Replies to post #15411 on Qualcomm Inc (QCOM)

[Data_Rox]

...is over the amount Ericsson is asking, which, sources say, involves "double-digit royalties"—10 percent or more—"on sales" for the use of its patents.

Ericsson Sues Sendo over GSM Cell Phone Patents: Why?
By Guy Kewney
March 23, 2005

http://www.eweek.com/article2/0,1895,1778930,00.asp

Opinion: Strange deeds are afoot in the secret world of ITSUG, as the question of "fair and reasonable" royalties sparks a lawsuit.


Here's a mystery: why has Ericsson—which doesn't make phones—sued Sendo, which does, for using Ericsson's GSM cell phone patents without payment?

On the face of it, the mystery is no mystery. Sendo, a tiny phone maker from Britain's second city, Birmingham, has been using Ericsson patents in its GSM (Global System for Mobile Communications) phones.

That's not in dispute: Sendo admits as much. "Ericsson is entitled to compensation for its intellectual property," said Hugh Brogan, founder and CEO of Sendo.

So the lawsuit is pretty much what you'd expect, right? No: "It was unprovoked, a complete surprise, and somewhat unnecessary," Brogan said.

Yes, he said, he is using Ericsson patents—but that's because he has to. It is a legal requirement for the manufacture of GSM phones; they absolutely must have these features. But he's willing to pay. Negotiations are in progress, and have been for some time.

The dispute, he said, is over the amount Ericsson is asking, which, sources say, involves "double-digit royalties"—10 percent or more—"on sales" for the use of its patents.


Click here to read Carol Ellison's opinion on how GSM cell phones could help Wi-Fi in the United States.

Effectively, if Sendo agreed to those terms, it would be making every phone at a loss. So the company did two things. First, it reminded Ericsson of its duties as a member of the GSM Family. And second, it lodged a complaint with the European Commission, protesting the anti-competitive nature of Ericsson's royalties.




The mystery of the lawsuit is easily explained, Brogan said. He said he thinks the complaint with the EC has provoked Ericsson into firing up its lawyers. "We said that from the beginning; we're prepared to pay a license, but only on the basis that it's fair and reasonable."

Can he do that?

To understand the situation, it's no use asking any of the players. All the big GSM players know the score, but they can't tell. They've signed agreements in blood (well, nearly) saying they won't tell.

Instead, you have to go to a small seaside town in the United Kingdom and approach a lawyer I know there. I honestly dare not say more about this man, but I can tell you the name of his client: the ITSUG.

ITSUG stands for International Telecommunications Standards User Group—a pretty opaque title, which says nothing about what it does—but its aims are to sort out patent licensing about GSM equipment.

The membership of ITSUG is secret. My sources say it has 40 members. These are generally smallish companies who want to get into this business and need to license the basic GSM patents.

In short, it is a cartel.


Ericsson Sues Sendo over GSM Cell Phone Patents: Why?




What ITSUG does is allow those who own GSM patents to share them with each other. And it was created to resolve a fierce dispute which arose when the original GSM design work was done.

In those days, long ago, several large telecommunications companies rebelled against Qualcomm, owner of the CDMA (Code Division Multiple Access) patents, and got together to create TDMA (Time Division Multiple Access), the basis of GSM—and all the other engineering excellence which underpins the global mobile-phone network.

Their achievements can't be doubted—technically. Where it seems they failed was on the diplomatic front, because some of those large companies sent their best engineers to the project, but secretly patented their work behind the backs of their partners.

When the patents were disclosed, there was uproar, as you can imagine; and the ETSI standards body ruled that they could keep the patents—but must agree to license them on a fair and nondiscriminatory basis.

The result is that, for some time, companies have been making phones at zero profit. They do so because the terms of the ITSUG say they can't remain part of the cartel if they aren't phone makers.




