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Source: Time Weekly Author: Guo Meiting

The mobile phone patent war has resumed.

On July 12, it was reported that Qualcomm was suing Shenzhen Transsion Holdings Co., Ltd. (688036.SH, also known as Transsion Holdings) in the Delhi High Court of India for infringing four non-standard essential patents.

Qualcomm later confirmed that it was suing Transsion Holdings and issued a statement saying, "Qualcomm has filed legal action against Shenzhen Transsion Holdings Co., Ltd. to protect our patent rights and help restore a fair competitive environment for all our licensees."

Image source: Screenshot from Transsion's official website

According to a reporter from the Times Weekly, patent royalties are a major focus of this lawsuit.

Qualcomm believes that Transsion Holdings has always refused to obtain full licenses from Qualcomm, and most of Transsion's products have not yet been licensed by Qualcomm, and are still infringing Qualcomm's valuable patent portfolio. However, in response to a reporter from the Times Weekly, Transsion Holdings pointed out that the practice of some patent holders demanding excessive licensing fees does not fully comply with the principles of fairness, reasonableness and non-discrimination.

It is understood that India is one of the relatively important markets in Transsion Holdings' global layout. According to IDC data, global smartphone shipments in 2023 will be 1.17 billion units, a year-on-year decrease of 3.2%, while Transsion Holdings' mobile phone shipments will be 194 million units, a 24% increase against the trend. Among them, Transsion Holdings has a market share of 8.2% in the Indian smartphone market, ranking sixth.

On July 14, Transsion Holdings issued an announcement stating that the company's controlling shareholder proposed that the 2024 interim dividend ratio should not be less than 50% of the 2024 semi-annual net profit attributable to the parent.

As the "African mobile phone king", Transsion Holdings has a strong development momentum, but it also has a lot of troubles.

Why was he sued?

It is understood that Qualcomm sued Transsion in India for infringing four of its non-standard essential patents, which are relative to standard essential patents (SEPs).

SEP refers to patents that must be used to implement technical standards, and they are irreplaceable and mandatory. Therefore, the holders of such patents must commit to standardization organizations to license these patents under fair, reasonable, and non-discriminatory terms, in order to prevent patent holders from using their position to monopolize the market.

Non-standard essential patents refer to those patents that are not necessary for international standards or industry standards, but they belong to the patent scope owned by the patent owner. Other companies can try to circumvent these patents, but if they choose to use them, they will need to pay patent fees.

According to a statement provided by Qualcomm to Time Weekly, Qualcomm believes that Transsion has used Qualcomm's patented technologies in its products, including wireless communication standard technologies and patented technologies in other fields, which are an indispensable part of Transsion's mobile terminals. Although Transsion has recently signed a licensing agreement with Qualcomm for some of its products, most of its products have not yet been licensed by Qualcomm and are still infringing Qualcomm's valuable patent portfolio.

According to a relevant person in charge of Transsion Holdings, Transsion and Qualcomm have signed an agreement on 5G standard patent licensing and are currently implementing the agreement. Transsion Holdings' current sales network covers more than 70 emerging market countries such as Africa and South Asia. In these countries, some patent holders do not own or only own a small number of patents, but demand excessively high licensing fees at a unified global rate without considering the differences in economic development levels in different regions, their lack of patents or only a small number of patents in specific regions or markets, and existing precedents that provide different rates in different regions.

"We believe that the practices of some patent owners do not fully comply with the principles of fairness, reasonableness and non-discrimination," Transsion Holdings responded.

Xia Hailong, a lawyer at Shanghai Shenlun Law Firm, told the Times that Qualcomm, as the patent holder, has the right to file a lawsuit against the party it believes is infringing, while Transsion, as the defendant, may raise defenses, such as no infringement, invalid patent, etc. In such patent lawsuits, the court needs to review the evidence provided by both parties, including the validity of the patent right, the existence of infringement, etc., in order to make a final decision.

Previously, Qualcomm had "patent wars" with Apple and Meizu, both of which ended in settlement.

