Ericsson and Huawei show how cooperation drives the connectivity patent world
I don’t know about you, but I always approach anything about patents – and patent licensing especially – in the mainstream news or business press with a mix of fascination and trepidation. The former because I am always intrigued to see how the issue is covered, the latter because I am pretty sure about how it will be. So it was with an article published by the Financial Times on 23 August entitled What the Great EU Patent Fight Means for Global Competition.
Penned by Brooke Masters, the piece was, as the name suggests, all about DG GROW’s proposed SEP licensing regulation.
“The increasingly widespread use of connectivity patents has exposed massive strains in a process that has been defined by vicious litigation between corporate giants,” Masters wrote, before signing off: “Western governments need to address the constant litigation and complex rules. They slow down progress. But heavy-handed intervention from Brussels could be counter-productive. Government price-setting rarely works as intended. Let’s make sure that much-needed reforms do not make things worse.”
A lot wrong, much missed
Masters is the FT’s US financial editor and a very fine reporter. However, while her article may have reached the right conclusion, it was only after a discussion that got plenty wrong while also missing out an awful lot.
For starters, the widespread use of connectivity patents is not “defined by vicious litigation”. There are some disputes, but they are not “constant”. The vast majority of deals done in the space are agreed without recourse to the law. Many of the relatively low number of disagreements that do end up in court are resolved before final judgments are handed down.
The Oxford English Dictionary defines vicious as meaning: “Full of malice or spite; malignantly bitter or severe.” It’s possible that some SEP lawsuits pan out like that. However, when it does happen this kind of litigation is almost always a business decision – especially when taken by “corporate giants” – and the first rule of such action is that you don’t let emotion get in the way.
Then there’s the charge of complexity. Well, yes, there is always going to be a level of difficulty in doing deals around technology and in getting to a price the parties concerned can agree. That’s the nature of the beast.
However, the legal regime surrounding SEPs is not particularly hard to navigate, especially in Europe. The pivotal Huawei v ZTE case laid out the ground rules and subsequent decisions in various countries – such as the UK’s Unwired Planet judgment and Sisvel v Haier in Germany – have built on those foundations.
Furthermore, in the auto sector that Masters references in the article there is the Avanci platform. Its 2G-4G programme is a market-based solution that offers SEPs from over 55 rights holders and covers around 85% of connected vehicles at a flat rate of $20 per vehicle. You can currently throw 5G in on top for an additional $9. That’s a far from hard-to-understand $29 per car for full access to SEPs that represent over 80% of the global total. It’s also not a lot of money by any measure, especially when compared to the additional value connectivity creates for auto manufacturers and their customers.
Unfortunately, many will have read the article, reflected on its talking points and decided that what Masters concluded was wrong; that, in fact, a top-down intervention from the powers that be is precisely what is required to mend the broken market she describes. So, from an SEP licensor’s perspective, the piece was less than helpful.
That is a shame because the reality of patent licensing in the connectivity space was on display just a few days after the piece was published when two “corporate giants”, Ericsson and Huawei, announced their latest deal. Covering network infrastructure and consumer devices, the agreement gives each company a global licence to use the other’s patent standardised technology.
“Both companies are major contributors to mobile communication standards and recognise the value of each other's intellectual property,” said Ericsson chief IP officer Christina Petersson. “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.”
Huawei IP head Alan Fan was equally as effusive. “This agreement creates a stronger patent environment. It demonstrates the commitment both parties have forged that intellectual property should be properly respected and protected,” he stated. “Our commitment to sharing leading technological innovations will drive healthy, sustainable industry development and provide consumers with more robust products and services.”
The Petersson and Fan comments make clear that this is a good deal for both companies. It’s one that reflects the strength of the patent portfolios the two possess and so will guarantee each a large degree of freedom to operate. There’s a lot of value in such certainty.
Notably, there was no mention in the statements the companies released of any royalty payments to be made by either side. That is in contrast to the last publicly-announced deal between the pair back in 2016. Then, it was emphasised that Huawei would “make on-going royalty payment based upon actual sales to Ericsson from 2016 and onwards”.
However, in its 25 August release Ericsson did state: “With the current portfolio of IPR licensing contracts, Ericsson estimates the full-year 2023 IPR licensing revenues to be approximately SEK 11 billion.” That’s up from the SEK 10.4 billion it made in 2022 and suggests that, even with currency fluctuations, it expects some net income from Huawei.
The value of any such payments, though, is open to question. Huawei’s patent position, especially in 5G, is a whole lot stronger than it was seven years ago. This means the financial power of its outgoing licences is higher. What’s more, Huawei’s presence in the mobile devices market is much less prominent these days – although it is enjoying something of a revival in China currently.
On top of this, the Chinese company is effectively excluded from operating in many parts of the world, including lucrative markets in North America and Europe. This means it does not need the coverage it may have done previously. Ericsson, on the other hand, faces no such restrictions in its infrastructure business, so it requires a full global licence from Huawei.
Put all of that together and it’s not hard to imagine that a licensing relationship which may once have skewed heavily in favour of the Swedish company is now a lot more balanced, leading to an outcome in which any current net flow to Ericsson should be measured in the tens of millions of dollars annually rather than the hundreds of millions. It’s also not impossible to foresee a scenario in which that situation flips within the timeframe of the deal just agreed.
Set the agenda
Very often cross-licensing agreements are announced that when examined in a bit more detail seem designed to spare the blushes of one of the parties involved. This agreement, though, looks like the real thing.
Variations of what Ericsson and Huawei agreed last week are announced on a regular basis throughout the year. Many more such deals fly under the radar because they are not made public. The connectivity market’s occasional flare-ups do grab attention, though, because they are always out in the open, money is very clearly at stake and big names are involved. Such confrontation makes for much better headlines than cooperation and so invites coverage.
That’s not me seeking to excuse poor reporting. Rather, it’s an explanation for why a distorted picture of patent licensing so often finds its way into the mainstream media. Until this is fully understood, and the resources required to correct the record are allocated, it is going to continue.
This doesn’t involve just sending out more press releases, it means getting proactive and developing relationships outside of the news cycle, as well as being a lot less cautious about expressing views and more transparent in sharing information.
There is a good news story to tell about connectivity patent licensing – a very good one, in fact, about how it bridges divides, powers new industries and enriches the world. However, those involved must be willing to invest properly in telling it. Until they are, the agenda will always be set from elsewhere.
Joff Wild is the creator of IAM and its former editor-in-chief. He now writes a weekly column for the platform and offers advisory/consultancy services, with a focus on IP policy, strategy, communications, marketing and business development