FRAND or foe? Ericsson and Apple tussle over the meaning of ‘fair’
via Flickr © Edward Dalmulder (CC BY 2.0)
After two years of futile negotiation, industry heavyweights Ericsson and Apple have apparently both turned to the courts to reach a settlement over the question of how much Apple should pay for the Ericsson mobile phone intellectual property baked into its iPhones and iPads.
Possibly in anticipation of an Ericsson move, Apple struck first by filing a lawsuit on Monday asking a District Court in California to find that it didn’t infringe what Ericsson alleges is a “small subset” of ericsson’s patents. Apple’s version is that Ericsson's LTE patents are not ‘essential’ to industry cellular standards and that Ericsson is therefore demanding excessive royalties for them as part of a license agreement.
Apple is playing hardball, claiming it hasn’t infringed on the patents, doesn’t owe Ericsson royalties, and it objects to the way Ericsson is assessing IP royalty value - by calculating it as a percentage of the final price of the phone, rather than the value of the processor chip on which the IP resides.
Apple says that, even if it loses the ‘they’re not actually essential’ strand of its suit, it wants the court to decide what it should pay Ericsson.
Joining battle, Ericsson has today filed its own complaint in a Texas court to request a ruling on the global licensing fees Apple should pay it and whether the terms it is offering Apple comply with accepted FRAND (Fair, Reasonable and Non-Discriminatory) principles.
In its own words, “Ericsson is committed to licensing its standard-essential patents on FRAND terms to provide a level playing field for all companies, lower the barriers of entry, and increase competition and innovation. As a result of standardization and the FRAND principles, there are approximately 7.5 billion mobile subscriptions in the world today and mobile phones are the most sold consumer product globally.
It sounds like the opening shots in another classic industry patents tussle, but there is a difference. At the height of the patent wars the companies involved were intent on creating a sort of IP stalemate to avoid damaging sales injunctions.
In those scenarios a patent-holder often had the ability to cause far more real damage to the opposing side by choking off its sales than it could by winning a suit and getting it to cough up cash. So all sides sought to build up a sort of nuclear arsenal, and that saw major players - Google in particular - buying up big patent stashes (or the companies that owned them). With enough patents in your back pocket you could frighten the opposition into coming to terms…. and it you. Cross-licensing deals were usually the end result of particular bilateral battles.
Today, though, Ericsson no longer has sales in handsets to have injuncted since it has effectively pulled out of the smartphone market. It does, however, still have plenty of intellectual property and has expressed itself intent on maximising its value.
Ben Wood, Director of Research at mobile consultancy, CCS Insight, agrees. “It makes sense that once a company like Ericsson finds itself out of the handset market it will want to maximise the value of its intellectual property. With over one billion smartphones due to be sold this year on increasingly slender margins, it’s easy to see how a few cents on a licence agreement can make a huge difference to both parties.”
Expect more than a brief scuffle.