Ericsson AB has taken the unusual step of publicly setting a price tag on what it will cost to license the telecommunications company’s technology for the next generation of high-speed mobile phone networks.
Ericsson said it will cap royalties at $5 per phone for higher-end handsets, though it would go as low as $2.50 for less expensive devices. The company is being upfront about costs now so that more companies will want to develop products that incorporate the industry standard, said Gustav Brismark, Ericsson’s chief intellectual property officer.
“We believe by setting a price that’s reasonable, it would serve as a reference to other patent holders and to other companies that need to take a license,” Brismark said in an interview.
Equipment makers like Ericsson, service providers including AT&T Inc., and handset makers such as LG Electronics Inc. are working together to develop the standards for 5G, which is scheduled to be commercially available by 2020 though could come sooner. Ericsson Chief Executive Officer Borje Ekholm in February predicted the market for fifth-generation mobile broadband services could reach $1.2 trillion and the company is seeking to capture as much of that as possible.
Since the companies developing a standard have a leg up on ensuring their technology is included, they pledge to license any relevant patents on “fair, reasonable and non-discriminatory” terms, a phrase that’s never been clearly defined. The companies are usually left to negotiate royalties sometimes without knowing what rivals are paying.
Another goal for Ericsson is to avoid some of the protracted litigation that’s marred licensing talks over past and current standards and brought unwanted
attention from regulators throughout the world.
Ericsson and iPhone maker Apple Inc. spent a year in courts in the U.S. and Europe before they were able to reach a licensing agreement in December. Ericsson also is in the midst of a legal dispute with China’s TCL Corp. over royalty rates — a federal judge in California could issue his decision later this year. Qualcomm Inc., the biggest maker of chips for mobile phones, is fending off charges by Apple that it’s overcharging for its technology, and has been targeted by the U.S. Federal Trade Commission as well as regulators in China, Korea and Europe.
Ericsson submitted the pledge to the European Telecommunications Standards Institute, the umbrella organization that’s developing the 5G standard, on March 3, a month ahead of an April 6 summit to discuss 5G network infrastructure.
The Stockholm-based company spends about $5 billion a year on research and development, Brismark said. The company reported 222.6 billion Swedish kronor ($25 billion) in revenue last year, with 10 billion kronor coming from intellectual property royalties.
Fifth-generation networks provide more bandwidth for data and allow easier connections between machines, from traffic lights and cars to thermostats and fridges. Cloud-based services let users access computing power and data on server farms far away, rather than on their own devices such as personal computers or smartphones.
The royalty rate is only on the standard-essential patents and doesn’t include inventions to implement features that aren’t standardized, Brismark said.
As one of the world’s biggest suppliers of mobile infrastructure, Ericsson’s research centers on the basics of how the phones work, such as accepting calls or transmitting data. Brismark said Ericsson believes it’s contributed the most to the different generations of standards, including how phones can access networks globally.
“If we are the company that has provided the most technology,
no one should set a higher rate but we can only control our price,”