Apple, Ericsson legal battle over patent pricing hots up

Apple Inc and Swedish telecom equipment maker Ericsson AB are suing each other in US courts after failing to reach an agreement over the pricing of wireless-technology patents used by the maker of the iPhone and iPad.

Apple sought a ruling from a federal court in California on 12 January that Ericsson's patents aren't essential to long term evolution, or LTE, standards, and Ericsson is seeking excessive royalty rates.

Stockholm-based Ericsson said today it filed a counter-suit in a district court in Texas, seeking a verdict on whether its fees are fair.

While Apple's iPhone and iPad have won over users in recent years, Ericsson helped pioneer the mobile-device market with its handsets in the 1990s. The company sold its mobile-phone business to Sony Corp in February 2012, five years after Apple introduced the iPhone, which is now its largest revenue source.

 ''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,'' Cupertino, California-based Apple said in its complaint.

Ericsson said two years of negotiations to renew a licensing agreement failed because of fundamental disagreements of how patents on standard-essential technology should be valued.

This is seen as part of a broader fight roiling the technology industry, between the older companies that created some of the basics of wireless and those who make the devices using it.

''We couldn't get any further in the negotiation,'' Gustav Brismark, Ericsson's vice president of patent strategy, said in an interview. Apple's first-filed suit ''was a clear sign that we don't see that there will be any solution without the support of a third party.''

Ericsson has been aggressive in defending its patents, suing Samsung Electronics Co in 2012 saying the South Korean phonemaker failed to extend a licensing deal after years of negotiations.

The two sides reached a settlement a year ago with a new licensing deal over wireless technology in smart phones, TVs, tablets and Blu-ray disk players. The deal boosted Ericsson's 2013 fourth-quarter sales by 4.2 billion kronor ($520 million) and net income by 3.3 billion kronor.

''It's important for us that more devices are out in the market and available to consumers,'' Kasim Alfalahi, Ericsson's chief intellectual property officer, said in a phone interview with Bloomberg. ''Our approach is on fair and reasonable terms. That's always been our approach.''

Ericsson spends about $5 billion annually on research and development, Alfalahi said.

While the lawsuit is over the fundamentals of mobile-phone technology, Ericsson and Apple also are at loggerheads over a possible change in policy for the licensing of patents on the Wi-Fi standard. Some of the arguments made in Apple's suit reflect possible changes that could be made Feb. 5 by the Institute of Electrical and Electronics Engineers.

Ericsson sued Xiaomi Corp in India last year, saying the Chinese phone-maker hadn't licensed its inventions. The company said at the time that his company had essential patents for 2G, 3G and 4G wireless technology, which meant any seller of products compliant with those standards must secure licences.

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.

''Under Ericsson's approach, by incorporating its own unique technologies, Apple is subjecting its products to higher royalty demands than other companies' products that do not incorporate such features and functionalities,'' according to the complaint.

''We've always been willing to pay a fair price to secure the rights to standards essential patents covering technology in our products,'' Kristin Huguet, an Apple spokeswoman, said in an e-mailed statement. ''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.''