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Ericsson Reaches Patent Deal With Samsung Ending Legal Disputes

January 27, 2014

Ericsson AB (ERICB) and Samsung Electronics Co. (005930) settled their patent dispute and struck a new licensing deal over wireless technology in smartphones, televisions, tablets and Blu-Ray disk players.

The multi-year, cross-licensing agreement relates to GSM, UMTS and LTE standards for networks and handsets. The pact will increase Ericsson’s fourth-quarter sales by 4.2 billion kronor ($652 million) and boost net income by 3.3 billion kronor initially and includes continuing royalty payments to Ericsson, the Stockholm-based network maker said in a statement today.

The decision ends lawsuits at the U.S. International Trade Commission, and came just as a judge was scheduled to release findings in one of the cases. The two companies have used litigation before to get the upper hand in royalty talks over some of the most fundamental technologies used in modern electronics. A 2007 agreement was reached after more than a year of lawsuits in the U.S. and Europe, with each getting access to the others’ patents and Samsung making payments to Ericsson.

“We are pleased that we could reach a mutually fair and reasonable agreement with Samsung,” Ericsson’s Chief Intellectual Property Officer Kasim Alfalahi said in the statement. “This agreement allows us to continue to focus on bringing new technology to the global market and provides an incentive to other innovators to share their own ideas.”

Ericsson shares rose 2.1 percent to 76.60 kronor at 9:02 a.m. in Stockholm.

Court Battles

The latest legal fight between the two began when they were unable to agree on terms to extend a licensing deal in November 2012. Each accused the other of refusing to pay -- or offer -- a fair royalty rate.

Much of the dispute centers on technology used throughout the industry on different devices, such as ways to conserve bandwidth in a wireless communication, improve network access and sound quality and the ability to maintain signal strength while moving, such as in a car.

Six of the seven patents in the trial against Samsung cover technology that’s standard throughout the industry, so Ericsson pledged to license those patents on fair terms to any company. Ericsson said it asked Samsung to pay a comparable rate as is paid by handset rivals Apple Inc., HTC Corp. and BlackBerry Ltd.

The issue of royalty rates for fundamental technology has been debated at the agency, in civil courts and before regulators worldwide. In August, the administration of President Barack Obama vetoed an import ban won by Suwon, South Korea-based Samsung against Apple over the issue.

‘Feels Unhinged’

In a March 2013 filing with a federal court in Texas, Samsung claimed that, having ditched its mobile phone business, Ericsson “now feels unhinged as a non-practicing entity in the mobile phone market to extort vastly unreasonable and discriminatory license fees from Samsung.”

Ericsson, which started in 1876 as a telegraph repair shop, is the world’s biggest supplier of wireless-networks equipment and is trying to capture more business as carriers and device manufacturers strive for faster and more efficient service.

Chief Executive Officer Hans Vestberg has described Ericsson as having the most patents for 2G, 3G and 4G in the industry. Vestberg on Jan. 7 said that about half of all 4G traffic in the world goes through Ericsson networks.

Infringement Claims

Samsung, the biggest maker of smartphones and televisions, is both one of the biggest recipients of U.S. patents and a frequent defendant in lawsuits by competitors and patent-licensing companies. It’s embroiled in a global patent battle with its chief smartphone rival, Apple, in district court and is trying to fend off infringement claims at the ITC over 3G technology by design company InterDigital Inc.

Samsung posted fourth-quarter earnings that missed analyst estimates amid growing competition from Apple’s iPhones and budget devices from Chinese producers that crimp profit margins.

The ITC cases are In the Matter of Certain Electronic Devices, including Wireless Communication Devices, 337-862, and In the Matter of Certain Wireless Communication Equipment, 337-866, both U.S. International Trade Commission (Washington).

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Adam Ewing in Stockholm at aewing5@bloomberg.net

To contact the editor responsible for this story: Michael Shepard at mshepard7@bloomberg.net


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