- Legal action filed against Samsung in the U.S. for non-compliance with FRAND commitments
- Risk for temporary negative impact on operating income of SEK 1 – 1.5 b. per quarter, relating to several contract renewals and potential litigation expenses
Ericsson (NASDAQ:ERIC, news, filings) today filed a lawsuit in the U.S District Court for the Eastern District of Texas, against Samsung, for violating contractual commitments to negotiate in good faith and to license patents on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions.
The case addresses breaches of FRAND obligations by Samsung and seeks to obtain a ruling by the court that Ericsson has complied with its own commitments.
The FRAND system is a fundamental building block of a rich ecosystem that has allowed global cellular connectivity to scale to more than 8 billion interoperable connections. It allows access to intellectual property, developed by contributors like Ericsson, under global mobile standards, on FRAND terms and conditions. It also rewards those contributors for their significant up-front investment in R&D in each mobile generation.
Several license renewal negotiations may delay the payment of IP royalties if they extend beyond the expiry of existing licenses into an unlicensed period (noted in Q2 and Q3 2020 reports). Once renewed, unpaid royalties are expected to be recovered and recognized as revenue at the time of renewal.
Current geopolitical conditions are impacting handset sales volumes as is the shift from 4G to 5G handsets. This, in combination with delayed royalty payments from unlicensed periods and potential costs of litigation, may impact Ericsson’s operating income by SEK 1 – 1.5 b. a quarter beginning in the first quarter 2021. The actual financial impact will depend on the timing and terms and conditions of new agreements.
The value of Ericsson’s IP portfolio extends to more than 54,000 granted patents and is strengthened by annual investment in R&D of approx. SEK 40 b. With a leading global position in 5G, the company is confident of growing its IPR revenues long term, thereby further maximizing the value of the overall patent portfolio.
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