As many in U.S. remain skeptical of patents, China picks up the slack

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As many in U.S. remain skeptical of patents, China picks up the slack


Recently, the Hoover Institution Working Group on Intellectual Property, Innovation, and Productivity(Hoover IP2) issued a revised working paper providing an updated data set on mobile phone patent license royaltiesin a global context. The paper’s authors provide analysis of patent royalties in the entire mobile phone value chain in order to estimate the average cumulative royalty yield in the value chain for mobile phones. The paper concludes that, in 2016, original equipment manufacturers (OEMs) sold a total of 1.97 billion mobile phones for a total of $425.1 billion in revenue, indicating an average selling price of $215.50 per phone and an average cumulative royalty of $7.20 per phone.

One of the working paper’s notes on its data analysis indicates the difficulty of identifying licensing revenues for some firms, like Chinese privately owned collectives which aren’t subject to the same financial reporting standards of U.S. or European companies. One such firm is the Shenzhen-based networking and telecommunications firm Huawei Technologies, an entity which the paper notes as a relative newcomer to the mobile phone licensing sector. Going on the assumption that Huawei’s licensing revenues are similar to InterDigital, a U.S.-based counterpart, the paper’s authors determine that Huawei is earning approximately 30 percent of all patent revenues earned by all Chinese companies combined — an impressive share of all Chinese royalities just for that company’s portfolio of mobile phone patents alone.

An Excel workbook attached to the revised 2017 working paper includes further discussion on how the authors determined that Huawei was receiving such a large percentage of Chinese patent revenues. In the discussion, the authors cite to a fact sheet issued by Huawei which reflects that company’s belief that it holds more than 15 percent of all standard-essential patents (SEPs) in the area of 4G Long-Term Evolution (LTE) communications. This would put Huawei on the level of major SEP holders like Qualcomm, Ericsson and Nokia, entities which also have large and lucrative patent licensing divisions. The authors also note that recent Huawei patent suits filed against Samsung and ZTE indicate that Huawei is working towards developing a stronger licensing division.

Intellectual Asset Management has reported both on the paper’s conclusions, which indicate that arguments over unduly high licensing rates in the mobile phone sector are largely unfounded, as well as the implications of Huawei’s large licensing revenues. IAM further cites to comments from Jason Ding, head of IP for Huawei, which reflect the fact that, as U.S. companies continue to dislike patent protection, the strength of the patent system globally is leading Asian companies to amass more patents and more licensing opportunities than their American counterparts.

“Increasing numbers of US operating companies dislike patent protection,” Ding explained to IAM. “[T]he production and manufacture of products are increasingly located in Asia and Asian companies have more and more patents… opportunities are being transferred to the East just like manufacturing was.”

“I can tell you that my work in China and Japan and Korea tells me that the companies there are quite delighted to pick up the slack where American companies don’t have quite the protections that they do under their law,” former Federal Circuit Chief Judge Randall Rader recently told Eli Mazur in an interview.

Indeed, Huawei has rapidly become one of the most important players in the global mobile phone patent market in recent years, gladly accepting opportunities and copious amounts of licensing revenue that were once the domain of Silicon Valley innovators. How this happened is no fluke. Huawei’s meteoric rise can be explained by an aggressive patent acquisition strategy and an increasingly favorable patent, licensing and enforcement environment in China.