Femtocell developer Airvana is charging Ericsson with breaching their contract over femtocell technology, in a lawsuit filed in the Supreme Court of the State of New York.
Femtocells like those Airvana developed extend capacity and coverage of mobile networks, which are under increasing strain. The market for such technologies has grown rapidly over the past few years as the use of mobile phones for both voice and data access has also grown.
The dispute has its roots in the bankruptcy of former telecommunication giant Nortel, according to Airvana, which is based in Chelmsford, Massachusetts.
Nortel bankruptcy changed playing field
Airvana began selling its products, including hardware and software, to Nortel in 2001, it said in the suit. Nortel, which resold the products to Verizon and Sprint, later struck a deal to make the hardware itself, based on Airvana's designs, while relying on Airvana to supply the software. The contract said that Nortel couldn't use software other than Airvana's in conjunction with the hardware, the suit alleged.
But then Nortel began its long slide into bankruptcy, and in 2009, the Swedish telecom equipment vendor Ericsson bought Nortel's North American equipment business. It also acquired Nortel's contract with Airvana, according to the suit.
Shortly thereafter, Ericsson began pressuring Airvana to reduce its software fees, the suit alleges. Relations between the companies began to sour, Airvana claims. Ericsson executives said that the original contract represented a "bad deal" for Nortel and that Airvana "needed to be taught a lesson," according to the suit.
Airvana alleged that Ericsson went on to develop its own software to run on hardware based on Airvana's designs, in violation of the contract, in order to avoid having to pay Airvana for its software. Late last year Ericsson informed Airvana that it planned to start selling the product with its own software.
Ericsson to use its own software on products
Airvana is asking that Ericsson be prevented from using its own software in the products, which it said are based on Airvana's hardware designs. Airvana is also asking the court for US$330 million (£208 million) in damages related to revenue that Airvana lost by agreeing to reduce its software fees before it knew that Ericsson was developing its own software to replace Airvana's.
Ericsson has earned revenue of more than $2 billion (£1.26 billion) since 2009 on the sale of products incorporating Airvana's technology, resulting in licensing revenue for Airvana of $200 million (£126 million) per year in 2010 and 2011, Airvana said.
Since Ericsson is Airvana's sole customer, if it stops paying Airvana, the company would be "in jeopardy," Airvana said in a statement about the suit.
Ericsson did not respond to a request for comment.