first-filed suit “was a clear sign that we don’t see that there will be any solution without the support of a third party.”

Ericsson has been aggressive in defending its patents, suing Samsung Electronics Co. in 2012 for infringement, saying the South Korean phonemaker failed to extend a licensing deal after years of negotiations. The two sides reached a settlement a year ago with a new licensing deal over wireless technology in smartphones, TVs, tablets and Blu-ray disk players. The deal boosted Ericsson’s 2013 fourth-quarter sales by 4.2 billion kronor ($520 million) and net income by 3.3 billion kronor.

Bandwidth, Signals

Much of the dispute with Samsung centered on technology used throughout the industry on different devices, such as ways to conserve bandwidth in a wireless communication, improve network access and sound quality and the ability to maintain signal strength while moving, such as in a car.

“It’s important for us that more devices are out in the market and available to consumers,” Kasim Alfalahi, Ericsson’s chief intellectual property officer, said in a phone interview. “Our approach is on fair and reasonable terms. That’s always been our approach.”

Ericsson spends about $5 billion annually on research and development, Alfalahi said.

While the lawsuit is over the fundamentals of mobile-phone technology, Ericsson and Apple also are at loggerheads over a possible change in policy for the licensing of patents on the Wi-Fi standard. Some of the arguments made in Apple’s suit reflect possible changes that could be made Feb. 5 by the Institute of Electrical and Electronics Engineers.

Shares of Ericsson declined 0.9 percent to 96.50 kronor at 9:42 a.m. in Stockholm. Apple fell 58 cents to $109.64 at 2:39 p.m. in New York trading.

India Lawsuit

Ericsson sued Xiaomi Corp. in India last year, saying the Chinese phonemaker hadn’t licensed its inventions. Johannes Persson, an Ericsson spokesman, said at the time that his company holds essential patents for 2G, 3G and 4G wireless technology, which means any seller of products compliant with those standards must secure licenses.

At the core of the dispute is Apple’s contention that Ericsson wants Apple to pay royalties based on percentage of the price of the entire device. Apple argued it should be set on a smaller base and called Ericsson’s demands unreasonable.

“Under Ericsson’s approach, by incorporating its own unique technologies, Apple is subjecting its products to higher royalty demands than other companies’ products that do not incorporate such features and functionalities,” according to the complaint.

“We’ve always been willing to pay a fair price to secure the rights to standards essential patents covering technology in our products,” Kristin Huguet, an Apple spokeswoman, said in an e-mailed statement. “Unfortunately, we have not been able to agree with Ericsson on a fair rate for their patents so, as a last resort, we are asking the courts for help.”

The cases are Apple Inc. v. Telefonaktiebolaget LM Ericsson, 15-cv-0154, U.S. District Court, Northern District of California; and 15-cv-17, U.S. District Court, Eastern District of Texas.

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