Qualcomm Follows Ericsson’s Lead in Joint Patent Licensing

Five big holders of cellular patents, including Qualcomm Inc., are joining an effort proposed by Ericsson AB to jointly license patents in an emerging field called the Internet of Things.

The patent holders announced Wednesday that they have become the initial patent contributors to Avanci, a company recently established to serve as a one-stop source to license rights to a broad set of patents covering wireless technology. The participants plan to share revenue from licensing deals.

Avanci plans initially to focus on patents for connected cars and smart meters, but hopes eventually to expand to many other devices that are likely to use cellular networks to communicate.

The other initial patent contributors besides Qualcomm and Sweden’s Ericsson are China’s ZTE Corp. ZTCOY -0.84% , Dutch telecom company Royal KPN KKPNY 1.12% NV and InterDigital Inc., IDCC -0.87% a Delaware-based wireless technology company.

Ericsson, a major supplier of cellular equipment, has been making the case for a year that new licensing practices would be required in the emerging field known as the IoT. Gustav Brismark, the company’s chief intellectual property officer, said companies in fields such as developing connected cars were reluctant to accept the kinds of license terms common in the cellphone industry.

One worry was that patent holders might charge royalties based on a percentage of the total price of a final product, as Qualcomm does with handsets—not a reasonable practice when the product is something as expensive as a car, said Alex Rogers, senior vice president and general manager, of Qualcomm’s technology licensing business.

He said Qualcomm now bases royalty rates for connected cars on the cost of smaller wireless subsystems, not the car price. “There has been some confusion and concern,” Mr. Rogers said, expressing hopes that the collective licensing effort would address the issue.

Avanci, an independent company led by a former Ericsson executive, plans to charge a flat fee per unit each licensee sells. The company hasn’t disclosed its pricing yet, but says the fees will reflect the value of the licensed technology to the application. For example, the fee would be higher for a car that is in constant communications than a smart meter than sends a short message once a month, Mr. Brismark said.

Kasim Alfalahi, the former Ericsson executive who is Avanci’s founder and chief executive, said it is in discussions with other patent holders about joining the offer. “The platform is open to any company with patents that are essential for cellular,” he said.

Collective patent licensing isn’t a new concept. But it is a departure from ordinary procedures in the world of cellular gear, where most of the big patent holders negotiate directly with makers of smartphones and other equipment.

It can be a very lucrative business. Qualcomm, though known for wireless chips, gets more than half its profit from licensing patents that are considered essential for handset makers to make products that work on 3G and 4G cellular networks. The company charges smartphone makers a percentage of the wholesale cost of their products to license its patents.

Companies that hold such “standard essential” patents, as they are called in the industry, have at times gotten into disputes over licensing policies at industry forums or lawsuits with other technology giants. Ericsson and Apple Inc., for example, engaged in almost a year of patent litigation in several countries before reaching a settlement in December.