U.S. based Ericsson Inc. and Sweden's Telefonaktiebolaget LM Ericsson (together, "Ericsson") are suing Apple over their refusal to license their patent portfolio of Essential Patents via ETSI standards. Ericson states in their formal complaint before the court that "Apple and Ericsson previously entered into a license agreement that is now expired, yet Apple continues to sell products that comply with the cellular standards without a license from Ericsson." Apple argued, according to Bloomberg, that Ericsson is seeking excessive royalty rates and wants the federal court in California to rule that Ericsson's patents aren't essential to long term evolution, or LTE, standards. Apple must be very confident that they have a solid argument to take on established Essential Patents that are well established. In the end, this could be a game changer for the industry if Apple prevails.
Patently Apple has yet to see Apple's counter suit against Ericsson, so all we have from Apple's side is what they told Bloomberg in prepared statements.
Apple's statement noted that "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."
Bloomberg added in their report that "At the core of the dispute is Apple's contention that Ericsson wants Apple to pay royalties based on percentage of the price of the entire device. Apple argued it should be set on a smaller base and called Ericsson's demands unreasonable."
Kristin Huguet, an Apple spokeswoman, stated in an e-mailed that "We've always been willing to pay a fair price to secure the rights to standards essential patents covering technology in our products. 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."
In the Beginning
In the beginning Ericsson makes their case before the court. Ericsson first lays out their credentials and basic case against Apple as noted in-part below.
"For more than three decades, Ericsson has pioneered the development of the modern cellular network. Every major mobile network operator in the world buys solutions and/or services from Ericsson, and Ericsson manages networks that serve more than one billion subscribers globally. Forty percent of all mobile calls are made through Ericsson systems, and Ericsson's equipment is found in more than one hundred and eighty countries. Ericsson is widely viewed as one of the leading innovators in the field of cellular communications.
Due to the work of more than twenty-five thousand Ericsson research and development (R&D) employees, Ericsson's inventions are a valuable part of the fundamental technology that connects phones, smartphones, and other mobile devices seamlessly using cellular networks worldwide and provides increased performance and new features for the benefit of consumers. As a result of its extensive research and development efforts, Ericsson has been awarded more than thirty-five thousand patents worldwide. Many of Ericsson's patents are essential to the 2G (GSM, GPRS, and EDGE), 3G (UMTS/WCDMA and HSPA), and/or 4G (LTE) telecommunication standards, all of which are used by Apple's products."
In the end, Ericsson notes that "Since its license has expired, Apple infringes, contributes to the infringement of, and/or induces infringement of Ericsson's Essential Patents." They also stated that "Apple's refusal to pay a FRAND rate gives it an unfair competitive advantage over its competitors who have licensed Ericsson's global portfolio of patents on FRAND terms."
A Few Interesting Statements found in Ericsson's "Background" Segment of the Lawsuit
Below are a few of the statements that were found in Ericsson's case "background." Rightfully or wrongfully Ericsson attempts to belittle Apple as merely being one taking advantage of the Essential Patent system rather than one contributing to the creation of the cellular world of today. Here are a few excerpts:
"In the telecommunications industry, global standards are fundamental to ubiquitous connectivity and enable any company – even a company like Apple with no history in the wireless industry – to enter the market and sell smartphones.
The 2G, 3G, and 4G cellular standards comprise a lengthy set of documents that specify complete 'blueprints' for cellular networks and phones. Developing these standards requires much more than merely adopting existing technology to specify how different products will communicate.
The 2G, 3G, and 4G cellular standards hugely benefit consumers and the competitive economic conditions in the Unites States. More choices are available to consumers because the standards are available for anyone to implement, even companies outside of the standard body's membership.
Therefore, the market is accessible for new players to launch competitive products without any investment in the multi-year process necessary to develop the enabling standards. Many new vendors – like Apple – have taken advantage of the system and emerged as market leaders, even though they had never invested in its development.
Patent licensing provides a necessary incentive for innovators to direct research and development resources to standardization efforts. Receiving a return on this investment is a prerequisite for the underlying business models of standard-setting participants like Ericsson. FRAND licensing has been recognized by the U.S. PTO and DOJ as a necessary incentive for standardization …
The two segments that are presented below are noted in full from Ericsson's complaint filed before the court.
The Current Licensing Dispute
Ericsson is uniquely positioned as a leader in the development of standards for all major mobile communication systems. Its active participation and leadership in global standardization organizations, and its commitment to open and innovative technology standards, enable Ericsson to play a key role in shaping standards for future technologies.
As a result, Ericsson owns patents that are, and remain, essential to practice the GSM, GPRS, EDGE, WCDMA, HSPA and/or LTE standards. Ericsson has declared to ETSI, and to 3GPP via ETSI, that it is prepared to grant licenses to its Essential Patents on FRAND terms and conditions consistent with Ericsson's FRAND commitment, as set forth in its IPR licensing declarations to ETSI.
Apple and Ericsson previously entered into a license agreement that is now expired, yet Apple continues to sell products that comply with the cellular standards without a license from Ericsson.
