Samsung to pay Ericsson $650 million plus royalties to end patent spat

STOCKHOLM Mon Jan 27, 2014 7:53am EST

A man walks out of Samsung Electronics' headquarters in Seoul January 6, 2014. REUTERS/Kim Hong-Ji

A man walks out of Samsung Electronics' headquarters in Seoul January 6, 2014.

Credit: Reuters/Kim Hong-Ji

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STOCKHOLM (Reuters) - Samsung Electronics Co will pay Ericsson $650 million along with years of royalties to end a technology license spat, the Swedish company said on Monday.

The world's No. 1 mobile network equipment maker sued Samsung in 2012 on the grounds that the Korean firm had infringed patents involving technology for clearer voice transmission, touchscreen functions and network efficiency.

The smartphone and tablet maker, which is increasingly active in network equipment, made a counter claim.

The initial payment will lift fourth-quarter sales by 4.2 billion Swedish crowns ($652 million) and net income by 3.3 billion, Ericsson said in a statement.

Analysts in a Reuters poll had forecast fourth quarter net sales of 65.1 billion crowns and net income of 4.0 billion.

Ericsson declined to give further details of the agreement or what royalties Samsung would pay, but its shares rose 2.4 percent by 1123 GMT (6.23 a.m. ET) as markets anticipated billions of crowns of extra revenue for the Swedish firm for years to come.

Kasim Alfalahi, Ericsson's Chief Intellectual Property Officer, would not say how long the agreement with Samsung was, but said patent agreements generally cover four to seven years.

"Ericsson's settlement with Samsung is going to be an important future driver of its earnings," JP Morgan analyst Rod Hall said in a note.

"The ongoing revenue could be approx 2.1 billion Swedish crowns annually and, with these revenues having 70 percent ongoing margin, they could add 5.4 percent to 2014 EPS."

Bernstein analyst Pierre Ferragu estimated annual revenues from the royalties at 1.7 billion crowns.

Ericsson shares rose 2.2 percent by 1244 GMT, outperforming European technology stocks which were up 0.8 percent. Shares in Samsung, which declined to comment, fell 1.2 percent.

PATENT WARS

Patent infringement suits have become frequent in high-tech industries such as telecoms in recent years.

While equipment such as handsets share much of their technology, forcing rivals to take out licenses from one another, companies are also desperate to protect any advantages they have and maximize incomes that are under pressure from fierce competition, leaving plenty of room for dispute.

Samsung is also embroiled in a legal battle with Apple in several countries, with Apple alleging various Samsung products infringed its patents.

The Korean firm signed a licensing deal with Ericsson in 2001 covering handset and network patents and renewed that deal in 2007.

However, the two could not agree terms in 2011 when the deal ran out, with Samsung accusing Ericsson of demanding prohibitively higher royalty rates to renew the same patent portfolio.

"This agreement allows us to continue to focus on bringing new technology to the global market and provides an incentive to other innovators to share their own ideas," Alfalahi said.

Ericsson, which invests about 30 billion crowns annually in research and development, has over 33,000 patents covering key technology for 2G, 3G and 4G networks and handsets. It has more than 100 license agreements with major players in the industry.

Samsung said on Sunday it had signed a cross-licensing agreement with Google and signed a license deal with Nokia in November last year.

(Additional reporting by Mia Shanley, Sven Nordenstam and Olof Swahnberg; Editing by Louise Ireland)

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