Ericsson is suing Samsung for infringement of software and hardware patents
after nearly two years of negotiations.
Ericsson has developed widely used cell phone hardware and software, for which it holds extensive patents. Ericsson widely licenses these industry standard patents (as they are legally required) to manufacturers like Samsung and other competitors.
These licenses expired in 2011, and Samsung and Ericsson have failed to come to agreement on an extension. According to the lawsuit, Samsung has sold "hundreds of millions of unlicensed cellular handsets, smartphones, tablet computers, and televisions". The Galaxy S III alone, pictured below, has sold over 30 million since its introduction in May.
Meanwhile, Samsung has continued to use the patented technology in their smartphones, alleging that Ericsson has increased their royalty demands to an unfair degree.
Ericsson has stated that they have come to agreement with every other cell phone manufacturer, except Samsung. The complaint filed in the U.S. District Court for the Eastern District of Texas explains that Samsung has sought to reduce the royalties, to a degree that would give them an unfair competitive advantage over competing cell phone manufacturers that have also licensed Ericsson?s patents.
Experts say that the Samsung/Ericsson case is really about royalty maximization. This fundamentally differs from the Samsung/Apple legal battles, which is to determine the dominant player in the industry. I feel that there is a little bit of both in this case. On the part of Ericsson, this is about not accepting fewer royalties from Samsung (which has the largest market share of competitors who use Ericsson?s technology). They seek to maximize returns on the investments that they?ve made in intellectual capital. Ericsson spends about 15% of their total costs on R&D, and holds 25% of patents for wireless LTE technology. Their profitability has declined in recent years, which makes protecting their intellectual capital and resulting revenue streams even more of a priority for the firm.
On Samsung?s part, this is about becoming even more dominant in the mobile device market. They have the incentive to push back against Ericsson in the hopes of decreasing their fees, which will contribute to margin growth for their devices, and provide a cost advantage over competitors in the space. As they gain more and more market share and push out smaller competitors, they are better positioned to compete with Apple for the number one spot.
This approach could backfire, however, becoming a source of celebration for Apple. Samsung will likely find it more difficult to bring innovative products to market while the attention of top management is focused on numerous patent infringement lawsuits. In terms of the potential outcome of the lawsuit, it is also hard to see how Samsung will be able to argue that Ericsson's royalty demands are too high.
Samsung has in the past only agreed to license their own patents at FRAND (Fair, Reasonable, and Non-Discriminatory) rates. Ericsson has asked that Samsung pay FRAND rates (which they have agreed upon with other firms. The lawsuit states "Samsung has a history of manipulating its position on the amount of a FRAND rate depending on whether it finds itself as the licensor or licensee in a particular negotiation...?when the tables are turned and Samsung finds itself in the position of being the prospective licensee, it now refuses to license Ericsson?s standard-essential portfolio at FRAND rates."?
The outcome of this case will be interesting to follow, as it will likely have implications on the outcome of the Apple/Samsung case or vice versa. "Contrary to Samsung?s behavior, patent licensing under FRAND terms does not change from one day to the next depending on whether a company finds itself aligned as a licensor or licensee." Moreover, its hard to see how Samsung's position in one suit will not end up hurting them in the other.
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Sources:
http://www.nytimes.com/2012/11/28/technology/28iht-ericsson28.html?ref=business
http://online.wsj.com/article/SB10001424127887324469304578144592724642244.html?user=welcome&mg=id-wsj
http://techcrunch.com/2012/11/27/ericsson-files-patent-suit-against-samsung-in-the-u-s-after-nearly-two-years-of-frand-talks-fail-to-reach-a-deal/
http://arstechnica.com/tech-policy/2012/11/samsung-faces-two-front-patent-war-as-ericsson-files-suit-in-texas/
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Source: http://picker.typepad.com/legalinfrastructure/2012/11/mobile-device-patent-wars-continue.html
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