Ericsson announces FRAND royalty rates for 5G

In 2009 Ericsson joined other SEP holders in announcing ex ante royalty rates for 4G (LTE)

"Ericsson expects to hold a relative patent strength of 20-25% of all standard essential IPR. Ericsson believes the market will drive all players to act in accordance with these principles and to a reasonable maximum aggregate royalty level of 6-8% for handsets. Ericsson ́s fair royalty rate for LTE is therefore expected to be around 1.5% for handsets." 

More recently Ericsson announced "FRAND licensing terms for 5G/NR in 3GPP Release 15" (pdf) explaining that: 

"Ericsson is prepared to grant licenses to its portfolio of essential cellular patents [with coverage for multimode mobile handsets that fully conform to 3GPP's forthcoming 5G/NR Release 15 technology] subject to reciprocity by the license seeker, at a fair and reasonable royalty rate of $5 per 5G/NR multimode compliant handset." Ericsson also explained that it "has decided to voluntarily allow for even lower royalty rates on a case-by-case basis" and that "in exceptional circumstances, Ericsson is prepared to allow for rates as low as, but not lower than, a floor of $2.5 per 5G/NR multimode compliant handset." 

Ericsson's $5 per unit royalty rate is equivalent to a royalty of 1.5% on an ASP (average selling price) of approx. $330. Given that IDC (in a slightly dated) forecasts an "ASP of $293.61 in 2015 [declining] at a rate of 4.6% each year before reaching 236.38 in 2019" Ericsson's 5G royalty rate is likely to be in reality slightly higher than the 1.5% announced for 4G. 

Noteworthy are the facts that Ericsson's FRAND offer is 1) a portfolio offer; and 2) only available to "mobile handsets that fully conform" to 3GPP specifications. This indicates that Ericsson will continue with the long established practice of offering portfolio licenses to end-user devices and will not be making licenses available to chipset manufacturers. 

The biggest change is the switch from a royalty calculated as a percentage of end user device ASP to a fixed royalty per unit. Given that Apple's iPhone recently reached a new high ASP of $695, Ericsson's policy for 5G is surely to be welcomed in Cupertino, but perhaps less so in Shenzhen. 



Patent Assertion Entity Activity: An FTC Study

America's Federal Trade Commission (FTC) has published it's report on Patent Assertion Entity (PAE) Activity. According to the press release issued by the FTC

"The report found two types of PAEs that use distinctly different business models. One type, referred to in the report as Portfolio PAEs, were strongly capitalized and purchased patents outright. They negotiated broad licenses, covering large patent portfolios, frequently worth more than $1 million. The second, more common, type, referred to in the report as Litigation PAEs, frequently relied on revenue sharing agreements to acquire patents. They overwhelmingly filed infringement lawsuits before securing licenses, which covered a small number of patents and were generally less valuable."