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In midsummer July, a patent war broke out, and Huawei's lawsuit against MediaTek quietly rewrote the industry landscape.

——Blue Blood Inscription

The patent war is on again. Who will be the final winner in the game between Huawei and MediaTek? A patent dispute has opened the prelude to the transformation of the patent licensing model in the global smartphone industry.

Of course, if you choose to become a strong one, you will have to face endless "competitions" and "PKs". This is the only way to be "invincible". No company should be "afraid of trouble".

On July 19, 2024, at dawn, an announcement from the Taiwan Stock Exchange was like a stone thrown into a calm lake, causing ripples. MediaTek issued a clarification announcement, in response to rumors that "Huawei may file a lawsuit involving mobile communication technology patents", stating that the lawsuit has no significant impact on the company, the case has entered the judicial process, and no comment will be made.

This lawsuit is just a small part of the patent war between technology giants, and the undercurrent behind it is the profound change in the industry's patent licensing model.

01

Huawei vs. MediaTek patent war revives

Is it a game of interests or a prelude to technological innovation?

Behind this seemingly sudden lawsuit, there is actually a breakdown in a protracted negotiation. A person close to MediaTek revealed that the two sides began to have differences over patent fees two or three years ago, and until recently, the "negotiations broke down" due to the price issue. According to this person, Huawei made corresponding demands to MediaTek based on the terminal price, but MediaTek believed that the price was too high and difficult to accept.

The rumored patent may involve5G(or including 4G, 3G, etc.) cellular mobile communication technology.

The lawsuit between Huawei and MediaTek is different from the past. Huawei, the patent holder in the lawsuit, has pointed the finger at chip manufacturers rather than mobile phone terminal manufacturers. This change may subvert the existing patent licensing model. The industry media "Enterprise Patent Watch" believes that if the future charging model can be transferred to the "component level", for ordinary consumers, the pressure on mobile phone OEM manufacturers to pay patent licensing fees will be greatly reduced, and the main patent fee issues will be handled by a few chip manufacturers in the supply chain. Under this model, consumers' cost expenditure on mobile phones is expected to be further reduced.

However, Huawei remains silent on the details of the lawsuit. Whether the lawsuit between Huawei and MediaTek involves the patent model itself remains to be further promoted and disclosed. From Huawei's previous attitude towards the patent charging model, it can be seen that it advocates two main ways of global patent licensing: one is to solve the licensing issues between the two companies through bilateral licensing; the other is to carry out "one-stop" licensing through patent pools. In terms of rates, two methods, single-unit rate and percentage rate, have also been proposed.

Looking back over the past few years, with the rapid advancement of 5G commercialization around the world, the attitude of communication giants towards patent fees has become more straightforward. Patent wars are no longer a game of cover-up, but a direct commercial competition. Not long after the patent lawsuit between Qualcomm and Apple subsided, Ericsson and Nokia launched a 5G patent lawsuit war against mobile phone manufacturers worldwide. Ericsson filed patent infringement lawsuits against Apple in at least six jurisdictions, and the two parties reached a settlement at the end of 2022. Nokia, on the other hand, has filed lawsuits against a number of Chinese manufacturers in the United Kingdom, Germany, Spain, France, India, Indonesia and other regions since 2021, and then settled with OPPO this year.

02

Patent wars ignite

Who will dominate the 5G world?

However, behind the patent dispute are multiple risks and pressures faced by the global intellectual property layout. One important reason why the industry is paying close attention to the lawsuit between Huawei and MediaTek is that it may change the current patent licensing model in the global smartphone industry.

The previous patent war between Apple and Qualcomm also attracted attention in the industry. Apple tried to challenge the patent charging model of the smartphone industry dominated by Qualcomm. Apple mentioned in the lawsuit that Qualcomm's business is based on older traditional standards, but it strengthens its position through exclusive tactics and excessive patent royalties. Apple hopes to be able to purchase chips without signing a patent licensing agreement to avoid having to share the profits with Qualcomm for every iPhone sold.

This also means that in addition to paying for chips, a mobile phone also has to pay licensing fees for a large number of components unrelated to mobile communications, such as panels and memory. However, Qualcomm refuted this, believing that its business model is reasonable and necessary.

