Ericsson's billion dollar privateering agreement 13 Jan 13
There is nothing hugely surprising about the fact that Ericsson has transferred more than 2,000 patents and applications to Unwired Planet. After all, we know that the patent privateer model is one that operating companies have been finding increasingly attractive for a few years now. Instead of having to do all the heavy licensing and litigation lifting itself, Ericsson is handing that responsibility over to Unwired in return for an on-going share of the spoils. At the same time, the company will be avoiding direct confrontation with actual or potential business partners.
What is interesting about the deal, however, is the fact that Unwired filed a form 8-K which provides details of the terms. This is not something we get to see everyday when an operating company agrees to work with a privateer. Thus, we find out that:
In consideration for the Ericsson Transferred Patent Portfolio and the Additional Patents, UP will pay Ericsson the following portion of UP LLC’s cumulative gross revenue on a quarterly basis in accordance with the provisions of the MSA (the “Gross Revenue Payments”): (i) 20% of the amount of Cumulative Gross Revenue, until the Cumulative Gross Revenue equals $100 million; plus (ii) 50% of the amount of Cumulative Gross Revenue in excess of $100 million, until the Cumulative Gross Revenue equals $500 million; plus (iii) 70% of the amount of Cumulative Gross Revenue in excess of $500 million. Revenue sharing may be adjusted in Ericsson’s favor in certain circumstances ...
What’s more, the 8-K goes on to state that should there be a change of control at Unwired Planet, Ericsson can either elect to continue with the relationship or sell the patents to UP for an amount “equal to Ericsson’s share of the fair market value of all patents and other assets owned or held by UP”. However, “if a UP Change of Control occurs within three years of the consummation of the transactions contemplated by the MSA and Ericsson elects to receive the Sale Payment, the Sale Payment will be at least $1.05 billion less Gross Revenue Payments actually received by Ericsson prior to the consummation of the UP Change of Control”.
Ericsson identified IP as a major revenue source a while back and the company clearly believes it has transferred a pretty valuable portfolio to Unwired. If you read the whole of the 8-K, the terms under which the deal has been done seem to reflect that. Perhaps they will serve as a template for agreements between operating companies and privateers in the future.
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