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Ericsson Has a Lot Riding on the Latest Wireless Patent War

This is starting to sound like a broken record: In a press release issued Nov. 27, mobile technology leader Ericsson (NASDAQ: ERIC  ) filed suit in a U.S. court claiming Samsung, the leading mobile phone manufacturer in the world, violated several of Ericsson's 30,000-plus patents. Of course, Samsung is no stranger to the patent wars, recently losing a $1 billion suit to industry-leading Apple (NASDAQ: AAPL  ) for violating Apple's smartphone design patents. And the Apple-Samsung patent wars are hardly done, after Apple asked a judge to add another six Samsung phones to the list of infringements.

But really, what's the big deal? Industry behemoths are always nipping at each other's heels, trying anything and everything they can to get an edge in a hyper-competitive market; no news there. There are a couple of differences in the mobile communications market, however: No. 1, the industry is required to adhere to standard FRAND terms, which stands for Fair, Reasonable, and Non-Discriminatory. FRAND makes it financially viable for technology innovators to share "secrets" and still get paid. No. 2, considering how fast the market is growing, the value of these patents is huge.

The specs
Ericsson and Samsung's relationship goes back over 10 years, to the first licensing arrangement Samsung signed in 2001. After reupping in 2007, Samsung's (allegedly) used hundreds of patented technologies, without paying Ericsson, for the past year. If Ericsson wins, it will secure a new, financially viable licensing agreement, assuming Samsung wants to continue using its technologies (little choice, really), as well as retribution for the past year's usage.

The impact for $30 billion Ericsson is big, potentially very big. According to Gartner, Samsung commands 23% of the world's mobile phone market, as of the most recent quarter. Samsung sold nearly 98 million phones in Q3 alone, so the fees Ericsson could demand is staggering.

Ericsson's patent revenue was just under $1 billion U.S. last year, and it recognizes that's simply the tip of the iceberg. Why? Because, according to Ericsson, it's the No. 1 holder of 3G and 4G patents in the world, and owns 25% of LTE-related patents. Much like its competitors, including Qualcomm (NASDAQ: QCOM  ) and Nokia (NYSE: NOK  ) , Ericsson intends to maximize the value of its patents.

Protecting patents is a must
Just how important are these mobile patents? Qualcomm, at $106 billion in market cap, is the big boy on Ericsson's mobile industry block. Earlier this year, Qualcomm went so far as to undergo a corporate restructuring to protect its patents. The new Qualcomm Technology Licensing division is Qualcomm's not-so-tactful way to say, "Don't even think infringing on our R&D efforts."

Nokia, with its $6 billion portfolio consisting of over 10,000 patents around the world, is critical to its valuation. Some, me included, suggest that Nokia can thank at least some of its recent stock performance on the value of its licensed technology.

Ericsson is the most recent mobile company to protect its patents, but certainly won't be the last. The mobile industry's continued shift to 4G, and Ericsson's vested interest in profiting along the way, leaves it little choice but to defend its technologies. A win against Samsung now will be a win for Ericsson shareholders for years to come.

Nokia's got the patents, and now (some would say) it also has an up-and-coming smartphone. It better be, because Nokia has banked its future on its Windows smartphones. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide if the company is a buy or sell. To get started, simply click here now.


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