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Ericsson goes to war with Samsung

Claims infringement of GSM, CDMA patents

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Intellectual property rights (IPR) and revenues are becoming increasingly important to the mobile equipment makers, as they look to bolster falling margins by grasping control of the development agenda for 4G, and to boost their incomes.

So far, Qualcomm has been portrayed as the bad guy, as it has come under fire for its royalty charges and licensing policies from Nokia, Broadcom and others in anti-trust complaints and patent suits.

Now Ericsson is getting just as aggressive, suing Samsung over use of essential GSM, GPRS and EDGE patents.

Like the multiple Nokia-Qualcomm disputes, the timing coincides with the run-up to renewal of a licensing agreement, as the technology owners come under increasing pressure from the handset majors to sweeten their terms.

Ericsson, itself a handset maker through its Sony joint venture, and a supporter of Nokia's calls for royalty caps to reduce cellphone costs, is in a more complex position than Qualcomm, since it needs to balance its desire for increased IPR revenues with its drive to keep cellphone prices competitive.

However, it can also use its patents to trade with other handset makers in royalties deals, and so the higher the value of its holdings, the lower the overall licensing burden for Sony Ericsson.

Even without the bartering factor, the balance for the Swedish giant is shifting towards boosting its patent strengths anyway. In the past two years it has greatly expanded its activities in technology licensing, including the marketing of reference platforms to Sony Ericsson rivals, and while its joint venture focuses on the high end of the market - and so is less sensitive to royalty costs than the phonemakers chasing emerging economies - there is also a real option for Ericsson to quit handsets altogether, and one that we would expect it to take up in the next few years.

Therefore, IPR is more central to the strategy going forward, and Ericsson aims to establish certain ground rules right now.

In this, enforcing GSM patents and renewing existing agreements without significant dilution of the terms, is vital, since Ericsson has a huge patents holding in the technology.

While 3G may be the growth area for smartphones, GSM has been given new expansion prospects with the migration of some CDMA operators, and the vast potential of new GSM subscriber bases in emerging economies.

This sustained growth in the 2G base has also attracted Qualcomm, among others, more aggressively to assert its intellectual property rights in the platform to take advantage of the new boom.

Ericsson has filed its complaint against Samsung, which holds third place in the world handset market against Sony Ericsson's fifth or sixth, in US district court in Texas, alleging the infringement of 11 patents in CDMA, W-CDMA and GSM/EDGE, including some related to power management.

The new filing comes in the wake of a lawsuit filed in February claiming that Samsung had failed to renew its patent license agreement with Ericsson and so no longer had the right to use technology covered by Ericsson patents in GSM/GPRS/EDGE. The license expired on December 31 last year and extensive negotiations have failed to produce a renewed agreement, according to Ericsson. The original deal was signed in 2002.

Ericsson claimed the objective of the lawsuit was not to secure damages, but to gain a court order banning Samsung from making use of proprietary, unlicensed technology in its mobile devices.

"It's more a matter to make them stop using our patents if they're not going to license them at a reasonable price."

However, the filing does also ask for punitive damages as well as payments to cover lost revenues.

Like the Nokia-Qualcomm saga, there is a strong element of brinkmanship and bluff in all this. In the end, it is unlikely that Samsung will be able to work around Ericsson's patents any more than Nokia will be able to ignore Qualcomm's, but they will maintain the pressure to the last minute to gain a more favorable licensing deal, which could mean shorter renewal periods as well as lower overall royalties.

Similarly, the patent holders will use the threat of lawsuits to scare their erstwhile customers into a rapid deal.

But behind the short term tactics, the IPR battles are highlighting the paralysing effect that the current patents situation is having on the development of low cost mobile communications, let alone 3G and 4G.

A new, more universal system is undoubtedly required, and the mobile companies need to look to the computer industry, from which Intel and others are emerging with a new approach to IPR, hoping to use this to make WiMAX and Wi-Fi more attractive than 3G.

Copyright © 2006, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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