While one major litigation started less than 24 hours ago (FTC v. Microsoft-ActivisionBlizzard, see my analysis of the complaint), another one has come to an end: Ericsson and Apple have made peace. Another important patent cross-license agreement was announced earlier today by Huawei and OPPO.
I wish to thank a number of readers for reaching out to me about today's Ericsson-Apple settlement. The reason I didn't get to write about it immediately was purely logistical: I was not at my desk, and didn't have a portable computer with me either. I did, however, share the news within a couple of minutes on Twitter as well as on LinkedIn. I strongly encourage readers to follow my feeds there, especially the one on LinkedIn, a platform that is becoming ever more relevant for purposes like sharing and commenting on news. And when I've already shared the news on social media, I'm in less of a hurry to share my further thoughts via this blog.
Major patent disputes typically settle right before or somewhere between trials. It is not unheard of for settlements to fall into place during a trial, such as between Qualcomm and Apple in 2019 (I was at the federal courthouse in San Diego when the news suddenly broke). However, Ericsson v. Apple may be the first patent dispute in history to have settled during two simultaneous trials: a FRAND trial in the Eastern District of Texas (Presiding Judge: Chief Judge Rodney Gilstrap) and an Apple v. Ericsson evidentiary hearing (a trial by any other name) in the United States International Trade Commission (USITC, or just ITC) (Presiding Judge: Administrative Law Judge (ALJ) Monica Bhattacharyya.
Here are the minutes of the final trial day in Texas, which was rather short owing to the settlement:
The press release does not state the exact length, but it is a "multi-year" agreement. The last one had a seven-year term and ended in January.
Last year, Ericsson settled with Samsung within only a few months of expiration of the previous agreement. Even the settlement with Apple took less than a year from the point where infringement actions started (mid-January 2022).
I actually told Swedish financial daily Dagens Industri last week that I thought a settlement would make sense before the Texas trial. It was simply a logical point in time. For whatever reason, they couldn't make it work, so the Texas trial had to start, but there won't be a jury verdict anymore.
In a quote contained in the press release, Ericsson's Chief Intellectual Property Officer touts the "strategic importance [of the new agreement with Apple] to [Ericsson's] 5G licensing program." Ericsson has renewed its license agreements with the world's two leading consumer electronics makers: Apple and Samsung. It is unknown whether there any other agreements have recently expired or are about to expire. In any event, whoever has yet to work things out with Ericsson for 5G now knows that the company has another important license to point to as a comparable agreement with a view to the "ND" in "FRAND"--and the settlement of the earth-spanning dispute with Apple has freed up litigation resources in case they are needed.
Given that no injunction was currently being forced or imminent, neither Apple nor third parties can easily convince a court or a jury that the terms of the new Ericsson-Apple agreement were attributable to "hold-up."
I believe Ericsson would have been very likely to gain significant leverage in 2023, above all through its patent assertions in the Munich I Regional Court. Maybe also in Mannheim and/or the ITC, or maybe some other countries like the UK or Colombia (where a preliminary injunction had been lifted, but various cases were still pending). With a view to 2023 I was, however, most optimistic about Munich. Mannheim is an increasingly unpredictable venue for plaintiffs, which I regret to say (because I really like that court just like sports fans like certain venues), but it is a fact that plaintiffs sometimes run into unforeseen issues there, which I've heard it from a top-notch litigator who was not involved with the Ericsson-Apple dispute and has not recently filed any cases there for that very reason.
It didn't look like Apple's countersuits were likely to move the needle.
The financial terms are, as always, confidential. In a note to clients, Arete's Richard Kramer said "[t]he real question for Ericsson will be about the ’23 and onwards guidance for IPR income, whether it can keep or improve on the SEK8bn run rate." For now it is known--according to Arete--that a one-off payment from Apple amounts to SEK 5.5-6 billion in the current quarter, which must relate to back royalties for 2022 and may also include "pre-payments to reduce ongoing liabilities." but that is the big question: how much of the $400 million that Apple pays upon signing of the agreement was related to 2022, and how much of it just serves to reduce ongoing payments in the years ahead. According to Arete, Apple paid an estimate of $225 million per year under the old agreement "[s]ince losing Apple in the mix took Ericsson IPR payments down from SEK 8.1bn for ’21 (when Apple was a 4G licensee) to a run-rate of SEK 5.75bn [in the aggregate of the first three quarters of 2022]."
My guess is that this is a reasonably good outcome for both sides, and that also appears to be Mr. Kramer's take (he assumes it's "a sensible result"). But again, there is limited visibility, so it's more of an educated guess than anything else.
What I liked about this Ericsson-Apple dispute was that the dots were connected between Apple's arguments in App Store antitrust cases (such as on iOS-Android switching costs) on the one hand and Apple's positions on patent licensing terms on the other.
Finally, I'd like to mention some of the lawyers. At this week's Texas trial, it appears that WilmerHale's Joseph J. "Joe" Mueller was effectively Apple's lead counsel. He had been on "Team Apple" in various patent cases before this one, but this was the first high-profile dispute where he did most of the work at a key trial. Ericsson's lead U.S. counsel, Alston & Bird's Theodore "Ted" Stevenson, had largely prevailed on the structure of the Texas case--and he had previously scored a key victory there (and in the Fifth Circuit) for Ericsson against HTC. Ericsson v. Apple was a clash of titans.
In the German cases, the firm of Kather Augenstein--with name partner Dr. Christof Augenstein having the lead--thoroughly impressed me. I must admit I didn't have a similarly favorable view of them before, but that was largely because I never saw them in action and just had some disagreements with some of those lawyers on social media. Their performance in those German cases was top-notch. In Colombia, Carlos Olarte, name partner of Olarte Moure, made history with the aforementioned preliminary injunction. I believe Colombia is now on the radar of more patent holders than ever.
The big question is now the status of Apple's patent license agreement with Nokia. I thought it would expire this year (based on the term of a previous agreement), but I am not so sure anymore.
For now, I wish to congratulate both Apple and Ericsson on having put their dispute behind them!
