Apple sues Ericsson to trim wireless patent royalty rates

Posted:
in General Discussion edited January 2015
Apple has filed suit against Ericsson for charging excessive royalty rates on certain wireless Long Term Evolution (LTE) technology, and argues that the Swedish company's patents are not essential to overarching industry standards.



In a complaint lodged with the U.S. District Court for the Northern District of California, Apple revealed that Ericsson is leaning on deemed standard essential IP to demand a percentage of the total price of every cellular-connected iPhone or iPad sold, reports Reuters.

"Ericsson seeks to exploit its patents to take the value of these cutting-edge Apple innovations, which resulted from years of hard work by Apple engineers and designers and billions of dollars of Apple research and development -- and which have nothing to do with Ericsson's patents," the complaint reads, as reported by Bloomberg.

Apple contends royalties should be based on the value of the component using the patented tech, such as baseband chips or application processors, which would come out to a fraction of what Ericsson is asking.

Barring an outright win, Apple has also requested the court instate a reasonable royalty rate if the company is found to infringe Ericsson's IP.

Ericsson has become increasingly aggressive in brandishing its batch of patents to milk royalties from major industry players like Samsung and Xiaomi, which use the IP across a range of devices. Most leveraged patents, including those related to Apple's case, are for wireless communications technology.

''We've always been willing to pay a fair price to secure the rights to standards essential patents covering technology in our products," said Apple spokeswoman Kristin Huguet. "Unfortunately, we have not been able to agree with Ericsson on a fair rate for their patents so, as a last resort, we are asking the courts for help."

Apple currently licenses a number of Ericsson's standard-essential patents, but the deal was inked in 2008 and could be set to expire.

The redacted complaint did not reveal how much Ericsson is asking, but the number is likely substantial considering Apple's standing in the mobile phone space. For the third quarter of 2014, iPhone sales were north of 39 million units, only including one week of iPhone 6 and iPhone 6 Plus availability.
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Comments

  • Reply 1 of 42
    Ericsson? Ericsson? I've heard that name before..? Didn't they used to make something or other?
  • Reply 2 of 42
    cnocbuicnocbui Posts: 3,613member
    Poor Apple, they can barely turn a profit and are struggling so hard to survive. Please give them a break before they go bankrupt.
  • Reply 3 of 42
    Quote:

    Originally Posted by cnocbui View Post



    Poor Apple, they can barely turn a profit and are struggling so hard to survive. Please give them a break before they go bankrupt.



    If every company Apple licenses from felt they should pay more (due to their success) and got away with it, that wouldn't be far from the case. 

     

    The problem here is, why should Apple be forced to pay more than any other company for use of the same patents? 

     

    That's what gets me when sites try to guesstimate how much it "costs" to build an iPhone. There is so much not taken into account. Not that Apple doesn't make a healthy profit, but there is much more involved in the expense of an Apple product than the sum of the parts. 

  • Reply 4 of 42
    cnocbuicnocbui Posts: 3,613member
    Quote:

    Originally Posted by RedGeminiPA View Post

     



    If every company Apple licenses from felt they should pay more (due to their success) and got away with it, that wouldn't be far from the case. 

     

    The problem here is, why should Apple be forced to pay more than any other company for use of the same patents? 

     

    That's what gets me when sites try to guesstimate how much it "costs" to build an iPhone. There is so much not taken into account. Not that Apple doesn't make a healthy profit, but there is much more involved in the expense of an Apple product than the sum of the parts. 




    Why should Apple make more profit than any other manufacturer and charge more for their phones than anyone else?  If you answer 'because they can', that would be one answer.  What's this 'forced'?  If I complained about the high price of an iPhone and said I was being 'forced' to pay, I would be shot down in a heartbeat.

     

    Why do real estate agent's get away with charging sellers a percentage of the sale price of a house when the effort involved in selling is probably fairly fixed?

