Huawei will charge royalties from smartphone makers using its 5G technology

GUANGZHOU, China – Huawei will begin charging smartphone makers royalties for the use of its patented 5G technology as the Chinese technology company seeks to open a new revenue stream, even though other parts of its business have suffered due to American sanctions.

The company said it would charge “a reasonable percentage of royalties on the sale price of the device and a royalty ceiling per unit” of $ 2.50 for smartphones capable of connections with 5G and previous generations of mobile networks.

This price is lower than that of some Huawei competitors, including the Finnish telecommunications company Nokia.

Charging royalties on important patents related to cellular technology could help Huawei offset at least part of the revenue achieved in other parts of its business, such as smartphones, as a result of U.S. sanctions.

In the past, Huawei charged royalties from companies like Apple.

The standardization bodies have the task of creating them. Companies like Huawei, Nokia, Swedish telecommunications equipment giant Ericsson, the American chip maker Qualcomm and many others contribute to the standards development process.

In doing so, these companies develop technologies that they will then patent. Patents, which are critical to, say, 4G or 5G standards, will be considered an “essential standard patent” or SEP.

If, for example, a smartphone manufacturer wants to launch a 5G device, they will likely need to use the SEPs of one or more of these companies. In return, these companies can request a royalty fee.

It is a practice that has existed for a long time.

Deciding what is and what is not an SEP can be tricky and can lead to high-profile disputes between two parties.

Huawei has 3,007 families of 5G patents declared, the largest among all companies in the world, according to analysis by the intellectual property research organization GreyB. Patent families are a group of identical or similar patents registered in different countries.

GreyB estimates that about 18.3% of these Huawei 5G patent families are SEPs in use, more than any other company.

The other largest patent holders are South Korean companies Samsung and LG Electronics, Nokia, Ericsson and Qualcomm.

Huawei’s $ 2.50 royalty limit for smartphone makers is lower compared to its rivals.

In 2018, Nokia said the licensing fee for its 5G SEP portfolio will be limited to 3 euros ($ 3.58) per device. Ericsson said it will charge $ 2.50 to $ 5 per device.

Huawei has collected royalties from companies for its 4G patents. The Chinese company estimates it will receive about $ 1.2 billion to $ 1.3 billion in patent licensing revenue between 2019 and 2021.

In the past, Huawei was not very aggressive in royalties or litigation. But now that can change.

“The reason for this is, above all, Huawei’s position in the world, in many countries, Huawei has faced difficult challenges to sell its products,” said Muzammil Hassan, head of GreyB’s intellectual property licensing and commercialization department. .

Huawei was hit by a series of sanctions by the U.S., which accused the company of being a threat to national security. Huawei has repeatedly denied this statement.

But in 2019, the Chinese phone maker was put on a U.S. blacklist called the Entity List, which prevented American companies from exporting some technology to Huawei. Last year, Washington decided to cut off the supply of important chips to Huawei.

These actions caused Huawei’s smartphone shipments to plummet.

Meanwhile, several countries, such as the U.S. and Australia, have effectively prevented Huawei’s equipment from being part of their respective 5G networks.

There are now signs that Huawei is becoming more aggressive in intellectual property disputes. Last year, Huawei filed two lawsuits against Verizon, alleging that the American operator infringed patents held by the Chinese telecommunications giant.