Patent breach suits have become a frequent phenomenon in tech industries, especially the telecoms, due to the drastic growth in technology. Recently, Sweden-based wireless network equipment provider Ericsson (ERIC - Analyst Report) and Korea-based consumer electronics and telecom equipment manufacturer, Samsung Electronics Co., reached an agreement on global patent cross licensing of cellular technologies. Per the agreement, Samsung is required to make an initial payment and ongoing royalty payments for the term of the new multi-year license agreement. Following the news, shares of Ericsson rose 3.2% to $11.91.
Ericsson primarily follows the fair, reasonable and non-discriminatory (FRAND) terms of licensing, as it believes that licensing according to FRAND principles brings about a proper balance. These allow the companies to innovate and contribute technology to open standards and at the same time help to maintain the overall royalty rates at a reasonable level that facilitate entry to the market.
In fiscal 2012, Ericsson had filed a patent infringement lawsuit against Samsung electronics stating that the latter had infringed patents involving technology for clearer voice transmission, touchscreen functions and network efficiency.
Although the exact financial details of the settlement are not disclosed, the initial payment by Samsung is expected to impact Ericsson’s sales and net income in the fourth quarter of 2013. Sales and net income are expected to have an increase of SEK 4.2 billion and SEK 3.3 billion, respectively. Further, Ericsson also expects that the initial payment will have a positive effect on its operating cash flow in the beginning of 2014.
Recently, in Dec 2013, the Competition Commission of India (CCI) investigated the company under the Indian Competition Act. The probe is related to the patent infringement suit filed by Ericsson against Micromax in Mar 2013.
Ericsson currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the wireless equipment sector include Juniper Networks Inc. (JNPR - Analyst Report) , Comtech Telecommunications Corp. and InterDigital Inc. (IDCC - Snapshot Report) . While Juniper carries a Zacks Rank #1 (Strong Buy), Comtech and InterDigitial hold a Zacks Rank #2 (Buy).