Ericsson’s shares fell 8.2% after trading began in Stockholm
Ericsson announced that it’s taking Samsung to court in the U.S., alleging that the South Korean company failed to deliver on contractual commitments concerning royalty payments and patent licenses.
In a statement, Ericsson said that case involves Samsung’s breach of FRAND (Fair, Reasonable and Non-Discriminatory) obligations and seeks to obtain a ruling by the court that Ericsson has complied with its own commitments.
“The FRAND system is a fundamental building block of a rich ecosystem that has allowed global cellular connectivity to scale to more than 8 billion interoperable connections,” Ericsson explained in the statement, adding that “several license renewal negotiations” may delay the payment of IP royalties, if they extend beyond the expiration of existing licenses into an unlicensed period.
Ericsson said that its IP portfolio includes more than 54,000 granted patents.
As a result of the delayed royalty payments and the cost of litigation, Ericsson warned that its operating income could be impacted by SEK1 billion ($117.8 million) to SEK1.5 billion each quarter, starting in Q1 2021. Ericsson noted that geopolitical conditions were impacting handset sale volumes, as is the shift from 4G to 5G models, and that those conditions were likely to factor in to that financial impact as well.
This is not the first time that these two companies have sparred in court. In 2012, Ericsson and Samsung were entangled in another royalty dispute, which resulted in the Korean vendor handing over $650 million to reach a resolution.
Following the announcement, Ericsson’s shares fell as much as 8.2% after trading started in Stockholm, most likely due to investors getting a bit anxious about Ericsson’s income loss projection.
Bloomberg News reported that it was told by a spokesperson for Samsung that once the complaint is received, “we will review it and determine an appropriate response.”