Ericsson Sues Sendo over GSM Cell Phone Patents: Why?

Opinion: Strange deeds are afoot in the secret world of ITSUG, as the question of "fair and reasonable" royalties sparks a lawsuit.

Heres a mystery: why has Ericsson—which doesnt make phones—sued Sendo, which does, for using Ericssons GSM cell phone patents without payment?

On the face of it, the mystery is no mystery. Sendo, a tiny phone maker from Britains second city, Birmingham, has been using Ericsson patents in its GSM (Global System for Mobile Communications) phones.

Thats not in dispute: Sendo admits as much. "Ericsson is entitled to compensation for its intellectual property," said Hugh Brogan, founder and CEO of Sendo.

So the lawsuit is pretty much what youd expect, right? No: "It was unprovoked, a complete surprise, and somewhat unnecessary," Brogan said.

Yes, he said, he is using Ericsson patents—but thats because he has to. It is a legal requirement for the manufacture of GSM phones; they absolutely must have these features. But hes willing to pay. Negotiations are in progress, and have been for some time.

The dispute, he said, is over the amount Ericsson is asking, which, sources say, involves "double-digit royalties"—10 percent or more—"on sales" for the use of its patents.

/zimages/1/28571.gifClick here to read Carol Ellisons opinion on how GSM cell phones could help Wi-Fi in the United States.

Effectively, if Sendo agreed to those terms, it would be making every phone at a loss. So the company did two things. First, it reminded Ericsson of its duties as a member of the GSM Family. And second, it lodged a complaint with the European Commission, protesting the anti-competitive nature of Ericssons royalties.

The mystery of the lawsuit is easily explained, Brogan said. He said he thinks the complaint with the EC has provoked Ericsson into firing up its lawyers. "We said that from the beginning; were prepared to pay a license, but only on the basis that its fair and reasonable."

Can he do that?

To understand the situation, its no use asking any of the players. All the big GSM players know the score, but they cant tell. Theyve signed agreements in blood (well, nearly) saying they wont tell.

Instead, you have to go to a small seaside town in the United Kingdom and approach a lawyer I know there. I honestly dare not say more about this man, but I can tell you the name of his client: the ITSUG.

ITSUG stands for International Telecommunications Standards User Group—a pretty opaque title, which says nothing about what it does—but its aims are to sort out patent licensing about GSM equipment.

The membership of ITSUG is secret. My sources say it has 40 members. These are generally smallish companies who want to get into this business and need to license the basic GSM patents.

In short, it is a cartel.

Next Page: The history of ITSUG and its ramifications.