ZTE, Ericsson drop patent lawsuits

ZTE, the mainland's second-biggest telecommunications equipment manufacturer, and Swedish rival Ericsson appear close to forging a cross-licensing deal that would resolve their 10-month intellectual property dispute.

That outlook is based on ZTE's filing with the Shenzhen Stock Exchange yesterday, which said 'the two parties have mutually agreed to withdraw all patent infringement litigation against each other'.

These included the lawsuits filed by Ericsson in April 1 last year against ZTE subsidiaries in Britain, Germany and Italy, and the legal action initiated by ZTE on April 12 against Ericsson's subsidiary on the mainland.

ZTE, which is also listed in Hong Kong, said the two sides were waiting for the courts to approve their applications 'for the withdrawal of the lawsuits'.

'The termination of the lawsuits is a positive for ZTE because it removes uncertainty,' Macquarie Securities analyst Lisa Soh said.

In its case against Ericsson (China) Communications, ZTE alleged the company contravened domestic patent laws related to a range of ZTE patents in so-called core telecommunications networks, GSM cellular systems and in 4G wireless infrastructure. Ericsson's lawsuits clamed that ZTE infringed several of the Stockholm-based company's patents related to GSM and 3G WCDMA cellular technologies found on various ZTE handset models.

ZTE chairman Hou Weigui denied reports that ZTE had lost to Ericsson in their dispute, saying the two sides 'have conducted extensive discussion and consultation in respect of the patent matters involved' in their litigation.

ZTE's share price in Hong Kong was up 2.27 per cent yesterday to close at HK$22.50 and rebounded from Thursday's trading when the stock posted its biggest single-day fall in five months.

Commenting on how a potential cross-licensing deal between ZTE and Ericsson would work, Bernstein Research senior analyst Pierre Ferragu, said: 'This means ZTE eventually agreed to pay Ericsson royalties, mostly on their terminal device.'

Ferragu said ZTE 'will likely face a one-time catch-up payment, then an ongoing 1 per cent of sales payment on their handset business'. Such payments were not expected to show up in ZTE's profit and loss statement, 'as companies usually provision these charges when they negotiate', he said.