Ericsson claims to hold a quarter of all LTE patents

By its own calculations, Ericsson (NASDAQ:ERIC) has 25% of the essential patents key to the development of long-term evolution networks and devices, making the Swedish vendor the single largest intellectual property holder in LTE. Those numbers contradict a recent survey of patent holdings conducted by Informa, which estimated Ericsson was much lower in the intellectual property rights pecking order, behind Qualcomm (NASDAQ:QCOM), InterDigital (NASDAQ:IDCC), Samsung and Huawei in total patents, and even lower when it comes to essential patents.

Ericsson chief intellectual property officer Kasim Alfalahi said he had not seen the Informa report and did not know what methodology its analyst used, but he said that any conclusion that has Ericsson at the back of the pack in essential patents is clearly wrong. Many other studies have tried to make sense of the IPR situation in LTE, and typically they’ve relied on one two methodologies that Ericsson believes is flawed, Alfalahi said. The first is a keyword search of global patent application databases, which could reveal any device, technique or idea related to 4G or LTE, regardless of whether the patent is key to the LTE standard, Alfalahi said. The second method is to tally up the number of patent applications for LTE submitted globally, which would produce results more directly related to the LTE standard but has its own set of flaws.

“When you look at all of the declared patent applications it’s a very large number,” Alfalahi said. Some vendors have submitted what is essentially the same application, jockeying for credit over the same intellectual property. Many applications will be thrown out completely, deemed by patent authorities to be frivolous or unrelated to the LTE standard. “One can be easily overwhelmed by the number of applications, but if you do the analysis the total numbers are meaningless,” Alfalahi said. “From our perspective, at this time the only valid way to make a judgment is to see what companies have contributed to the standards and which technologies have been adopted.”

Based on those calculations, Ericsson estimates that it has close to 24% of awarded essential patents for LTE — those necessary to meet the 3GPP standard —  locked up, and when the remaining patents are awarded it will have closer to 25%, giving it twice as many as the next largest intellectual property holder. There are still multiple essential patent applications outstanding, and Alfalahi acknowledged it won’t have every patent approved in every country. But he said Ericsson has become quite legally and technically sophisticated in navigating the patent approval landscape and has an historical patent approval rate of near 90%. Even factoring in the worst- and best-case scenarios, Alfalahi said there is about a 5% margin of error, meaning it could wind up holding 20% of total essential LTE patents but could find itself with as much as 30%.

Informa estimated that Ericsson held 7% of LTE patents, tying it with Nokia (NYSE:NOK) and LG Electronics. Furthermore, Informa concluded that few of Ericsson’s patents were key to the LTE standard, with only 33% of its patents listed as essential. If the number of Ericsson’s patents were that small, it would be in an awkward position. So far, Ericsson has seen the most success of global vendors in selling LTE infrastructure, but a weak patent portfolio would put it at disadvantage in negotiating royalty agreements with other patent holders, resulting in Ericsson giving its competitors a percentage of revenues for every LTE network sold. If Ericsson’s calculations are correct, though, the vendor is in the opposite role, having a sizable intellectual property portfolio it could leverage against other vendors.

Alafahi, however, said it does not want to abuse its patent position and would rather encourage growth in the overall LTE market by setting reasonable royalty rates for its intellectual property. Alafahi said that Ericsson is championing an initiative that would set the total royalty rate for all patents at under 10%, which would ensure that a handset-maker or vendor would not be shut out of the LTE market no matter how few patents it owned.