  • Reply 5 of 42
    Quote:

    Originally Posted by cnocbui View Post

     



    Why should Apple make more profit than any other manufacturer and charge more for their phones than anyone else?  If you answer 'because they can', that would be one answer.  What's this 'forced'?  If I complained about the high price of an iPhone and said I was being 'forced' to pay, I would be shot down in a heartbeat.

     

    Why do real estate agent's get away with charging sellers a percentage of the sale price of a house when the effort involved in selling is probably fairly fixed?




    Just sold a property, the real estate one is easy, motivation.  They get more for a home we all win.  

  • Reply 6 of 42
    @cnocbui - In the case of apple it is 'forced', since these are standard essential patents, and not just any regular patents.

    The point here is that apple buys the wireless chip which uses these patents for a very small sum, but has to pay a huge rate compared to others who buy the same chip. So, your analogies don't stand.

    If I sold you a TV, and the price of using it was dependent on the size or the cost of your house would that be reasonable?

    Ericsson should get paid a reasonable share of what the wireless chip costs, irrespective of who is buying that wireless chip.
  • Reply 7 of 42
    richlrichl Posts: 2,213member
    Quote:
    Originally Posted by RedGeminiPA View Post



    If every company Apple licenses from felt they should pay more (due to their success) and got away with it, that wouldn't be far from the case. 


     

    Ericsson's licensing terms are based on the success of a company but on the price of the product. There's plenty of companies making expensive but unsuccessful smartphones who I'm sure are paying just as much.

  • Reply 8 of 42

    The cost of the component does correspond to the value of the component in the final product.  The functionality provided by this component is fundamental to the use of the phone.

     

  • Reply 9 of 42
    rob53rob53 Posts: 2,007member

    You're all missing the point of this suit. These are standards-essential IP we're talking about, not something Apple has a choice of designing around. It's the same issues Apple has been fighting with other patent holders who are now planning on charging excessive amounts of money for their individual patents related to a technology they've offered their patents for to make it a standard. A proper analogy would be forcing everyone to use a specific bolt in a car from only one manufacturer and that manufacturer charges a whole lot more than is reasonable. Apple can't build a compatible bolt because it wouldn't work the same way on LTE cellular networks. They're locked into using that bolt. Why should anyone have to pay so much for those bolts when Ericsson has already given them to the standards organization for a reasonable cost. (It sounds like they're getting ready to increase that amount without actually doing anything to justify the increase other than greed.) I guess it's time for Apple to design the next generation cellular network protocol and put Ericsson out of business.

  • Reply 10 of 42
    croprcropr Posts: 914member
    Quote:

    Originally Posted by Macky the Macky View Post



    Ericsson? Ericsson? I've heard that name before..? Didn't they used to make something or other?



    Ericsson is the biggest vendor for mobile network equipment (the equipment that telecom operators need to build wireless networks), so if you don't know Ericsson, you know who to blame.

  • Reply 11 of 42
    iaeeniaeen Posts: 588member
    richl wrote: »
    Ericsson's licensing terms are based on the success of a company but on the price of the product. There's plenty of companies making expensive but successful smartphones who I'm sure are paying just as much.

    Are you really sure? The article states that Apple has an existing contract from 2008, and that this lawsuit is likely about renewing the license.

    I wouldn't be at all surprised if other companies had cheaper rates similar to the 2008 contract.

    Edit: Further, there are not "plenty of companies" turning a profit in the mobile hardware business. There is really only Apple now that Samsung is in its death spiral.
  • Reply 12 of 42
    rob53rob53 Posts: 2,007member
    Quote:

    Originally Posted by Jamjam View Post

     

    The cost of the component does correspond to the value of the component in the final product.  The functionality provided by this component is fundamental to the use of the phone.

     




    Actually, in this case it doesn't. Everyone provides an LTE-based phone meeting the requirements of that standard. Having LTE doesn't make phone manufacturer's phone any more valuable than another one with LTE.

