FRAND Or Not: The 5G Patent Licensing Dispute Between Ericsson and Apple

Shuang Ren is a 3L J.D. Candidate at Osgoode Hall Law School, enrolled in Professor David Vaver’s 2021-2022 Intellectual Property Law & Technology Intensive Program. As part of the course requirements, students were asked to write a blog on a topic of their choice.

Ericsson Inc. and Telefonaktiebolaget LM Ericsson (“Ericsson”) filed a suit against Apple Inc. (“Apple”) in a federal court of the United States on October 4, 2021. Ericsson requests for a declaration that the license rate ($5 per handset or $2.5 per low priced handset) of its 5G patent meets the fair, reasonable, and non-discriminatory (“FRAND”) commitment, together with an award of costs and legal fees.

The FRAND commitment is a voluntary agreement between the standard-setting organization and the holder of a standard-essential patent (“SEP”).  SEP is defined as a patented invention that is essential to the use of an industry standard. Ericsson’s 5G patent in this dispute is an example of SEP that can be used by anyone else as long as they pay a reasonable price for licensing. Meanwhile, Ericsson has committed itself to the European Telecommunications Standards Institute to grantlicenses on its SEPs on FRAND terms.

In the original complaint, Ericsson argues that Apple has strategically devalued SEPs and reduced royalty payments. Based on the core FRAND principles announced by Apple in 2019, Ericsson alleges that Apple publicly requests patent owners to prove their patents are essential, infringed, valid, and enforceable under Apple’s discretion. Ericsson also claims that Apple has artificially increased the transaction cost of licensing by requiring the option to examine, value, and license each essential patent, so that patent owners will be forced to agree on royalty rates lower than FRAND rates. Additionally, Apple has tactically asserted that the SEP owners should base their royalty rates on the smallest salable unit (“SSPPU”), which has been rejected in practice.

As one of the world’s biggest manufacturers of smartphones, Apple has been frequently involved in negotiation and litigation regarding the patent licensing of cellular technology. Back in 2015, Apple sued Ericsson during a patent licensing negotiation, but two companies later reached a patent license deal in which Apple agreed to pay a portion of its iPhone revenue to Ericsson. In April 2019, Apple and Qualcomm reached an agreement to settle their litigation disputes with a payment from Apple to Qualcomm.

With a leading position in cellular technology, Ericsson is also an active player in the patent wars. In May 2021, Ericsson and Samsung signed a global patent license agreement and ended their disputes on 5G patent licensing under FRAND. Moreover, in HTC Corporation v Telefonaktiebolaget LM Ericsson, the U.S. Court of Appeals for the Fifth Circuit affirmed that Ericsson’s 4G SEPs complied with its contractual commitment to FRAND terms. The court also confirmed that the FRAND commitment does not require a royalty rate based on the SSPPU.

Following the legal action against Apple, Ericsson’s spokesman asserted that the company had made a significant early investment in research and development, and the fair royalty rate from patent licensing was crucial to ensure its innovation investment and the continuous success of standardization. This statement echoes the company’s policy, which is utilizing its patent portfolio in support of business objectives to safeguard and monetize research and development investment.

As a promising mobile network technology and standard, 5G brings unprecedented connectivity and technological advancement. Global patent negotiations and litigations follow the growth and commercialization of 5G. For instance, Nokia and the Chinese smart device company Oppo have actively brought many legal claims against each other over 5G patents in different jurisdictions. Aside from disputes regarding cellular technology, experts assumed that the patent litigation over 5G would cover other technologies such as the internet of things.

In terms of SEP enforcement, the European Union has taken the initiative to create a fair and balanced framework for licencing SEPs, planned to take effect in the fourth quarter of 2022. In the United States, President Biden signed an executive order this July, calling for consideration on whether the policy statement on remedies for SEPs needs revision. However, given the uncertainty surrounding FRAND policies in various jurisdictions, whether courts will favour SEP owners over license holders  is unpredictable.

Litigation costs may cause Ericsson and Apple to follow their previous approach and settle their legal disputes by agreement. If not, Apple may have difficulty prevailing in its lawsuit because of the persuasive precedent set in the litigation between HTC and Ericsson. Meanwhile we may expect that 5G patent disputes among major competitors in this field will continue to increase worldwide.

Shuang Ren is a 3L J.D. Candidate at Osgoode Hall Law School, enrolled in Professor David Vaver’s 2021-2022 Intellectual Property Law & Technology Intensive Program. As part of the course requirements, students were asked to write a blog on a topic of their choice.

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