After several lawsuits, Qualcomm and Apple finally reached a settlement, but Qualcomm's patent charging model has not changed. Industry media believe that the key to Qualcomm's ability to maintain this business model is that it does not open licenses to chip manufacturers, but only to terminals, so as to meet the patent system's "rights exhaustion" requirement.

As mentioned above, Huawei's offer to MediaTek was based on the price of the terminal, but MediaTek internally believed that the price was too high. This is also in line with Huawei's consistent licensing strategy, which is to issue licenses to everyone (License to all). For example, on June 17, 2022, Huawei announced that it had signed a patent license agreement with Nordic Semiconductor, and clarified that Huawei granted Nordic and its customers a component-level license for low-power wide-area cellular IoT standard essential patents.

However, the core of the dispute between Huawei and MediaTek lies in the Access to all model and the License to all model, which has been controversial in the Western society. Nokia is a typical Access to all model, while Huawei is a typical License to all model. This is the licensing level issue between the patent owner camp and the implementer camp.

The rights holder camp generally supports the Access to all model, believing that not all entities need SEP licenses, while the implementer camp insists on the License to all approach. This competition is particularly evident in Europe, mainly because Europe is a gathering place for standardization work. In June 2019, companies such as Nokia and IP Europe released the "Licensing Principles and Guidelines for 5G and IoT Standard Essential Patents", while companies such as ACT and FSA, supported by Apple, released the "Core Principles and Methods for Standard Essential Patent Licensing". The two reports reflect many different views of the two camps, including licensing levels, rate calculation methods and confidentiality agreements.

Judging from the lawsuit between Huawei and MediaTek, Huawei has implemented the best way to balance the interests of both the patent holder and the implementer after becoming a patent holder. However, this approach is likely to encounter opposition and resistance from the Western patent holder camp. It is still difficult to say what the future situation will be like and whether Huawei can bring changes to the industry on its own. The smoke of the patent war has not yet dissipated, and the game between Huawei and MediaTek may just be a prelude to this drama.

03

Analysis of the new "transformation" after Huawei's patent:

The business logic behind and the changes in the industry

As mentioned earlier, Huawei has shifted from charging traditional terminal equipment manufacturers to charging licensing fees to upstream chip manufacturers, and the patent licensing level has made the leap from "terminal level" to "component level". This move not only tests Huawei's bargaining power, but also poses a potential impact on the patent licensing ecosystem of the entire industry.

The patent licensing rates announced by Huawei are like a mirror, reflecting the depth and breadth of its patent layout. 4G mobile phones are $1.5 per unit, 5G mobile phones are $2.5 per unit, and Wi-Fi 6 devices are $0.5 per unit... These seemingly insignificant figures are enough to shake up the industry's profit distribution pattern when accumulated. According to a report by market research firm Omdia, MediaTek chips account for 29.2% of the global 5G smartphone market. If Huawei charges patent fees at this rate, MediaTek may have to pay more than $800 million in patent licensing fees a year, which is undoubtedly a heavy financial burden.

However, is it feasible to charge patent licensing fees based on terminal standards? Currently, communication giants such as Qualcomm, Ericsson, and Nokia charge patent fees directly to terminal manufacturers, and charge proportionally based on shipments and communication technology specifications. If Huawei changes the rules of the game and charges chip manufacturers directly, it can simplify the process, but it may also cause disputes over duplicate charges and unbalance the interests between terminal manufacturers and chip manufacturers.

As a leader in the field of mobile communication chips, MediaTek is naturally unwilling to give in easily. It has a rich accumulation of communication patents, and only designs chips, not terminal products. It is difficult for it to accept the arrangement of paying patent fees for downstream customers. What's more, if Huawei's terminal products involve MediaTek patents, it will also have to pay according to this model. The two sides are evenly matched in the game.

The wheel of history rolls forward, and patent wars are nothing new. As early as 2009, MediaTek reached a patent agreement with Qualcomm, but it was limited to integrated circuit products and did not cover terminal products. Huawei and Qualcomm also had a confrontation and settlement over patent licensing, and Huawei paid a one-time patent fee of up to US$1.8 billion. These past cases all provide a mirror for the patent war between Huawei and MediaTek.

