How the Apple and Ericsson Collaboration Could Change the Game

Patents are often key to making a claim in a specific industry and controlling it. However, when two companies come together and enter into a licensing agreement, both of them stand to benefit greatly from the collaboration. Ericsson (NASDAQ: ERIC) and Apple Inc. (NASDAQ: AAPL) have agreed on a global patent license agreement between the two companies that includes a cross license that covers patents relating to each company. As a result, these companies are positive in Monday’s session on a strong global outlook.

Under the terms of this seven-year agreement, Apple will make an initial payment to Ericsson, and then later pay ongoing royalties. The specific terms of the transaction are confidential.

Perhaps what is most important about this agreement is that it will end investigations before the U.S. International Trade Commission and lawsuits pending in the U.S. District Court for the Eastern District of Texas and the U.S. District Court for the Northern District of California, as well as lawsuits in the United Kingdom, Germany and the Netherlands.

Ultimately, this collaboration will save each company a significant amount of money that would have been tied up in litigation. Instead, this cash can be put toward new collaborative projects.

Additionally, the companies will collaborate in multiple technology areas, including the development of the next generation 5G cellular standards, the optimization of existing wireless networks for the benefit of operators and users worldwide and video traffic optimization.
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Kasim Alfalahi, Chief Intellectual Property Officer at Ericsson, commented on the deal:

We are pleased with this new agreement with Apple, which clears the way for both companies to continue to focus on bringing new technology to the global market, and opens up for more joint business opportunities in the future.

At a cursory look it might appear that Ericsson got the better end of this deal, just based on the reaction from the shares. However, it does take a lot to move the needle for Apple.

Shares of Ericsson were trading up 6% at $9.69 early Monday, with a consensus analyst price target of $11.71 and a 52-week trading range of $8.87 to $13.14.

Apple shares were trading up nearly 1% at $107.02, with a consensus price target of $149.05 and a 52-week range of $92.00 to $134.54.