Thursday, July 13, 2023

Huawei emphasizes balance and collaboration, announces various patent royalty rates at annual innovation & intellectual property event

This is the third year for me to watch Huawei's annual innovation and intellectual property event, and I found the 2023 edition that was held today particularly interesting. Instead of one very long blog post, I'll talk about the company-specific part today and will reference the event again in an upcoming post on statements by various high-profile patent judges (former Federal Circuit Chief Judge Randall R. Rader--who was at today's event--and currently actives judges Mr Justice Marcus Smith of the UK Competition Appeal Tribunal and Judge Dr. Klaus Grabinski of the UPC) that should be considered in connection with the European Commission's proposed regulation on standard-essential patents (SEPs).

The SEP licensing landscape is polarized. On one end of the spectrum, pure licensing firms are found, and on the other end, there are net implementers who even if they own SEPs themselves are primarily interested in devaluation. Net licensors who also have a product business can relate to either perspective, but their surplus from patent licensing tends to be substantial. If any of you can point me to a second example, please do, but to the best of my knowledge, there is no major player--other than Huawei--whose inbound and outbound patent licensing activities are pretty much in an equilibrium at this stage.

Huawei generated US$560 million in licensing revenue during the course of 2022, but also spent pretty much the same amount on license fees covering its products over the course of the last two years as it collected. In the past, the ratio was actually 3:1 (inbound:outbound licensing), but then came certain geopolitical developments that have practically excluded Huawei from particular markets. Still, historically Huawei is a net licensee, even if it accidentally attained "net licensor" status (and only by a razor-thin margin) late last year according to a media report.

I find it not only intellectually dishonest, but frankly outrageous and strategically counterproductive when those seeking to devalue SEPs treat Huawei as an enemy, be it in statements to the media or on conference panel. It's a binary "you're with us or against us" attitude, motivated by the convenience of "cheap shots" at a bogeyman. In reality, no company--if it weren't for geopolitical reasons--is better-placed to serve as a bridge between net licensors and net licensees than Huawei with its unique parity between inbound and outbound patent licensing activities. And if you asked them, I'm sure they'd rather become a net implementer, by the traditional of factor of three, as soon as humanly possible.

At today's event named "Bridging Horizons of Innovations 2023 -- Sharing Intellectual Property, Driving Innovation", Huawei's chief legal officer, Dr. Song Liuping, made it very clear: because Huawei also implements standards, it has "a balanced approach" and is "all for reasonable fees, and absolutely against excessively high royalty rates because it would impede competition and hold back SMEs because SMEs normally don't own any SEPs."

As I mentioned geopolitics, at least the institutions of the United Nations maintain a constructive dialog. Today's event included a video address by Tomas Lamanauskas, the Deputy Secretary-General of the International Telecommunication Union.

Collaboration was another theme (also in that ITU keynote). Huawei reached approximately 200 patent license agreements without the need to resort to litigation (though of course there have been and will continue to be a few cases where it couldn't be avoided). When the moderator asked why they wanted to share their technologies instead of trying to monopolize markets, Huawei's IP chief, Alan fan, had to laugh at the notion of monopolization and replied: "It is not our goal to monopolize. We benefit from competition."

Mattia Fogliacco, the president of patent pool administrator Sisvel, was one of speakers on a discussion panel at the Shenzhen event. He stressed that "the only forward is through a collaborative approach, we must work together and not against each other." And with a view to standards resulting from the contribution of technologies by all companies participating in the standards development process, Mr. Fogliacco asked this rhetorical question: "When there's no investment, how can technologies be good?" In that vein, Huawei IP chief Mr. Fan explained "the virtuous cycle that sustains the industry" where patent licensing income is invested in the development of the next generation of technologies.

While that is not my focus now, the history of this blog is actually that it started with a focus on open source, thus the name (FOSS means "Free and Open Source Software"). Interestingly, Huawei also touted its contributions to open-source software development, being the number one open-source contributor from Asia.

Huawei's press release on today's event notes that royalty rates were announced for the company's different patent license programs. Prior to doing so, however, Huawei showcased some of its groundbreaking innovations such as General Obstacle Detection for autonomous vehicles (i.e., being able to identify obstacles even of a novel nature), the transition from stereo to true 3D audio ("Audio Vivid"), and its contributions to 5.5G, the next major evolution of the 5G cellular standard. Then they announced various royalty caps:

  • Mobile handsets:

    • 5G: $2.5/unit

      4G: $1.5/unit

  • WiFi:

    • consumer grade WiFi 6 product: $0.50/unit

  • Cellular IoT:

    • IoT-centric devices: 1% of net selling price, capped at $0.75/unit, for categories NB, M, and 1; category 4+ to be discussed individually

    • IoT-enhanced devices: from $0.30/unit for Category NB to $1.00/unit for Category 4+

The emphasis today was on innovation, not on monetization, but obviously those using patented inventions must pay license fees. Huawei licenses bilaterally and through pools. I believe we'll hear more about that between now and their next annual innovation & IP event.