The Wechat platform may be an unusual place for patent litigation information to leak, but that's what just happened. According to this Chinese article, Chinese smartphone maker ZTE has brought a 4G standard-essential patent (SEP) case against a fellow Chinese device maker in Shenzhen. The defendant has not been announced yet--and according to the article may not even have been served yet.
Rumor (on the same webpage) has it that ZTE is suing a company with a small market share in China but a much larger one abroad. If true, that would rule out companies like Huawei, Xiaomi, Oppo, Vivo, and OnePlus. The more likely targets would then be Tinno Mobile, which is known as a contract manufacturer (Original Device Manufacturer, "OD"M) but also owns a French device maker named Wiko, or Transsion, which is huge in Africa and has a presence in South Asia. Transsion's brands include Tecno, Itel, and Infinix.
A recent ruling by the Supreme People's Court (SPC) of the People's Republic of China" laid out the criteria for Chinese jurisdictions over a global SEP dispute. At a conference hosted by Renmin University of China, IP-specialized judges discussed that case in a wider context. While it weighs in favor of Chinese jurisdiction over a worldwide FRAND matter if the implementer generates a high percentage of its worldwide sales in China, it is not an absolute requirement as other factors, particularly where products are developed and manufactured, are also considered in the Chinese judiciary's very case-specific and fact-intensive decisions.
Five months back, ZTE touted the value of its patent portfolio in a press release. The company has filed over 80,000 patent applications around the globe, about half of which have been granted. Some studies consider ZTE to be one of the top three 5G SEP holders (based on declarations to ETSI). The April 2021 press release stated an intent to monetize the portfolio "through transfers, licensing and other management methods to build a closed loop of sustainable development of 'Innovation - Operation - Re-innovation'" (emphasis added). In connection with "transfers" it's worth noting that ZTE assigned dozens of patents to OPPO earlier this year (according to a Chinese report, iprdaily.cn).
ZTE is no longer as successful in the smartphone market as it used to be. As a result, patents are an increasingly important asset and licensing will be a key revenue stream going forward. ZTE is not the only company in the mobile device business to place greater emphasis on patent monetization. South Korea's LG Electronics recently exited the smartphone market and is likely to enforce its intellectual property rights more aggressively. Huawei has been hit by trade restrictions, and probably holds the most powerful patent portfolio in the industry. In July, Huawei announced a license deal with an unnamed Volkswagen supplier, and the company has always had significant patent licensing revenues, with Apple and Samsung presumably being its top two licensees. Interestingly, about 10 years ago Huawei sued ZTE to collect patent royalties, a dispute that reached the European Court of Justice and resulted in some clarification regarding SEP injunctions. It's another story that the related ruling has largely been vitiated by the German courts (which claim to faithfully apply it but do so in a way that is much more similar to Germany's original Orange-Book-Standard SEP case law).
All in all, the story of ZTE suing a Chinese device maker in Shenzhen is highly plausible, and I get the impression that the industry is taking those reports seriously for the time being. I have no doubt that we're going to hear a lot more about patent enforcement by companies who have either exited or lost ground in the smartphone market but hold formidable wireless patent portfolios. In that industry, yesterday's net licensees are tomorrow's net licensors. ZTE has gone in that direction as have some others before it. This is a challenge for today's winners in the marketplace who seek to maintain their competitiveness by keeping patent licensing costs low, an interest that I have traditionally been very sympathetic to, but it's equally a fact that they stand on the shoulders of giants who developed essential wireless technologies. Licensing is the answer, as no one could seriously dispute, but what royalty rate is FRAND often gives rise to litigation.
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