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Call it the decline of a cell phone empire. The patents that have controlled three-quarters of the world’s mobile phones for ten years � lumped under the 400-patent GSM standard � are getting old. And as the standard nears the end of its reign, a nasty lawsuit has erupted. The Global System for Mobile Communication, GSM, was developed in the late 1980s by a group of mostly European companies and first rolled out in 1992. Since then, the 15 companies that hold the key patents to the GSM standard have pulled in huge royalties. Exact figures are hard to get, but over the next 12 years, the cellular industry is expected to generate $80 � 100 billion in royalties, according to an April report by market research firm T&F Informa plc. But GSM can’t handle today’s high-end handsets, which send e-mail, play videos, and more. A newer standard, called Wideband Code Division Multiple Access, can handle these features and is expected to replace GSM. Enter Sendo Holding PLC, a six-year-old Birmingham, England � based mobile phone maker. Last year Sendo filed a confidential complaint with the competition arm of the European Commission, alleging that Ericsson and its fellow GSM patent holders are running an illegal cartel aimed at maintaining their dominance and keeping competition at bay. Sendo argues that the royalties it would have to shell out to all 15 GSM patent holders � allegedly more than $18 per phone � make entering the GSM cell phone market prohibitively expensive. And that, they argue, violates licensing rules set by the European Telecommunications Standards Institute, the agency that governs GSM licensing. Under ETSI rules, GSM patents must be licensed on reasonable and nondiscriminatory terms. Sendo alleges that GSM licensing has been anything but fair. In a press release describing the confidential E.C. complaint, Sendo says GSM patent holders are taking unfair advantage of their monopoly, swapping IP rights with one another for free while demanding excessive royalties from outsiders. According to Mark Paxman, a wireless technology consultant at PA Consulting Group in Cambridge, England, it’s “fairly well-known” in the industry that the GSM patent holders swap licenses for free. Meanwhile, he says, companies like Sendo, which hold no GSM patents, can expect to pay a punishing 10 � 13 percent of the selling price of a phone in GSM royalties. The problem is ETSI. Unlike some standard-setting bodies, it lets the market define fair, reasonable, and nondiscriminatory terms. (ETSI did not return an e-mail seeking comment.) Sendo is one of the few start-ups that has managed to break into the European cell phone market. But it’s now on its way to bankruptcy, having gone into administration (the British equivalent of Chapter 11) on June 30. Motorola, Inc., has cherry-picked 50 of its existing patents and 40 of the pending ones. Sendo’s charges against the GSM patent holders aren’t unusual. Claims of anticompetitive behavior in the European Union mobile telecom arena are common, according to Jonathan Retsky, a partner at Brinks Hofer Gilson & Lione in Chicago. But according to Retsky and others, Sendo went a step further in taking its grievance to the E.C. The company has taken on Goliaths before. In December 2002 it accused Microsoft Corporation of giving Sendo’s hardware designs to a Far Eastern manufacturer, after the two companies collaborated on a handset. They settled in September for an undisclosed amount. Retsky doesn’t think Sendo will fare as well against Ericsson. Sendo has taken a “very avant-garde legal position,” and it’s not clear that the E.C. will deal with the complaint. Paxman says that about two years ago, he discussed the issue of GSM royalties with a group of E.C. competition officials, who indicated that they were “sensitive to the problem,” but had their hands full with the antitrust investigation of Microsoft. The E.C.’s competition arm did not return e-mails seeking comment. A version of this story originally appeared in IP Law & Business , a sibling publication of Corporate Counsel .

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