2024-07-27
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【Text/Observer.com Lv Dong】
The patent litigation war between technology giants is on again.
On July 25, local time, British intellectual property media IAM reported that Taiwan chip company MediaTek is suing Huawei in the High Court of England and Wales, accusing the latter of infringing MediaTek's patents. Just a week ago, the Taiwanese chip giant announced that Huawei had filed a patent lawsuit against the company that may involve mobile communication technology, and the case has entered the judicial process.
Observer.com contacted MediaTek regarding the relevant reports, and the other party said: The case has entered the judicial process and no comment will be made.
Huawei did not respond to a request for comment.
MediaTek is the world's largest mobile phone processor manufacturer, and Huawei is a household name in the technology industry. Why did the two sides start a patent lawsuit over a disagreement? The reason is of great interest. What impact will this lawsuit ultimately have on the industry is also of great concern.
From an industry perspective, it seems somewhat rare for Huawei and MediaTek to go to court.
According to previous cases, although mobile communication technologies and patents such as 4G/5G are embedded in chips, patent holders do not charge chip manufacturers, but directly target mobile phones and other terminals with greater value. In the past two years, communications giant Nokia has also directly initiated patent lawsuits against manufacturers such as OPPO and vivo, rather than upstream chip companies such as MediaTek and Qualcomm.
Therefore, some industry experts speculate that Huawei’s lawsuit against MediaTek is likely intended to change the industry’s existing patent licensing model, that is, from charging terminal manufacturers such as mobile phones, to further explore the possibility of charging patent fees from component manufacturers such as chips.
Just last June, Huawei announced that it had signed a patent licensing agreement with Nordic Semiconductor to grant Nordic and its customers component-level licenses for low-power wide-area cellular IoT standard essential patents. At that time, Huawei said that the two parties reached the agreement in a short period of time through transparent and friendly negotiations, marking a major step forward for industry component-level licensing.
From the perspective of both mobile phone manufacturers and users, if the charging model of communication patent giants shifts from the "terminal side" to the "component side", it is likely to reduce the pressure on patent fee expenditures for mobile phone manufacturers such as Apple, Huawei, Xiaomi, OPPO and vivo. Instead, the patent fees will be mainly borne by chip manufacturers such as Qualcomm and MediaTek, and consumers' purchase costs are expected to be further reduced.
But you have to know that Huawei itself is also a communications patent giant.5GRanked first in the world in standard essential patents.
Why does Huawei not charge for the high-value "terminal side" and instead turn to the "component side"?
There may be many reasons.
First, Huawei has its own terminal business. If it can promote the formulation of more reasonable charging standards, it will undoubtedly be beneficial to Huawei's terminal business and can reduce costs. Second, unlike Nokia and other manufacturers, patent fees currently do not have a significant impact on Huawei's total revenue, allowing Huawei to dare to challenge the existing charging model. Third, as the industry media said, Huawei's long-term experience as a patent implementer can personally experience the true value of fair, reasonable and non-discriminatory (FRAND) rates for patent licensing, so as a patent owner, Huawei also wants to explore the best way to balance the interests of right holders and implementers.
However, Huawei did not respond to whether it sued MediaTek because it wanted to change its patent charging model.
According to IAM's report, shortly after Huawei sued MediaTek, MediaTek also quickly countersued Huawei in the UK on July 15.
As for the details of the lawsuit, neither company has made any public statement. However, the domestic media Yicai cited an insider as saying that MediaTek and Huawei began to disagree on the relevant patent fees two or three years ago, until the two sides broke down in the price issue some time ago. "The other party made corresponding requirements to MediaTek based on the price of the terminal, but MediaTek believed that the price was too high."
If this statement is true, it means that Huawei is charging component manufacturers according to the price of the terminal.
This speculation has also been mentioned by some patent industry media. "Enterprise Patent Watch" took Nordic Semiconductor mentioned above as an example, saying that although Huawei signed a component-level license, it is very likely that the pricing is based on the terminal. For example, in the cellular IoT patent licensing plan announced by Huawei, the pricing is based on a single device, whether it is a terminal or a chip.
