Friday, August 25, 2023

Long-term patent cross-license announced by Ericsson and Huawei: emphasis on respect for IP, balance, and cooperation on standards

Ericsson and Huawei just announced that they "have renewed a multi-year global patent cross-licensing agreement that covers patents essential to standards relevant to the products of the parties, including 3G, 4G, and 5G cellular technologies." The agreement is a two-way street that gives both parties access to each other's standard-essential patent (SEP) portfolios with a view to "sales of network infrastructure and consumer devices." And it is the latest example of market-driven solutions that the contemplated EU SEP Regulation would complicate rather than facilitate.

Financial terms and the exact term of the agreement were not announced. While Ericsson's press release notes that its full-year 2023 intellectual property licensing revenues would amount to approximately SEK 11 billion (USD 1 billion), today's announcements don't say explicitly who will be the net payer. In fact, they may not even know yet how things will play out over the entire term of a multi-year agreement, how each other's product sales develop. A cross-license means that rights and payments are going in both directions. The net balance may be predetermined, but in a dynamic environment it may depend on future sales. I'm sure that Ericsson was the net licensor under past license agreements with Huawei, and the fact that Ericsson raised its licensing-revenue guidance suggests that this is still the case as we speak.

What does "long-term" (a term that is also found in a statement by Huawei's IP chief Alan Fan) presumably mean in this context? Apart from temporary standstill agreements, the shortest term of a license agreement that I have seen so far is the three-year term of the Nokia-OPPO agreement that expired in mid 2021. A pretty standard term is five years--a duration so common among patent license agreements that I wouldn't necessarily call it "long-term" in this context. Various major license agreements have been announced in the wireless industry with a known seven-year term. My guess is that "long-term" means at least seven years for the new Huawei-Ericsson deal, though presumably not more than a decade.

Let's look at what both parties say in their respective press releases:


"'We are delighted to reach a long-term global cross-licensing agreement with Ericsson,' said Alan Fan, Head of Huawei's Intellectual Property Department. 'As major contributors of standard essential patents (SEPs) for mobile communication, the companies recognize the value of each other's intellectual property, and this agreement creates a stronger patent environment. It demonstrates the commitment both parties have forged that intellectual property should be properly respected and protected.'"


"'We are pleased to announce our renewal of our global cross-licensing agreement with Huawei,' said Christina Petersson, Chief Intellectual Property Officer at Ericsson. 'Both companies are major contributors to mobile communication standards and recognize the value of each other's intellectual property. This agreement demonstrates the commitment of both parties that intellectual property should be respected and rewarded, and that leading technological innovations should be shared across the industry. A balanced approach to licensing ensures that the interests of both patent holders and implementers are served fairly, driving healthy, sustainable industry development for the benefit of consumers and enterprises everywhere.'"

Those two statements reflect a meeting of the minds. There was no litigation (as I'm sure that any infringement actions would have been announced), and presumably not even alternative dispute resolution. It looks like both companies shared the vision that IP should be respected, innovation should be rewarded, and above all they wanted to ensure smooth cooperation on technology development. Both are major contributors to standards, such as the further evolution of 5G as well as its successors (there will not only be 6G but also something already referred to in some reports as 5.5G).

The fact that they compete on network infrastructure in some markets does not prevent them from approaching IP as a topic that is simply part of the ordinary course of business, and to collaborate on wireless development at the level of standards-development organizations like ETSI (a Europe-based organization of world repute that certain initiatives by the European Commission--not only but also the proposed EU SEP Regulation--threaten to marginalize).

Would the EU's envisioned, EUIPO-organized rate-setting process have been of assistance here, even though it indisputably wasn't needed to reach this agreement? There would have been no value-add because those companies, with their specialized departments, understand their own and each other's patent portfolios better than a single "conciliator" could after a nine-month process.

Today's announcement must be viewed in light of last month's innovation and intellectual property presentation by Huawei. The company does not view patent licensing as a strategic business area or profit center, but as a logical and necessary activity that helps finance the next round of innovations. Given the strength of Huawei's patent portfolio and a growing range of product categories that incorporate standardized technologies, the total amount of Huawei's licensing revenue ($560M in 2022) appears moderate or at least not excessive. It's also interesting to look at Huawei's differentiated, SME-friendly license terms for the IoT industry.

While there are significant differences between the two companies, today's announcement shows that both of them believe that if you use someone else's IP, you should pay a fair royalty for it, but that this goes both ways.

They are both among Avanci's 4G and 5G licensors (Ericsson was there from the beginning while Huawei's involvement became publicly known only this month).