Ericsson resolved its standard-essential patent dispute with Apple in December. What did the company take into account when negotiating this agreement?
When reaching a global patent licensing agreement there are several things to take into account, including the values of both parties’ patent portfolios and their respective extent to which they use the patented technology. The agreement with Apple reflects all of those variables. In terms of how the payments are set up, that can vary too. For instance, sometimes there are initial payments and sometimes not. Ongoing royalties is standard practice as that can best reflect actual sales in an ongoing contract.
What does the settlement mean for Ericsson as an owner of standard-essential patents?
Ericsson wants a level playing field for all companies in our industry. The settlements are always on fair, reasonable, and non-discriminatory (FRAND) terms and highlights our commitment to a technology sharing agreement that has helped create today’s mass market communications industry. We believe in the FRAND system and consider it to be the best way to enable innovation through technology sharing. FRAND secures the necessary balance between the companies in our industry.
Ericsson has more than 100 licence agreements with all major players in the industry. This system for technology sharing is based on mutual trust and shared commercial interests among the world’s communications companies, a principle that Ericsson supports wholeheartedly. It is important that all companies respect this spirit of mutual trust and that no one seeks to gain an unfair competitive advantage over fellow industry participants.
How would you advise companies to manage standard-essential patent disputes in the future?
I think it is quite clear what the standards say and how FRAND is supposed to be interpreted. The European Telecommunications Standards Institute is very clear in that it has a high level policy that appears to be a two-way street. There are responsibilities on the technology owners to contribute and the standards to be fair and reasonable, but there are also responsibilities on licencees to negotiate in good faith and make sure that as a user of the technology, you also acquire the necessary licences.
That, in combination with the case law that we have seen develop, gives us additional guidance on the question on the availability of injunctions for standard-essential patents (SEPs). I think the Court of Justice for the EU’s preliminary ruling in Huawei Technologies v ZTE Corp (see box-out), in which it gave an opinion in July 2015, confirms the view, or the practice, that Ericsson has.
What are your thoughts on the accusation that Ericsson was seeking excessive royalties from Apple?
It was an incorrect claim. Ericsson has been very reasonable, demonstrated in the amount of out-licensing agreements that company has in place.
Over the last 15 years, Ericsson has continued to have full support in standardisation. I think we are still a leader in the standardisation activity and Ericsson is viewed as the company that is the ambassador of making sure that these standards are being made available. In my mind, that is the best example of why critics incorrectly claimed that Ericsson was excessive in its royalty demands.
Furthermore, I think that during this 15-year period the industry has boomed. Companies have been able to enter into this area using Ericsson’s technology and have become hugely successful, and profitable. These companies have paid fair royalties to Ericsson, which has not harmed the growth of the market, or the success of newcomers into the market, but rather the opposite.
How does Ericsson determine what a reasonable royalty is?
I think Ericsson tries to seek a balance, where it receives a fair return on the enormous value to the users of this technology. Ericsson is investing a large share of its turnover in research and development a total of $5 billion on a yearly basis. A significant portion of that is radio-related work.
If you go back 20 years to the 2G era, companies had the capability and the networks that could provide very narrow band capabilities to the end user and also to those developing applications on top of our technology platforms.
If you compare that to today, Ericsson has an LTE system being rolled out that can provide hundreds of megabits of data to each individual user. It reduces the delays in the network, so that streaming videos are working perfectly well on large screens.
That would not have been possible without the research and our policy to share the results of the research in a fair way.
What happens when negotiations fail? Is litigation the only way forward?
Ericsson executes the possibility to enforce its rights against companies that are delaying and holding out and refusing to pay fair royalties, because otherwise there will be discrimination against those who actually do negotiate in good faith and enter into agreements.
Ericsson has always considered litigation as a last resort. The company is engaged in more litigation compared with 10 years ago, but that is because there is a much larger degree of speculative hold-out activities among licencees.
Ericsson was successful this time, but there seems to be a discord between patent owners and licencees. Will there be any sort of balance in the future?
I think so. The discord is speculative more than based on true, internal opinions. It’s a way of trying to reduce costs, but I think, if that goes too far, the incentive is removed for innovators to share their technology.
Huawei Technologies v ZTE Corp explained
In July 2015, the Court of Justice for the EU (CJEU) ruled for the first time over whether standard-essential patent (SEP) owners could assert an injunction against an accused infringer.
Huawei sought an injunction against competitor ZTE over the use of its patents in Germany without paying royalties.
The Regional Court in Germany asked the CJEU to clarify the circumstances in which an SEP owner, in this case Huawei, abuses its position by bringing an action for infringement.
The CJEU held that, following the attorney general’s decision, SEP owners must inform the accused party of the infringement, prior to gaining an injunction, and is obliged to provide a written offer on fair, reasonable and non-discriminatory (FRAND) terms.
If the infringer does not accept the offer, the CJEU said: “The proprietor of the SEP may invoke the abusive nature of an action for a prohibitory injunction or for the recall of products only if it has submitted to the proprietor of the SEP, promptly and in writing, a specific counter-offer that corresponds to FRAND terms.”