Ericsson’s patent licensing operation continues to surge ahead. Releasing its annual results at the end of last week, the company revealed that it had generated SEK10.6 billion (approx. $1.62 billion) from royalties during financial year 2013. In 2012, the figure stood at SEK6.6 billion (approx. $1 billion) and at SEK4.66 billion ($710 million) in 2011; so that’s more than a 100% income increase in the space of two years. The news came just days after the announcement that Ericsson had concluded a major FRAND-based deal with Samsung, which saw the Korean company make an upfront payment of SEK4.4 billion ($650 million), all of which was recognised in Ericsson’s Q4 2013. There will also be on-going payments over a “multi-year” period.
The man who has overseen this tremendous growth is Ericsson’s chief IP officer Kasim Alfalahi, who has been in the role since 2005 and since the beginning of 2012 has been a direct report to Ericsson’s CEO Hans Vestberg. When I caught up with him for a quick chat on Friday Alfalahi was understandably proud of the results he and his team had secured. However, when I observed that the SEK10.6 billion they had generated was very close to Ericsson’s SEK12.2 billion net income for FY 2013, and that because of the way in which royalties tend to go straight to the bottom line they probably accounted for a large part of the company’s profits, he stated that it was wrong to see things in those terms “For us,” he stated, “licensing income fuels our continuous investment in R&D, which is something like $5 billion every year. So while I cannot say I am not pleased with what we made in 2013, you really need to see it in those terms.” Royalties would be impossible without the R&D, he explained, and the money they generate is used to help finance further R&D.
Talking about the Samsung deal, Alfalahi told me it was “important” because it validated Ericsson’s approach. “This shows that the FRAND system works. Although we do not make them public, we have signed over 100 agreements in this area where we have not had to sue, but we need the ability to go to a third party if necessary,” he said. While he would not talk about the specifics of what was agreed, he did say that when Ericsson signs a deal it tends to do so on a portfolio basis. “We do not list patents in an appendix or anything like that. We want a licensee to be able to get on with its business and not have to worry about us coming back about a certain right they may be infringing.”
Ericsson is always willing to puts itself in front of a judge to have him/her determine the fairness of its FRAND rates – and it must continue to have that option, Alfalahi said: “If we don’t get a fair return on our R&D investments we will be less incentivised to continue.” That does not mean just being able to go to court, but also – where necessary – to have the chance of getting an injunction: “There has been a lot of talk as to whether FRAND patent owners should be able to get injunctions, but there has to be a balance. As the patent owner you are under an obligation to offer fair, reasonable and non-discriminatory terms, but if you do that and infringers are not willing to take a licence then without the threat of injunctions they have nothing to lose. Their worse case scenario is that at some stage they have to pay us something, so they are incentivised not to negotiate.”
Ericsson is committed to FRAND because it would like to see as many people as possible using mobile devices. “Our guiding principle is to promote the industry and FRAND enables the inter-connectivity that allows everyone to communicate with each other,” Alfalahi stated. “We want to see the devices out there and do not want to use patents as a way to stop anybody. I have never had a conversation in all my time here about developing patents to block. We want the industry to grow: a small share in 50 billion devices is much more interesting to us than a bigger share in three or five billion.”
IP management, Licensing, IP politics, IP litigation, Patents, IP business