A well-worn maxim has it that “politics make strange bedfellows,” which might be tweaked to reflect the wireless industry’s sometimes odd match-ups. Companies that compete also cooperate, often at the nitty-gritty level of critical intellectual property that enables devices, networks and services to perform their functions.
The chummy atmosphere surrounding a mutually beneficial embrace known as a cross-licensing agreement, however, can turn sour when the agreement expires and market conditions and the players’ perspectives on their strengths have changed, rendering a new agreement impossible to attain.
In this case we’re not talking about the well-publicized spat between Nokia Corp. and Qualcomm Inc., though that fits the model as well, but the lesser known, recently surfaced matter of L.M. Ericsson and Sony Ericsson vs. Samsung Electronics Co. Ltd. and the subsequent case of Samsung vs. Ericsson/Sony Ericsson.
The case reflects the “strange bedfellows” maxim in that Sony Ericsson and Samsung are fierce competitors in the mobile handset market, with Sony Ericsson gaining strength at more than 6-percent global market share and Samsung faltering lately, but with double Sony Ericsson’s market share. Yet Ericsson, parent to one partner, also holds massive IPR portfolio that, when licensed to a rival such as Samsung, allows the latter to compete. That a dispute between the two parties has arisen and entered the courts reflects the fast-changing technological environment in the wireless industry and is not uncommon.
A cross-licensing agreement between the two parties for GSM, TDMA, GPRS, EDGE and W-CDMA standards was in effect from January 2002 to the end of 2005. When negotiations to enter a new agreement failed-presumably because both players took a new view of their own IPR and market strength after four long years had elapsed in a fast-paced industry-both parties appear to have continued to do business as if the old agreement remained in force.
That delicate balancing act ended in February when Ericsson filed suit against Samsung in U.S. district court in Texas, where both foreign-based companies maintain U.S. offices, alleging infringement of 15 of its patents. Samsung filed a counterclaim in May, alleging violation of 22 of its own patents. On June 2, Samsung requested an investigation by the U.S. International Trade Commission, citing the alleged violation of seven of its patents. On the last day of July, Ericsson initiated its own request for an ITC investigation. Meanwhile, Ericsson also asked the Texas district court to hold off on any actions pending resolution of the two ITC investigations. (The Texas court has yet to respond.)
Both Ericsson and Samsung have declined to answer specific questions on the dispute, although Samsung has been more terse, with Ericsson offering a little detail on the circumstances.
“Samsung does not comment on pending lawsuits,” according to Samsung spokesperson Eunhee Lee.
Ericsson issued a statement that emphasized its fair, reasonable and non-discriminatory licensing terms-essentially, boilerplate legalese that merely reflects the prevailing legal requirements of both U.S. and European markets-and touted the breadth of licensees in the wireless market and the strength of its patent portfolio. (In that sense, one hears an echo of the Nokia/Qualcomm dispute.) After “extensive negotiations” failed to establish a new agreement with Samsung, according to Ericsson, it filed suit in Texas, igniting the chain of events described above.
Wes Mueller and David Airan, patent attorneys and partners in the IP law firm Leydig Voit and Mayer Ltd., are not involved in the Ericsson/Samsung cases, but agreed to describe the nature of the district court and ITC jurisdictions and respective remedies available to the parties.
Cross-licensing of IPR in fast-changing technical fields typically is confined to well-defined periods due to the rapid changes in technology and in the parties’ respective IPR and market strengths, according to the two attorneys. After four years, either or both parties may have sought more favorable terms for a new agreement. The attorneys speculated that in this particular case, either party may have believed that its IPR position had become stronger or that its market clout required concessions from the other. Typically, in a jury-based environment such as district court, establishing oneself as the plaintiff conveys strategic and psychological benefits because the plaintiff gets to tell its story first, placing the defendant in the position of responding to allegations.
As for the jurisdictions, a district court case may take as long as 18 to 24 months to resolve. In contrast, the ITC moves more quickly, winning it the nickname “the rocket docket.” District courts can order injunctions against the sale of products that infringe patents as well as award monetary damages for violations. The ITC, in contrast, only has the power to halt the import of offending products. Should the ITC rule on the matter, clearing the way for the district court to review it, the party that succeeded at the ITC typically would attempt to enter the ITC’s ruling into the district court record, though an ITC ruling would not be binding on the district court. The loser at ITC would attempt to block such a move.
Under any scenario, the attorneys said, the current legal actions are costing both parties substantial amounts of money and represent a serious investment in litigation. The two parties can withdraw their complaints at any time, return to the negotiating table and settle their differences. Meanwhile, shots have been fired and signals sent that they are ready to resolve their differences through litigation. RCR
