To focus on just one number--$2.50 (per-unit 5G SEP royalty cap)--doesn't do justice to a bilingual event (video) that lasted more than two hours and featured such speakers as former WIPO Director General Francis Gurry. On the same occasion, Huawei released a 47-page White Paper (PDF). Among other things, it was interesting to hear that Huawei is one of the top three contributors to the Linux kernel. Yet we live in a world of ever shorter attention spans, so what made headline news yesterday was the announcement that "for every multi-mode 5G smartphone, Huawei will provide a reasonable percentage royalty rate of the handset selling price, and a per unit royalty cap at US$2.5."
Many of the questions reporters asked Dr. Song Liuping, Huawei's Chief Legal Officer, and Jason Ding, Huawei's IP chief, also focused on 5G licensing.
Due to a trade war started by the previous U.S. president, with Nokia and Ericsson constantly stoking the flames through lobbying, Huawei is restricted in its ability to serve customers in several major markets. Against that backdrop, I was a bit concerned that the Chinese company would become more aggressive in its patent licensing business. Figuratively speaking, I breathed a sigh of relief when I saw that--regardless of the political landscape--Huawei is still clearly in the camp of product-focused innovators. Rather than align its IP policies with those of Qualcomm, Ericsson, Nokia, or InterDigital, it's clear now that Huawei wants IP to be licensed in ways that enable innovation in smartphones, connected cars, and the wider IoT field.
Huawei is considered to own more actually-essential 5G patent families than any other company. I would summarize the message from yesterday's Forum on Innovation and IP Prospects in 2021 and Beyond as striking a balance: while Huawei doesn't have a "free lunch" or "zero-zero" cross-licensing strategy, it agrees with companies like Apple and Samsung that
the aggregate royalty burden on device makers should not be inflated by "royalty stacking" (a big part of that problem is, by the way, the excessive "privateering" practiced by Nokia and Ericsson, who feed the trolls all the time), and
cellular SEPs should not be used to tax other valuable components of innovative products, which is why Huawei's per-unit royalty cap is relatively low compared to the license fee demands made by companies with less (and sometimes much less) valuable portfolios. That cap suits makers of high-end smartphones, such as the two organizations I just mentioned.
Non-practicing entity InterDigital, which isn't even among the top contributors to 5G, wants up to $1.20 per 5G device (0.6% of a royalty base capped at $200). In connection with the Federal Trade Commission's and Apple's antitrust cases against Qualcomm, I've frequently criticized the chipmaker's royalty demand: for its SEPs, Qualcomm seeks to be paid up to $13 per unit (3.25% of a royalty base capped at $400). Nokia's cap is at €3.00, and Ericsson has been vague, potentially seeking a lot more than even Nokia.
Ex ante disclosures of maximum royalty rates provide much-needed transparency. Standard-setting organizations could require them, but patent monetization-focused member companies typically oppose making such disclosures mandatory.
Huawei's announcement definitely has policy implications. If a company with few 5G SEPs of its own took a position on royalty rates, it would be suspected of merely being interested in bringing down licensing costs (case in point, Qualcomm pointed to an Apple-internal presentation that made it a strategic goal to "devalue" SEPs). Huawei's IP chief Jason Ding said that Huawei wants to be a top contributor, but not ask for top royalty rates. This attitude is compatible with Apple's IP policies. It's also good news for the automotive industry (to which Huawei is a very significant supplier).
I offer a prediction: Huawei's $2.50 per-unit royalty cap will be mentioned a lot in the years ahead in 5G royalty disputes. I would not be surprised if, for example, Samsung pointed to that figure in its ongoing dispute with Ericsson. And if I were a device maker who'd have to defend against InterDigital, I'd argue that a reasonable per-unit royalty cap for InterDigital's patents is but a fraction of the $1.20 it wants, for a pretty small portfolio compared to Huawei's.
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