     

    Now that Verizon is allowing voice over WiFi, cellular-only phones are of lesser value. I can see a time when the other cellular companies allow this and cellular-only communications actually go down in use. The LTE component is only one part of any smartphone.

  • Reply 13 of 42
    gatorguygatorguy Posts: 20,296member
    iamnemani wrote: »
    @cnocbui - In the case of apple it is 'forced', since these are standard essential patents, and not just any regular patents.

    The point here is that apple buys the wireless chip which uses these patents for a very small sum, but has to pay a huge rate compared to others who buy the same chip. So, your analogies don't stand

    They do? Where did you find that? I've not ever come across it.
  • Reply 14 of 42
    richlrichl Posts: 2,213member
    Quote:

    Originally Posted by iaeen View Post



    Edit: Further, there are not "plenty of companies" turning a profit in the mobile hardware business. There is really only Apple now that Samsung is in its death spiral.

     

    Sorry, my bad. I meant to write unsuccessful!

  • Reply 15 of 42
    cnocbuicnocbui Posts: 3,613member
    Quote:
    Originally Posted by Rob Bonner View Post

     



    Just sold a property, the real estate one is easy, motivation.  They get more for a home we all win.  


     

    In my opinion, estate agent's don't secure you a higher price, but that's another topic.  It was just an example of one of many instances where commercial transactions are done on a percentage basis and not a fixed price.  If Ericsson are applying the same formula to all it's customers, then I don't see Apple have anything to complain about.

  • Reply 16 of 42
    croprcropr Posts: 914member

    Edit: Further, there are not "plenty of companies" turning a profit in the mobile hardware business. There is really only Apple now that Samsung is in its death spiral.

    You are mistaken.  There is a massive amount of hardware and software installed at the telecom operators.  Huawei, Ericsson, Nokia (the part that is not sold to MS), Alcatel-Lucent are all making business and profits in that sector.

  • Reply 17 of 42
    iaeeniaeen Posts: 588member
    cropr wrote: »
    You are mistaken.  There is a massive amount of hardware and software installed at the telecom operators.  Huawei, Ericsson, Nokia (the part that is not sold to MS), Alcatel-Lucent are all making business and profits in that sector.

    I was referring to smartphones.
  • Reply 18 of 42
    Quote:

    Originally Posted by Macky the Macky View Post



    Ericsson? Ericsson? I've heard that name before..? Didn't they used to make something or other?

     

    Not sure if this is sarcasm or not, but they are huge global company, and the leader in telecommunications equipment with a $40bn market cap and over 100k employees. 

  • Reply 19 of 42
    Quote:
    Originally Posted by RedGeminiPA View Post

     



    If every company Apple licenses from felt they should pay more (due to their success) and got away with it, that wouldn't be far from the case. 

     

    The problem here is, why should Apple be forced to pay more than any other company for use of the same patents? 

     

    That's what gets me when sites try to guesstimate how much it "costs" to build an iPhone. There is so much not taken into account. Not that Apple doesn't make a healthy profit, but there is much more involved in the expense of an Apple product than the sum of the parts. 


     

    @RedGeminiPA : How do you know that Apple is "forced" to pay more than other companies?

     

    Firstly, Samsung had a similar dispute over licensing renewal a couple of years back and it ended in a settlement last year.  According to the Bloomberg article cited here, "the deal boosted Ericsson’s 2013 fourth-quarter sales by 4.2 billion kronor ($520 million) and net income by 3.3 billion kronor." I'm guessing Apple would probably have to pay a lot more since it has so little to counter-offer (ie, cross-license) -- or maybe Ericsson isn't really looking to cross-license anything since it's not in the smartphone biz. Further, it's a well-established industry practice to charge per device in the mobile industry. Qualcomm for instance is been known to charge anywhere between 2%-5% per device for their wireless patents. 