But at that time, Nordic Semiconductor executives admitted that the two sides had conducted reasonable and pragmatic negotiations and realized that simplifying procedures would help promote market growth and benefit all parties including Huawei, Nordic and Nordic's cellular IoT customers.
Observer.com asked MediaTek about the patent fee issue, and the other party reiterated: the case has entered the judicial process, so no comment will be made.
Judging from the changes in recent years, Huawei is indeed increasing its attention to collecting patent fees. From 2019 to 2021, Huawei's intellectual property income was between US$1.2 billion and US$1.3 billion, and it will start collecting 5G patent licensing fees from 2021. In 2022, Huawei's patent licensing revenue was US$560 million. In 2023, Huawei's collection of patent fees from 30 Japanese companies also attracted the attention of Japanese media.
It is understandable that companies charge patent fees when they create intellectual property rights through research and development. The key is that the charging standards must be reasonable.
Huawei's president Ren Zhengfei once stated at an internal meeting that through years of accumulation, Huawei has formed high-value patent packages in several major fields such as 5G, WiFi 6, audio and video encoding and decoding, optical transmission, and optical intelligence, and has a certain voice. It is necessary to build a reasonable price benchmark. While obtaining appropriate R&D returns, it is also conducive to establishing the image of an innovator in the international community.
In July last year, Huawei announced patent licensing rates for a variety of products, with the upper limit of licensing rates for 4G and 5G mobile phones set at US$1.5 and US$2.5 per unit respectively, and the licensing rate for Wi-Fi 6 consumer devices set at US$0.5 per unit.
In comparison, Qualcomm's charging standard is that 5G single-mode mobile phones will be charged 2.275% of the selling price, and 5G multi-mode mobile phones will be charged 3.25% of the selling price. Based on a mobile phone with a unit price of US$500, Qualcomm single-mode and multi-mode mobile phones will be charged US$11.4 and US$16.3 respectively.
Ren Zhengfei once said bluntly that many of Huawei's intellectual property rights will not be weaponized, and even if patent fees are required, they will not be as much as Qualcomm.
In terms of the proportion of patent fee revenue, Huawei is also lower than Qualcomm. In 2022, Huawei's patent licensing revenue was US$560 million (approximately RMB 4 billion), the second year that licensing revenue exceeded licensing expenditure, but it only accounted for 0.6% of sales revenue. In fiscal year 2022, Qualcomm's technology licensing business revenue reached US$6.358 billion, approximately RMB 45.5 billion, accounting for 14.38% of total revenue.
Although this lawsuit occurred between Huawei and MediaTek, apart from the two, Qualcomm is likely to be the most nervous about the outcome.
According to Canalys data, a total of 292 million smartphone processors were shipped worldwide in the first quarter of this year. MediaTek shipped 114 million of them, followed closely by Qualcomm, which shipped 75 million. More importantly, MediaTek chips are widely used in mid- and low-end mobile phones, while Qualcomm is more oriented towards the high-end market. The Snapdragon chips used in flagships such as Xiaomi and Honor have higher unit prices.
If the industry's patent charging model shifts to the "component side", Qualcomm will undoubtedly have to pay patent fees to Huawei like MediaTek. Even if Qualcomm raises prices due to patent fee expenditures, Huawei does not seem to have to worry because Huawei phones no longer purchase Qualcomm chips.
Patent licensing experts cited by IAM believe that Huawei's lawsuit against MediaTek may be a signal to Qualcomm that it is ready to charge Qualcomm patent fees, even if Huawei may not do so immediately.
The anonymous expert also said that Huawei no longer needs Qualcomm's chips because it mainly sells mobile phones in China. Since Qualcomm's chip sales are much higher than Huawei's mobile phone sales, Qualcomm will eventually pay in the form of a cross-licensing agreement. "Once the influence on chips disappears, Qualcomm will be vulnerable."
