Ericsson on Friday filed a lawsuit against Samsung in the U.S., alleging the South Korean electronics giant breached contractual commitments and failed to negotiate in good faith over patent licensing and related payments.
Ericsson asserts Samsung violated its obligations for essential patent licensing under FRAND (Fair, Reasonable and Non-Discriminatory) terms. Ericsson also wants a declaratory ruling that the Swedish vendor itself complied with its own licensing commitments.
A Samsung spokesperson said to FierceWireless via email that, “Once we receive the complaint, we will review it and determine an appropriate response."
In an announcement today, Ericsson said royalty payments for intellectual property could be delayed if license renewal negotiations don’t conclude before the current one expires.
Those unpaid IP royalties are expected to be recouped once an agreement is renewed. Still, Ericsson warned of potential financial impacts, also citing geopolitical conditions affecting handset sales as volumes shift from 4G to 5G.
That, along with delayed royalty payments and potential costs of litigation, could see Ericsson’s operating income take a hit of between roughly $118 million - $177 million a quarter starting in the first quarter of 2021.
Samsung counteroffer “unreasonably low”
Ericsson’s complaint, filed in the U.S. District Court for the Eastern District of Texas, says negotiations with Samsung stalled as the vendor tried to reach a global cross-license agreement, covering Ericsson and Samsung’s respective essential patents before an existing license expired.
Ericsson and Samsung both pour money into research and development for fundamental technologies that go into global standards including 2G, 3G, 4G and now 5G. Those standards are used in things like smartphones, other mobile devices and cellular infrastructure.
“Without 4G and 5G technology and Ericsson’s inventions incorporated therein, smartphones and other mobile devices would not be able to provide the constant on-the-go access to video, streaming media, and gaming that consumers expect today,” Ericsson wrote in its complaint.
In the FRAND system, governed by French law, leading technology companies like Ericsson, as well as Samsung, agree to license their so-called “Essential Patents” to others on FRAND terms and collect royalty payments.
Samsung’s mobile devices and cellular network gear utilizes Ericsson’s so-called Essential Patents, while Ericsson sells infrastructure equipment that utilizes Samsung’s, so they’ve had cross-license agreements in the past. Most recently a 2014 multi-year agreement.
That followed a two-year patent dispute, in which both parties sued each other before reaching a settlement resulting in Samsung paying millions to Ericsson.
Ericsson says it initiated negotiations for a new license early this time around, in January of 2019. The proposal covered a global cross-license for both companies’ essential IP, as well as a balancing payment from Samsung to Ericsson, “reflecting the parties’ relative sales and the value of Ericsson’s Essential Patents as compared to Samsung’s,” the complaint stated.
According the complaint, both parties “understood that Samsung would owe Ericsson a substantial balancing payment.”
Ericsson says it has more than 54,000 patents worldwide, many essential, and reinvests much of the licensing royalty payments back into future technology standards, spending between $4 billion and $5 billion annually on R&D.
Samsung rejected a July 20, 2020, offer from Ericsson, according to the complaint, responding two months later with a counteroffer Ericsson asserts “was unreasonably low.”
No progress on negotiations
The Swedish vendor said it then sent an offer for arbitration with a third-party to determine the appropriate FRAND rate for a global cross-license. Samsung rejected the arbitration offer in a response that came 44 days later.
Since then, negotiations have continued but without progress, Ericsson asserts.
“It has become clear Samsung had no intention of negotiating in good faith towards concluding an agreement with Ericsson on FRAND terms and conditions,” instead insisting on a below fair royalty payment. And by doing so, the complaint says Samsung has deprived Ericsson of its right to an equal global license for Samsung’s essential patents on fair and reasonable terms.
Ericsson says it filed the suit to remedy the breaches.