Years before Apple's license expired, the parties began negotiations to renew the license to Ericsson's 2G and 3G Essential Patents. Over the course of many months, representatives from Ericsson and Apple met on numerous occasions to discuss licensing terms. Throughout the parties' negotiations, Ericsson offered to globally license Apple under its portfolio of 2G, 3G, and 4G standard essential patents on FRAND terms, but Apple refused Ericsson's offer.
Ericsson and Apple engaged in technical meetings regarding Ericsson's Essential Patents before Apple discontinued such meetings in favor of business negotiations.
Apple also declined to accept Ericsson's proposal to arbitrate regarding Ericsson's Essential Patents.
Ericsson's offers to Apple contemplate a global license to all of Ericsson's Essential Patents. The parties have not exchanged any offers or requests to license individual patents; nor has Apple ever made a request for Ericsson to provide a license offer on a patent-by-patent basis. This is consistent with Ericsson's extensive licensing experience as well as standard industry practice.
Licensing portfolios of standard-essential patents on a worldwide basis, rather than individual patents on a country-by-country basis, is the most efficient accommodation for licensing large and dynamic portfolios of standard-essential patents, such as those owned by Ericsson, and it fulfills the FRAND commitment made by the IPR owner.
The parties' licensing negotiations have been unsuccessful because Apple refuses to pay a FRAND royalty corresponding to those paid by its competitors for Ericsson's Essential Patents. Apple fails to honor the fact that FRAND licensing is a two way street, requiring not only that the licensor is fair and reasonable in providing licensing terms, but also that the licensee negotiates in good faith and accepts FRAND terms when they are offered.
During negotiations, Apple has accused Ericsson of violating its FRAND commitment through its offers to Apple. Ericsson disagrees, and requests that the Court declare that Ericsson has complied with its FRAND commitment and offered Apple a license on FRAND terms.
Declaratory Judgment of No Breach of FRAND Commitment
Ericsson owns patents essential to the GSM, GPRS, EDGE, WCDMA, and LTE standards. Apple infringes Ericsson's Essential Patents and does not have a license to practice such patents.
Ericsson, as the owner of patents that are essential to ETSI standards, has voluntarily declared that it will grant licenses to companies, including Apple, on terms that are fair, reasonable, and non-discriminatory, in compliance with the ETSI IPR Policy. This declaration forms a contract under French law to which Apple claims to be a third party beneficiary.
There is a dispute between Ericsson and Apple concerning whether Ericsson's offers to Apple for a global license to Ericsson's Essential Patents complied with Ericsson's commitment to license its Essential Patents on terms and conditions consistent with Ericsson's IPR licensing declarations to ETSI and ETSI's IPR Policy.
Apple has asserted that Ericsson has failed to offer a license under Ericsson's Essential Patents to Apple on terms that are FRAND. There is a case or controversy of sufficient immediacy, reality, and ripeness to warrant the issuance of a declaratory judgment.
Ericsson requests a declaratory judgment that Ericsson's global license offers complied with its FRAND commitment, as set forth in its IPR licensing declarations to ETSI, as well as ETSI's IPR Policy and any applicable laws, during its negotiations with Apple.
Ericsson requests that the Court declare that Ericsson has complied with its contractual obligations under its FRAND commitment as set forth in its IPR licensing declarations to ETSI, as well as ETSI's IPR Policy and any applicable laws.
Payer for Relief
WHEREFORE, Ericsson respectfully requests that this Court enter judgment in its favor and grant the following relief:
A. Adjudge and declare that Ericsson complied with its FRAND commitment, as set forth in its IPR licensing declarations to ETSI, as well as ETSI's IPR Policy and any applicable laws, in its negotiations with Apple in regard to a global license to Ericsson's Essential Patents;
B. Adjudge and declare that the terms and conditions for a global license to Ericsson's Essential Patents offered by Ericsson to Apple are consistent with Ericsson's FRAND commitment, as set forth in its IPR licensing declarations to ETSI, as well as ETSI's IPR Policy and any applicable laws; and
C. Award such other relief as the Court may deem appropriate and just under the circumstances.
Ericsson's Complaint Amendment
Ericsson amended their formal complaint with the court later on January 14, 2015. While there may be more amendments made that we couldn't find, we easily noted that they had amended their Prayer for Relief as noted above by adding two entries as follows:
The first amendment is found under "C": "Adjudge and decree that Apple is liable under promissory estoppel."
The second amendment is found under "D": "Enter judgment against Apple for the amount of damages that Ericsson proves at trial."
What was originally noted in Ericsson's Prayer for Relief as request "C" has now become request "E."
For the record, all highlighting found in this report in yellow or bold type has been added by Patently Apple for the sake of clarity or emphasis and not made by Ericsson.
Instead of filing their case against Apple in California or in Delaware where its principle business legally resides, Ericsson has chosen to file their case in Texas Eastern District Court that has a history of favoring patent trolls. As noted earlier, the outcome of this case could be a game changer for the industry if Apple prevails.
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