In addition to paying patent fees to Huawei, the outcome of the lawsuit is also likely to affect Qualcomm's patent revenue. After all, the terminal charging model originated from Qualcomm. According to this model, a mobile phone has to pay patent fees for chips, as well as panels, memory and other components that are not related to mobile communications. This charging method is often referred to as the "Qualcomm tax" in the industry.
Qualcomm executives have told the U.S. government bluntly, "We collect royalties on mobile phones based on the price of mobile phones, which is much higher than the price of chips. So if you have a choice, you always want to collect royalties on mobile phones, not on chips. Focus our licensing programs and licensing negotiations on companies that make mobile phones, base stations, and testing equipment, because that's where the real money is."
Due to Qualcomm's strong position, mobile phone manufacturers have no choice but to accept the "Qualcomm tax". However, Qualcomm is currently facing class action lawsuits in Europe and the United States because consumers believe that Qualcomm's "terminal-level" licensing policy has invisibly pushed up the cost of mobile phones and increased consumer spending.
From this perspective, if Huawei is really advocating a "component side" charging model to MediaTek as rumored, it is expected to become an important milestone event for the global patent licensing industry, but this still depends on the details of the litigation between the two parties.
According to IAM, MediaTek, together with its subsidiaries HFI Innovation and MTK Wireless, filed a counter-suit against Huawei in the UK. In the eyes of the industry, MediaTek's move is likely to be to hope that the British court will make a ruling on Huawei's "excessive" offer.
Why did MediaTek choose to countersue in the UK? Industry media "Enterprise Patent Watch" mentioned that the UK and China are the only two jurisdictions in the world that can clearly make global rate rulings on standard essential patent (SEP) disputes.
Just at the end of last year, the Chongqing No. 1 Intermediate People's Court made a judgment on the OPPO v. Nokia standard essential patent royalties dispute, confirming the global fair, reasonable and non-discriminatory (FRAND) rates for Nokia's 2G-5G standard essential patents.
The ruling determined for the first time that the 5G standard cumulative rate for the mobile phone industry is 4.341%-5.273%. According to this ruling, regardless of the proportion of multi-mode standards, the upper limit of the 5G patent fee for a pure 5G mobile phone worth $200 is $10.55.
This is the first time that a Chinese court has made a global rate ruling on a standard essential patent lawsuit. In 2021, the Supreme People's Court made a final ruling for the first time in the "OPPO Sharp Standard Essential Patent Licensing Dispute Case" that Chinese courts have global rate jurisdiction over standard patents.
Beijing Han Kun Law Firm pointed out that as the world's largest 5G market and the largest owner of 5G standard essential patents, China believes that the judgment in this case will not only play the role of judicial trial in settling disputes in individual cases, but also provide valuable reference for related industries such as mobile phones, automobiles, and the Internet of Things from a macro perspective, ensuring that the right holders' innovation investment can get a reasonable return and that standard technologies are widely implemented and used.
"Enterprise Patent Watch" believes that Huawei should first seek a solution in the case against MediaTek from the Chinese court, which is likely to include the court's determination of whether its licensing offer is fair, reasonable, and non-discriminatory. With MediaTek suing the British court, it means that the licensing issue at the "component level" is likely to be ruled on separately in China and the UK.
At the same time, this also means that there is a high probability that there will be major differences between the two jurisdictions of the East and the West.
Because the "terminal-level" licensing model advocated by Qualcomm has always been developed step by step through many cases in Western courts. Therefore, according to the characteristics of case law followed by the Anglo-American legal system, the rate ruling by the British court this time may be only one aspect. Whether it can change the existing practice of licensing from "terminal-level" to "component-level" may be the most difficult step.
Looking at the patent layout of both parties, although Huawei ranks first in the world in 5G standard essential patents, MediaTek ranks eleventh in the 5G SEP ranking released by Clarivate Analytics. The strength of both parties should not be underestimated, and MediaTek is considered to have sufficient patent weapons to assert its claims.
Therefore, according to industry analysis, the outcome of MediaTek's counterattack against Huawei in the UK is more difficult to predict than in China.
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