Apple and Ericsson teamed up with others (Microsoft, Sony, BlackBerry, EMC) in 2011 to buy up Nortel's wireless patent portfolio. As expected after a November motion, the Rockstar v. Android dispute has come to an end. Patent aggregator RPX Corporation, which is closer to Google than to Apple and Ericsson, bought Rockstar's patents in December.
But Apple and Ericsson now have licensing issues to sort out between the two of them. They had a five-year patent license in place, and it has now expired, according to an Ericsson press release. Traditionally, 'tis the season for patent suits resulting from failure to agree on renewals. Many patent license deals have terms defined by calendar years, and in recent years there have always been filings of this kind in early January.
Apple has won the race to the courthouse with a declaratory judgment action (asking the court to find that some Ericsson LTE patents are neither essential nor infringed) it filed on Monday in the Northern District of California. Two days later, Ericsson brought this very interesting FRAND-declaration complaint in the Eastern District of Texas (this post continues below the document):
In the past, FRAND rate determinations were requested by implementers of standards (Microsoft/Motorola, Apple/Motorola, Huawei-ZTE/InterDigital). This is the first such case, at least the first high-profile case, in which the patent holder goes to a court and requests this kind of ruling.
It may be tactics, but Ericsson does exude confidence in the defensibility of its royalty demands by triggering the FRAND rate determination process instead of waiting for Apple to do it at some stage of a patent infringement proceeding.
What's much clearer is that we're going to see a venue fight, and Apple filed first, which means Ericsson is going to need some really strong arguments to avoid formal or factual consolidation of its FRAND declaration suit with the California case. The venue could make quite a difference here. Not only are the Northern California judges less patentee-friendly in my observation than their colleagues in East Texas but Silicon Valley juries are particularly likely to buy Apple's innovation story. I'm not based there but, frankly, I also look at Ericsson as one of those companies, like Nokia, that were way too bureaucratic, technocratic, and unimaginative to deliver a mobile computer and useful mobile Internet device to consumers over all those years, so the world really needed the iPhone revolution for the sake of progress.
Despite the fact that consumers the world over have far more reasons to thank Apple than to thank Ericsson, I want to be rational and Ericsson's innovation story is a pretty good one, too. It can legitimately claim that it still spends billions of dollars every year on research and development (it no longer builds mobile handsets, but is still big in infrastructure), and in its complaint it lists the following accomplishments, most of which go back such a long time that the related patents have expired:
"in 1878, Ericsson sold its first telephone;
in 1977, Ericsson introduced the world's first digital telephone exchange;
in 1981, Ericsson introduced its first mobile telephone system, NMT;
in 1991, Ericsson launched 2G phones on the world's first 2G network;
in 1994, Ericsson invented Bluetooth;
in 2001, Ericsson made the world's first 3G call for Vodafone in the UK; and
in 2009, Ericsson started the world's first 4G network and made the first 4G call."
Ericsson does deserve respect for all of that. Whether the license fees it wants Apple to pay are excessive may have to be determined in court. While a settlement between these companies is fairly likely to happen before a judicial decision, Ericsson, based on its behavior, may be the most demanding one of the major wireless patent holders and Apple has a lot at stake here financially just because of its huge revenues. So it really could be that pre-trial discovery and motion practice won't provide these parties with enough guidance, and one or more decisions may really be needed.
Paragraph 35 from Ericsson's complaint makes some general allegations about Apple's behavior and how it compares to that of its competitors:
"The parties' licensing negotiations have been unsuccessful because Apple refuses to pay a FRAND royalty corresponding to those paid by its competitors for Ericsson's Essential Patents. Apple fails to honor the fact that FRAND licensing is a two-way street, requiring not only that the licensor is fair and reasonable in providing licensing terms, but also that the licensee negotiates in good faith and accepts FRAND terms when they are offered."
Apple may be the most difficult company to sell a SEP license to, but it's a fact that Apple's competitors that have taken a license from Ericsson haven't always done so without a fight. Ericsson and Samsung settled only after failed renewal talks had resulted in litigation. Still, that deal helps Ericsson now. If any U.S. court (be it a judge or a jury; be it in California, Texas, Washington DC or elsewhere) determined that held that Apple should pay lower royalties (relative to volume) to Ericsson than Samsung, the protectionism question would inevitably come up. It would look like the United States allows Apple to get away with an unusual unwillingness to license SEPs.
Ericsson tends to enforce its patents pretty aggressively in different parts of the world. I've seen them demand rather high (though clearly sub-Motorola) royalties over WiFi patents in Germany, and India's antitrust regulator opened two investigations of Ericsson's demands in FRAND licensing negotiations. Also, a document I discovered about a year ago explains why Ericsson prefers to sue device makers rather than do license deals with chipset makers like Qualcomm.
Apple v. Ericsson is definitely a perfect match when it comes to FRAND licensing. Billions of dollars--probably many billions--are at stake. But it's just about money and not about a strategic conflict between direct competitors. By now it's clear that patent holders who thought to protect or gain market share through patent assertions have been unable to achieve such goals, let alone to wage "thermonuclear war," but there still are some financial issues left to be sorted out in the industry, such as Apple v. Ericsson, and some will have to be rediscussed from time to time as existing agreements expire.
Other industry players are interested in more or less zero-zero cross-license agreements, which is what I believe the Google-Verizon deal announced in December is about. Google has done various such deals, including with Cisco, Samsung, and LG. But that's the way Google and some other companies would like it to work. Ericsson is different. Patent licensing is increasingly important to its business.
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