In 2016, Qualcomm sued Meizu in the Beijing Intellectual Property Court because Meizu did not sign a 3G/4G technology patent license agreement with Qualcomm and seven years of negotiations were fruitless. Meizu eventually accepted Qualcomm's patent licensing conditions and the two sides reached a settlement to end the lawsuit.

In 2017, Apple sued Qualcomm in the United States District Court for the Southern District of California on suspicion of "antitrust" and accused Qualcomm of causing Apple to lose $1 billion through unfair patent licensing practices. Qualcomm then sued Apple's foundry manufacturer to the court, requesting the court to order Apple to fulfill the patent licensing contract and compensate for its losses. After that, the "fight between the gods" of the two companies spread to the world. It was not until 2019 that the two parties reached a settlement agreement. According to the settlement agreement, Apple will pay Qualcomm a sum of money, and the two companies have also reached a 6-year patent licensing agreement and signed a multi-year chipset supply agreement.

Patent licensing fees have always been one of Qualcomm's important sources of income. Qualcomm's 2023 financial report shows that the revenue of its patent licensing business (QTL) is as high as US$5.3 billion, accounting for 15% of its total revenue. According to the second quarter financial report for fiscal year 2024 released in May this year, Qualcomm's QTL business revenue was US$1.3 billion, an increase of 2% compared with the same period last year, accounting for about 14% of total revenue. This growth is mainly due to the estimated sales growth of 3G/4G/5G multi-mode products.

Image source: Screenshot from Qualcomm's second quarter financial report for fiscal year 2024

Negotiations will continue

In recent years, Transsion Holdings has achieved rapid development in many emerging markets.

According to global smartphone shipment data for the first quarter of 2024 released by market research firms IDC and Canalys, Transsion Holdings ranked fifth in the world in terms of shipments.

Transsion Holdings' main products are TECNO, itel and Infinix, three major brands of mobile phones, including feature phones and smartphones. Sales areas are mainly concentrated in emerging market countries around the world, such as Africa, South Asia, Southeast Asia, the Middle East and Latin America.

India is one of the relatively important markets in Transsion Holdings' global layout. Transsion Holdings has established factories and logistics warehouses in Ethiopia, India, Bangladesh, etc. According to IDC data, in 2023, Transsion Holdings' market share in India's smartphone market was 8.2%, ranking sixth.

Therefore, Qualcomm's choice of India as the battlefield for the lawsuit may have a significant impact on Transsion. "For Transsion, if it is found to have infringed, it may face risks such as liability for compensation, damage to its market reputation, and ban on the sale of its products. This may have a negative impact on its business and financial performance in the Indian market," Xia Hailong said.

Previously, due to the loss of patent lawsuits with Nokia, OPPO and vivo were banned from sale in Germany. It was not until the settlement with Nokia that OPPO's brand One Plus began to return to the German market. As of now, the Times Weekly reporter checked the OPPO German official website, but it was still empty; while the vivo German official website showed that "vivo products are not currently available in Germany."

Image source: Screenshot from vivo Germany official website

In addition to Qualcomm, Transsion Holdings is also facing an intellectual property lawsuit filed by Philips in India. According to the Financial Times, Nokia is also pressuring Transsion Holdings to pay patent fees.

Xia Hailong said that as the protection of intellectual property rights is increasingly strengthened worldwide, in order to deal with such problems, companies need to increase R&D investment, improve independent innovation capabilities, and reduce dependence on external patents; on the other hand, they need to make patent layouts in advance, build their own patent portfolios through applications and acquisitions, and form a dual strategy of defense and offense. In addition, he suggested that companies maintain good communication with international patent organizations, industry associations, etc., keep abreast of industry trends and patent risks, and seek professional legal assistance in target market countries to ensure that they can respond quickly when faced with litigation.

"In the mobile phone industry, intellectual property lawsuits occur frequently. Domestic and foreign mobile phone brand manufacturers have faced or are facing intellectual property lawsuits in the course of their operations." A relevant person in charge of Transsion Holdings also stated that it will continue to conduct patent negotiations with third parties and promote the determination of reasonable licensing fees within the framework of fair, reasonable and non-discriminatory principles.