Jacob Schindler

We no longer think twice when we hear the CEO of a major Chinese tech company, when asked about future plans, launch into a discussion of patent portfolios and where they need to be made stronger. At least at the upper echelons of the corporate world in China, the importance of intellectual property is practically conventional wisdom, especially for the handful of organisations that can truly claim to be global players. Anyone who has followed China for long enough will agree that this, in itself, represents progress and is worthy of recognition.

But it also means that talking is no longer enough. Not for this breed of company. This brings us to comments made over the past week by executives from Huawei and Xiaomi. Let’s start with the brash young smartphone maker. Last Wednesday in Beijing, Xiaomi CEO Lei Jun confirmed that the company’s mobile devices will not be landing in Europe or North America anytime soon, acknowledging that they would likely face lawsuits for patent infringement. Lei was quoted in the South China Morning Post saying: “Many different aspects of smartphones are patented, and even Apple and Samsung get into patent disputes. The fight for intellectual property is a rite of passage in the process of a smartphone company’s growth”.

Then there was Huawei chief executive Ken Hu (Huawei employs a system of rotating CEOs) who, on the sidelines of the Mobile World Congress last Tuesday, emphasised the investment the network equipment maker would be making in its 5G patent portfolio over the coming years. The company has already pledged $600 million toward research and development of the new standard by 2018. Hu’s comments came a week after Huawei was named the 7th ranked patentee at the European Patent Office, the highest position ever achieved by a Chinese company, with 493 grants in 2014.  

Clearly both executives understand what patents can do for their companies, and – especially in Lei's case – what patents can stop them from doing. Indeed, both companies have undertaken well-documented efforts to build large patent portfolios. As in previous years Huawei sat alongside competitor ZTE at the top of SIPO’s patent grant league table for 2014. Xiaomi has made a concerted effort to play catch-up, reportedly filing 2,318 patent applications last year (665 outside of China) and coming into others through moves like its tie-up with Leadcore Technologies. Does each company realise, though, that simply obtaining heaps of patents is not the answer?

That SCMP article about Xiaomi went on to note: “Innovation has become a hot buzzword for both government and business in China. Premier Li Keqiang held multiple high-level meetings this year to discuss how to boost innovation, and especially in the technology sector”. As this blog has argued (for years), patents do not equal innovation. So again, do these companies understand that, and accordingly make innovation the centre of their business strategies rather than just making patenting the centre of their PR strategies?

A case can be made that for Huawei, at least, the answer is yes. One of the eight core duties of its 15-member strategy and development committee (composed of its most senior executives) is “Managing the company’s medium-to-longterm technology development plan, standards and patent strategy, and major technology investments”.

Moreover, Huawei’s track record of developing industry standards shows that its mammoth filing volumes are not just about having enough ammunition for mutual assured patent destruction scenarios. According to its most recent annual report: “As verified by 3GPP, Huawei has contributed the most high-quality LTE/LTE-A standard patents since 2010. Specifically, we have demonstrated our strong capability for standards development by contributing 466 granted proposals to LTE/LTE-A core standards, achieving the global No.1 position and constituting nearly 25% of all proposals granted globally”.

Hu’s comments about the 5G standard just reinforce that Huawei is not merely interested in patents as a way to avoid getting sued. Rather, Huawei wants to create and protect technological advancements that other companies actually want to utilise. That, and not a lawsuit from Apple or Samsung, is the biggest challenge facing Xiaomi if it hopes to someday grab a share of Western markets.