Seher Hussain

This week saw ZTE announce a worldwide patent-licensing agreement with Dolby Audio Technologies for patents covering High-Efficiency Advanced Audio Coding, a crucial technology used in many smartphones. This move follows the company’s announcement earlier this year of another licensing agreement with Microsoft relating to patents covering the Android/Chrome platform. These deals, alongside other developments, indicate that despite its on-going battles with the US government, ZTE is thinking strategically about IP and is looking to secure freedom to operate unencumbered by the threat of lawsuits in key areas of development for the company.

ZTE’s commitment to IP does not come cheap; the company increased expenditure on R&D to approximately RMB 9 billion in 2012, a 3% increase from 2011, and is reported to have spent more than RMB 30 billion on R&D in the last four years combined. At the same time, the company has topped the PCT tables for the last two years; in 2012, it filed 3,906 applications via this route, as compared to Huawei’s 1,801 and Ericsson’s 1,197. Of course prolific patent filings alone do not equate to a credible IP strategy; but taken in conjunction with increased investment in R&D and the licensing deals it is doing, it would be fair to say that ZTE shows every sign of understanding the many ways in which IP can drive a business’s overall value proposition.

Commenting on the Dolby agreement, Kan Yulun, Corporate VP of ZTE Corporation said: “ZTE’s leadership in the mobile market depends on innovation and intellectual property. As a standard-bearer for Chinese companies operating around the world, we are committed to accelerating innovation through collaboration and support for intellectual property rights.” From a strategic viewpoint, such an approach could serve ZTE well given the current allegations of cyber-espionage that it and other Chinese companies are facing; accusations that in 2012 led to a US House Intelligence committee recommending that ZTE and Huawei be blacklisted from conducting M&A transactions and from obtaining procurement contracts in the US. Since then it has also come under fire from the EU for alleged anti-competitive behaviour.

In many parts of the developed world there seems to be a widespread belief that the vast majority of Chinese entities fail to respect IP rights and routinely participate in the theft of trade secrets. Whether that is fair or not, if ZTE is going to compete in a potentially hostile global market the need to be seen as a standard-bearer for good practice is vital.

Improving the reputation of “Brand China” is crucial to ensuring the sustainability of ZTE and other Chinese companies that wish to have unfettered access to international markets. ZTE seems to realise that demonstrating a strong commitment to IP rights on multiple fronts is a smart way to position itself. It is a strategy that other Chinese companies would do well to follow.