     

    Quote:
    Originally Posted by iamnemani View Post



    @cnocbui - In the case of apple it is 'forced', since these are standard essential patents, and not just any regular patents.



    The point here is that apple buys the wireless chip which uses these patents for a very small sum, but has to pay a huge rate compared to others who buy the same chip. So, your analogies don't stand.



    If I sold you a TV, and the price of using it was dependent on the size or the cost of your house would that be reasonable?



    Ericsson should get paid a reasonable share of what the wireless chip costs, irrespective of who is buying that wireless chip.

     

    @iamnemani: ;Second, Bloomberg also notes, "Apple, saying that Ericsson is seeking excessive royalty rates, yesterday asked a federal court in California to rule that Ericsson’s patents aren’t essential to long term evolution, or LTE, standards. Stockholm-based Ericsson said today it filed a complaint in a district court in Texas, asking for a verdict on whether its fees are fair."   So no, this has little to do with SEPs and Ericsson can charge whatever it "feels like."  Apple used the same argument to demand $25 - $30 per device royalty from Samsung and won in a jury trial in 2012, so why such double-standard?

  • Reply 20 of 42
    Quote:

    Originally Posted by tooltalk View Post

     
    Quote:
    Originally Posted by RedGeminiPA View Post

     



    If every company Apple licenses from felt they should pay more (due to their success) and got away with it, that wouldn't be far from the case. 

     

    The problem here is, why should Apple be forced to pay more than any other company for use of the same patents? 

     

    That's what gets me when sites try to guesstimate how much it "costs" to build an iPhone. There is so much not taken into account. Not that Apple doesn't make a healthy profit, but there is much more involved in the expense of an Apple product than the sum of the parts. 


     

    @RedGeminiPA : How do you know that Apple is "forced" to pay more than other companies?

     

    Firstly, Samsung had a similar dispute over licensing renewal a couple of years back and it ended in a settlement last year.  According to the Bloomberg article cited here, "the deal boosted Ericsson’s 2013 fourth-quarter sales by 4.2 billion kronor ($520 million) and net income by 3.3 billion kronor." I'm guessing Apple would probably have to pay a lot more since it has so little to counter-offer (ie, cross-license) -- or maybe Ericsson isn't really looking to cross-license anything since it's not in the smartphone biz. Further, it's a well-established industry practice to charge per device in the mobile industry. Qualcomm for instance is been known to charge anywhere between 2%-5% per device for their wireless patents. 

     

    Quote:
    Originally Posted by iamnemani View Post



    @cnocbui - In the case of apple it is 'forced', since these are standard essential patents, and not just any regular patents.



    The point here is that apple buys the wireless chip which uses these patents for a very small sum, but has to pay a huge rate compared to others who buy the same chip. So, your analogies don't stand.



    If I sold you a TV, and the price of using it was dependent on the size or the cost of your house would that be reasonable?



    Ericsson should get paid a reasonable share of what the wireless chip costs, irrespective of who is buying that wireless chip.

     

    @iamnemani: ;Second, Bloomberg also notes, "Apple, saying that Ericsson is seeking excessive royalty rates, yesterday asked a federal court in California to rule that Ericsson’s patents aren’t essential to long term evolution, or LTE, standards. Stockholm-based Ericsson said today it filed a complaint in a district court in Texas, asking for a verdict on whether its fees are fair."   So no, this has little to do with SEPs and Ericsson can charge whatever it "feels like."  Apple used the same argument to demand $25 - $30 per device royalty from Samsung and won in a jury trial in 2012, so why such double-standard?


     

    The Apple patents used against Samsung were not standards essential. You see, there are two standards and not a double standard. Apple is saying Ericsson's patents are not actually SEP even though Ericsson pledged them as such. As part of this it will need to be determined if they are actually required to implement LTE. If they are, then a rate will need to be determined that is fair, reasonable, and non-discriminatory. Charging a percentage of the final product for SEPs is ludicrous for any company. 

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