Victories in patent dispute cases sometimes amount to little more than a moral victory. One company sues another and the judgment, if ever actually awarded, hardly covers the cost of legal fees.
On January 27, 2014, however, many were reminded that a legal victory can also carry with it pronounced economic benefits, as Ericsson experienced when it won a $650 million award in a drawn out case against Samsung.
The victory boosted the Swedish company’s stock price 2.4 percent in one day and included royalties that will provide the company with cash for years to come. JP Morgan analyst Rod Hall noted that “Ericsson’s settlement with Samsung is going to be an important future driver of its earnings. The ongoing revenue could be approximately 2.1 billion Swedish crowns annually and, with these revenues having 70% ongoing margin, they could add 5.4 percent to 2014 earnings per share.”
In this case, moral victory came with economic upside.
A Look Back on the Details of the Case
In 2001, Samsung signed a licensing deal with Ericsson involving Global System for Communications (GSM), Universal Mobile Telecommunications System (UMTS), and LTE standards that covered both handset and network patents. Everything was fine until 2011 when the deal ran out, and Ericsson asked for a significantly higher royalty rate.
Samsung refused the deal on FRAND (fair, reasonable and non-discriminatory) grounds. Owners of standard-essential patents are often required to license those patents on FRAND terms. Samsung asserted that after Ericsson sold its 50% stake in mobile phone maker Sony Ericsson to Sony for $1.46 billion in 2011, they were repositioning themselves as nothing more than another patent troll.
After Samsung’s accusations, Ericsson took legal action by filing a complaint in the District Court for the Eastern District of Texas. Samsung retaliated by filing a complaint with the U.S. International Trade Commission over the licensing deals and several patent infringement claims that covered CMOS memory, semiconductor devices, and wireless communications.
Samsung also claimed a breach of contract, charging Ericsson with a failure to honor FRAND terms in their licensing agreement. In their complaint, Samsung claimed, “Ericsson has recently jettisoned its mobile phone business and it now feels unhinged as a non-practicing entity in the mobile phone market to extort vastly unreasonable and discriminatory license fees from Samsung under threat of product exclusion resulting from a simultaneously filed complaint in the U.S. International Trade Commission (‘ITC’). Ericsson’s misguided actions epitomize the patent ‘hold up’ problem that has been the recent subject of wide discussion within standard-setting organizations and other authorities around the globe […]”
As it were, the District Court for the Eastern District of Texas didn’t get a chance to hear the case.
Samsung is tangled up in legal contretemps around the globe, and the threat of another drawn out court battle seemed to be enough to force them to cut their losses and to settle, so as to avoid the risk of having a judge pass down a potentially disastrous ruling.
For Ericsson, there is a moral victory, sure — they tout the deal as an illustration of the company’s “commitment to FRAND principles.” But the victory also carries with it a valuable economic boost – $650 million dollars and the not insignificant ripple that royalties add to Ericsson’s future revenue.