What’s Huawei’s New Patent Strategy?

In early April, Huawei posted internal meeting minutes for the first time publicly disclosed its patent strategies, showing that it might become more aggressive than before. Huawei’s recent announcements may hint that the vendor may be more aggressive in pursuing royalties from its wide patent portfolio and may even restructure its patent royalty fees. In fact, one year ago, Huawei announced its licensing a US$2.5 per unit for the 5G Standard Essential Patent (SEP) royalty cap which is lower than Qualcomm, Nokia, and Ericsson, and earned a royalty payment of US$600 million in Q1 2021, which made up for some losses in its consumer business due to the trade war.

Huawei claimed 110,000 patents in 45,000 patent families, and it is among the leaders in 5G patent ownership. However, its licensing revenue has been much lower than its competitors. For example, the licensing revenue for Qualcomm accounts for US$6.8 billion, with about US$1.6 billion for Nokia and about US$0.9 billion for Ericsson in 2021. Huawei reached a US$1.2~1.3 billion target over three years from 2019 to 2021, with an average of about US$400 million per year. This is a very small portion of the total revenue for the company, about 0.4% over the entire period. Huawei’s patent strategies have been mostly focusing on building patent portfolios globally and then using them to defend disputes of infringement against other patent owners.

Because of the US-China trade war, Huawei suffered a huge impact on its consumer business last year. It raises questions about Huawei’s possible shift to more aggressive licensing schemes to offset the decline in product and service revenues, due to geopolitical restrictions. However, according to an early interview from Alan Fan, head of IP in Huawei, their oversea patent experts have been more working on patent fillings, applications, and Research and Development (R&D) activities, with less experienced IP operations including licensing, litigation, and monetary activities which has been done at their headquarters in Shenzhen, China. In the future, Huawei will relocate more IP staff to overseas offices, but it takes time to catch up with its competitors who have been running global licensing business models for decades, such as Nokia, Ericsson, and Qualcomm. Such an issue was also addressed in that internal meeting where its founder Ren Zhengfei encouraged employees to develop knowledge and expertise in the area. Setting up a US$2.5 per unit for 5G SEP royalty cap may help reduce difficulty in negotiation for practice after other 5G SEP owners have successfully claimed higher rates in the market. Additionally, Huawei joined the patent competition in later generations with more advantages in 5G while a large scale of 5G applications hasn’t arrived.

Currently, 5G licensing is driven mostly by handsets, with many vertical applications still utilizing 4G patents, including the Internet of Things (IoT). As ABI Research estimated, wide applications for 5G will happen during 2025-2030 across industries. By that time, 5G SEP owners will have great monetary opportunities which is suggested to be the target that Huawei aims for. As a result, current patent leaders may be pushed to accelerate their R&D investments and IP operations to secure future licensing revenue streams. Meanwhile, research on 6G has started globally which will be established from the foundation of 5G. For example, digital-twins are one popular area for 6G vision that requires ultra-fast networks with extremely low latency for both downlink and uplink, and advanced Extended Reality (XR) applications which are development focus in 5G-Advanced networks.

ABI Research has observed below areas with high commercial opportunities in 5G and 5G-Advanced which could continue to be advantageous in 6G:

• Traffic optimization and battery utilization for XR devices and applications which would improve user experience and drive adoption of XR services in both consumer and enterprise markets.
• Network energy saving technologies are urgently demanded by sustainable requirements and lower deployment costs for network operators.
• Automotive with advanced driving features, such as self-driving cars, safety enhancement as connected vehicles would be another growing power after smartphone handsets in the consumer market.
• End-to-end Artificial Intelligence and Machine Learning (AI/ML) in mobile networks.

Patented technologies related to those aspects would be likely adopted by 3GPP standards and also applied to commercial use cases when 5G network coverage reaches a critical level. Therefore, expect fierce competition in those areas for the future market leadership position.