If the patent charging model can really shift from terminal manufacturers to chip manufacturers, terminal manufacturers may be able to breathe a sigh of relief temporarily, free from the bombardment of major patent manufacturers. However, the cost pressure of chip manufacturers may increase sharply, and they may eventually pass on the cost by raising the price of chips. After all, the wool comes from the sheep. However, the two ends of the negotiation table will change from the terminal manufacturers and patent manufacturers with clear strength to the competition between evenly matched communication giants.

04

Huawei's transition from buying patents to selling patents

"Patents cost a lot of money"!

Since three years ago, Huawei has been expanding its patent revenue globally. At an intellectual property conference last year, Shen Hongfei, vice president of Huawei's legal department and director of the major project department, said that Huawei's patent revenue constitutes the main standard technologies of ICT such as 5G, Wi-Fi6, and 4G. He revealed that Huawei's patent licensing revenue in 2022 was approximately US$560 million, which was the second year that Huawei's patent licensing revenue exceeded its expenditure. However, Huawei's historical cumulative licensing fee expenditure is three times its cumulative revenue.

As a global leader in science and technology, Huawei has a wide and deep patent layout that is remarkable. By the end of 2023, Huawei holds more than 140,000 valid authorized patents worldwide, of which 5G and Wi-Fi6 patents account for the largest share in the world. Reports from the National Intellectual Property Administration and the World Intellectual Property Organization further confirm Huawei's outstanding achievements in the field of patents.

Huawei's continued investment in R&D is the cornerstone of its rise as a patent "big brother". In the past decade, Huawei's cumulative R&D investment has reached 1.11 trillion yuan, and in 2023, R&D expenses accounted for 23.4% of its annual revenue.

This persistence and pursuit of innovation has made Huawei shine on the global patent stage.

The expansion of Huawei's patent licensing business is an important strategy for Huawei to cope with changes in the external environment and achieve sustainable development. Since the release of the "Huawei Innovation and Intellectual Property White Paper 2020" in 2021, Huawei has signed nearly 200 bilateral licensing agreements, and more than 350 companies have obtained Huawei patent licenses through the patent pool. Behind this report card is Huawei's respect and protection of intellectual property rights, as well as its active construction of an innovation ecosystem.

From Apple, Samsung to OPPO, vivo, from Mercedes-Benz, BMW to Amazon, Huawei's patent licensing partners are spread across all walks of life around the world. These collaborations have not only brought Huawei considerable patent licensing revenue, but also consolidated its leading position in the field of global communications technology. According to Huawei's legal department, in 2023, more than 450 million 5G mobile phones in the world will obtain Huawei patent licenses. Behind this number is Huawei's huge contribution to the development of the global communications industry.

Patent wars are not only a game of interests, but also a contest of technology. The lawsuit between Huawei and MediaTek may be just a microcosm of the patent war in the field of global communications technology. But it is these little confrontations and games that drive the entire industry forward.

05

Conclusion

Patent wars, swordplay, and shadowy battles determine the landscape. Every handshake and clash between tech giants is a subtle change in the direction of the industry.

However, the details of the lawsuit are shrouded in mystery. Huawei and MediaTek have both remained silent, and the outside world can only speculate and infer based on clues. Who will have the last laugh in this patent fog? How will the entire industry be affected by this dispute? Everything is still unknown, but it has undoubtedly caused ripples.

From a broader perspective, the patent dispute between Huawei and MediaTek is just a microcosm of the fierce competition between technology giants. Under the wave of globalization, the competition between enterprises has long gone beyond the scope of products and markets, and has focused on the competition for technology and intellectual property rights. In this war without gunpowder, the gains and losses of each patent may determine the future direction of the market and the ownership of the right to speak.

For Huawei and MediaTek, this patent war is not only about immediate gains and losses, but also an important layout for future strategic positions. They know that only by mastering core technologies and intellectual property rights can they remain invincible in the fierce market competition. Therefore, although this dispute seems cruel, it is actually one of the driving forces for the continuous development of both parties and the entire industry.