Ericsson sued by Airvana for $330M over 'knock-off' EV-DO product

Airvana Network Solutions filed a $330 million lawsuit against Swedish vendor Ericsson (NASDAQ:ERIC), alleging that the world's largest network infrastructure provider collaborated with LG Electronics to sell an illegal "knock-off" of an Airvana product, threatening to put Airvana out of business.

In a 72-page legal complaint filed with the New York State Supreme Court, Airvana accused Ericsson of violating the terms of a deal that required Ericsson to ship Airvana-designed products with Airvana's software and pay royalties. Instead, Airvana alleged that Ericsson worked with LG to make a knock-off version of the software to ship with Airvana's hardware, giving it leeway to avoid making royalty payments to Airvana. Airvana CEO Randy Battat told Reuters that privately held Airvana generates "hundreds of millions of dollars" of annual revenue from Ericsson.

Airvana is better known today for making femtocells, but it was a pioneer in EV-DO networking technology. Starting in 2001, Airvana supplied hardware and software products to Nortel Networks. In 2005, Airvana states that Nortel convinced Airvana to hand over its proprietary hardware designs so that Nortel could take over manufacturing the hardware.

Under the deal, Airvana would continue to supply the software and Nortel would pay Airvana a royalty for each product it sold. The contract said that Nortel could not sell any product that used Airvana's proprietary hardware designs (or any hardware based on those designs) without using Airvana's software and paying Airvana a royalty fee, Airvana said in a statement.  

Ericsson purchased Nortel's North American CDMA and LTE business in 2009 after Nortel filed for bankruptcy, but it also acquired the deal with Airvana. Ericsson wanted to renegotiate the terms of the deal, but Airvana wanted to stick with them. According to the filing, Airvana said that Ericsson plans to sell a competing EV-DO product Ericsson made in-house using software it developed with LG, though still based on Airvana's hardware, in violation of the Nortel deal. Airvana is seeking $330 million in damages and is seeking to block sales of the new Ericsson EV-DO product.

"This is sort of a classic case of a big company trying to push its weight around, and we certainly felt that interaction with Ericsson over the last couple of years," Battat told the New York Times. "We're just shocked they're stepping all over our property in order to do this."

"We are aware that Airvana has initiated legal proceedings against Ericsson," Ericsson spokeswoman Kathy Egan Wummer told FierceWireless. "While we will not comment on ongoing litigation, we can say that we are committed to supporting our customers and will take appropriate action to protect both their interests and those of Ericsson. Accordingly, we will vigorously defend our right to deploy the Ericsson EV-DO Global System in customer networks according to existing commitments."

Ericsson's North American CDMA sales have recently fallen off. Ericsson CFO Jan Frykhammar recently told FierceWireless that the company knew when it acquired Nortel Network's CDMA and LTE units in 2010 that its CDMA installed base in North America would decline over time. "We think it has peaked and we think that the transition to LTE will now happen, and this will become more of a service business with maintenance and support," he said in January.

For more:
- see this Airvana complaint (PDF)
- see this release
- see this Reuters article
- see this NYT article
- see this GigaOM article

Related Articles:
Ericsson's Q4 profit plunges 66% as North American CDMA sales decline
Small cells making big waves
Airvana shareholders approve $540M buyout
Ericsson wins Nortel wireless assets for $1.1B

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