Shares of Ericsson (ERIC - Analyst Report) hardly reacted to the news late last week that the Competition Commission of India (CCI) will investigate the company under the Indian Competition Act. The company’s stock rather moved up 0.8% on Friday. CCI said that it would conduct a detailed probe into the allegations by Micromax against Ericsson
The investigation probe is related to the patent infringement suit filed by Ericsson against Micromax in Mar 2013. In response, Micromax had also filed a general defense case against Ericsson, alleging the latter of charging ‘exorbitant royalty rates.’
Sweden-based network equipment maker Ericcson filed the case at the Delhi High Court and has claimed about Rs 100 crores ($1.6 million) in damages. Ericsson said that it was taking this action after failed negotiations for three years. Ericson had made several attempts to sign a license agreement with the company on Fair, Reasonable and Non-discriminatory (FRAND) terms.
Micromax defended by saying that Ericsson's mobile phone royalty rates should be based on the value of the technology used, instead on the end product's sale price, as Ericsson is currently demanding. Micromax also mentioned that the amount that Ericsson is charging will significantly hike royalty rates for smartphones than what Indian manufacturers pay.
Coming to the latest order, CCI said that this case is a "fit case for through investigation by the Director General into the allegations made by the informant (Micromax), and violations, if any, of the provisions of the Competition Act”.
CCI stated that Ericsson is the market leader in networking technology in India. However, the commission stated that the royalty rates demanded by Ericsson were discriminatory as well as contrary to FRAND (Fair, Reasonable and Non-Discriminatory) terms. In addition, the commission also mentioned that royalty rates being charged by Ericsson had no linkage to patented product and has been acting contrary to the FRAND terms by imposing royalties linked with cost of product of user for its patents.
Ericsson currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the wireless equipment sector include Ubiquiti Networks Inc. (UBNT - Analyst Report), Mitel Networks Corporation (MITL - Snapshot Report) and Motorola Solutions Inc. (MSI - Analyst Report). While Ubiquiti carries a Zacks Rank #1 (Strong Buy), Mitel and Motorola hold a Zacks Rank #2 (Buy).
Rs1 = $0.016080 average as on Nov 28, 2013