Jack Ellis

ZTE is the “major Chinese telecom equipment and smartphone manufacturer” that agreed to sell a patent portfolio – including, significantly, a number of China-only patent families – to Texan NPE Longhorn IP earlier this year, new USPTO records reveal. The transaction appears to be ZTE’s first confirmed sale of assets to a patent assertion entity, indicating the company’s aspiration to generate more value from monetising its vast IP portfolio.

In an assignment executed on 2nd May and recorded with the USPTO two days later, ZTE transferred a portfolio including four granted patents to Ox Mobile Technologies LLC. All of the assets appear to relate to handover processes that enable ongoing telephone calls or internet usage sessions to be transferred from one channel to another in a network.

Longhorn – founded last year by former Acacia Research executives Christian Dubuc and Khaled Fekih-Romdhane – announced back in February that its Ox Mobile subsidiary had acquired “assets related to 4G/LTE with worldwide coverage, as well as Chinese assets related to smartphone implementation” from an unnamed Chinese company.

Notably, Longhorn has published its asking royalty rates for licences to the Ox Mobile portfolio on its website, where it states the following:

Ox Mobile Technologies LLC is committed to offering a license on a Fair, Reasonable, and Non-Discriminatory (FRAND) basis to interested parties… Past sales are licensed at the Standard royalty rate, while estimated future sales are licensed at the Compliant royalty rates, subject to volume discounts and a cap on total royalties. A time-limited additional discount is also available for early adopters.

Longhorn is offering lower rates for prospective licensees in China. This follows similar frameworks adopted by the likes of Via Licensing and Ericsson lately, which have sought to adjust rates for manufacturers in emerging market economies, or those whose products are intended to sell at lower price points. The published royalty rates for the Ox Mobile portfolio are set out in the table below:

Type of sale

Volume sold until Jan 2027

FRAND unit royalty rates (US$)

United States

European Union

China

Standard

Any (no limit)

0.10

0.10

0.05

Compliant

0 – 5,000,000

0.08

0.08

0.04

5,000,001 – 20,000,000

0.06

0.06

0.03

20,000,001 – 50,000,000

0.04

0.04

0.02

50,000,000+

$2.50m fully paid-up licence

$2.50m fully paid-up licence

$1.25m fully paid-up licence

 

While it can't be confirmed at this stage what pecuniary interest – if any – ZTE retains in the assets it has sold to Longhorn, this patent deal would certainly appear to be the first it has done where monetisation is the main objective (in late 2012 the company did transfer several patents to a Delaware corporation called Yarnton Technologies LLC – though it seems nothing much has been heard about these since, and there is no clear connection between Yarnton and any other entity).

This represents a significant step for the Shenzhen-based telecoms giant, which has not previously shown any proclivity towards partnering with third parties to monetise its patents. That it now appears to have changed tack may in part be a result of movements at the top of ZTE’s IP function, which saw licensing specialist Spencer Shen take over as the company’s chief IP officer in February 2016.

Moreover, after Longhorn’s original announcement of the deal back in February, several people in the market told IAM that there was a strong chance that ZTE – rather than obvious candidate Huawei – could be the mystery vendor. They suggested that since ZTE hasn’t yet been able to develop a domestic licensing programme to match the successful in-house operation of its cross-town rival, it was increasingly looking at alternatives – including third-party partnerships. This would also go some way to explaining why Longhorn has acquired several ZTE patent families that only contain SIPO-issued assets; the likeliest answer being that it has a China-focused licensing campaign in the works.