Technically, Ericsson isn't a phone maker; it's given that part of its business to the joint venture with Sony, and Sony Ericsson makes the phones. But Ericsson uses its intellectual property in the infrastructure equipment it makes—exchanges, switches, base stations and so on—all using GSM technology.

Is Ericsson still a member of ITSUG? Impossible to say: Membership of the cartel is confidential, and no member can disclose its membership without the agreement of the other members.

Is Sendo, then, being carved up by the cartel?

It so happens that it isn't. I can't tell you how I know this, although a certain lawyer can probably guess, after a conversation we had a couple of years ago—but I do know that Sendo is an ITSUG member. It has a trivial number of patents compared with what companies like Siemens, Sony, Nokia, Ericsson, Samsung, Motorola and so on—assuming these are members—contribute. But it is a member.

As a member, it is entitled to use Ericsson patents at a "fair and nondiscriminatory" rate.

So why on earth have these two family members fallen out? Why could they not agree inside ITSUG?

I've spoken to other ITSUG members—not that they'll admit to being members, of course—but they all say that what Ericsson is asking is "totally out of order" and "unfair" and "wrong"—and, frankly, they can't see why this is going on.

In the absence of hard facts, they are indulging in speculation. Here is what they are saying, in their own internal company canteens: "Sendo is for sale."

Is it? Well, it's tiny, compared with giants like Nokia or Motorola. But it has broken the mould of phone manufacture. What it does is to produce nonbranded phones for the networks. That was what attracted Microsoft to it in the first place—leading to a lawsuit which was settled (secret terms!) last August. Microsoft wanted a smartphone that wasn't restricted to one manufacturer, and the Sendo design was going to be that, until they fell out.


Click here to read more about the outcome of Sendo's 2003 lawsuit against Microsoft.




Who would want to buy Sendo? Well, Nokia, for a start. It has a (secret!) investment in Sendo, and is widely credited with rescuing Sendo when Microsoft pulled the plug on the original smart-phone design and tried to have its partner wound up. Would Nokia be the only one?

Well, say the whispers over the plastic cafeteria trays, no, not the only one. No, Ericsson might like to get back into the phone business. And the price for Sendo, if it were under the cloud of a lawsuit… well, it wouldn't go up, would it?

[JohnG]

The general problem in Europe is as follows:
1) The huge PC revolution was and still is controlled by Intel and Microsoft. The Europeans just stood buy, watched it happen, and paid up.
2) By acting as a block, the Europeans seized control of the world cell phone telecom market by acting together and raising high patent barriers against all who would enter.
3) Now we see that 3G cell phones will become the universal world wide must have, ubiquitous appliance. The capacity to do Photos, movies, TV broadcasts, LBS, music, purchases, computing and much more is essentially here for EVDO phones and WCDMA phones. These phones are the next big thing on this earth.
4) Unfortunately for the Euronuts, the key 3G technology to do all of this is owned by QCOM for the whole earth-- and all major phone builders have licensed it and agreed to pay royalties to QCOM. Thus, the aparant European control over GSM has just not translated to 3G wireless to the huge disappointment of euronut companies.

5) This is a bitter pill to swallow. It is especially so now, with the sagging European econimies so needing a boost.

6) Now QCOM has strengthened its claims on key OFDM IP. It must appear to the Euronuts that QCOM may well maintain its technoggical lead on into 4G. QCOM has apparantly taken the technological lead in HSPDA too. They feel that they are set up to follow the QCOM lead indefinitely. They are committed to doing whatever can be done to stop QCOM and keep various QCOM WCDMA ASIC users out of Europe.

6) Thus we will re-enter a period of global telecom war. Assertion of QCOM's rights to GSM royalties is a counter to the attacks Broadcom and NOK launched at the governmental level. It is also a counter to the GSM cabal's plan to knock out QCOM ally Samaungs by extracting huge royalty rates on GSM phones Samsung must have to complete its product line.

7) Clearly NOK and Ericy have been slowing 3G roll out and pushing cheap worldwide GSM to set the stage for this battle.