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Chinese telecoms giant Huawei may be looking to put the squeeze on small to medium companies for license fees on its sizeable patent portfolio as its bottom line continues to be hit by US sanctions and other restrictions.
A report in Nikkei Asia claims that Huawei has approached about 30 small to midsize companies in Japan, apparently seeking license fees for using its patented technology. The move is being viewed as the Chinese company attempting to claw back some of the revenue it has been losing because of Washington’s crackdowns.
Nikkei states that the companies in question are all involved in the telecoms industry, and a common thread appears to be that Huawei is seeking fees from manufacturers that make use of wireless communication modules.
The company was one of the front runners in the development of 5G wireless technology and holds a number of patents relating to it, but also holds a number of so-called standard-essential patents (SEPs) relating to common standards such as 4G and Wi-Fi.
It is highly unusual for a major manufacturer to directly negotiate with smaller companies in such a manner, Nikkei notes. Typically, licensing fees for telecoms products will be negotiated between large manufacturers, such as a chipmaker that incorporates the technology into its wireless silicon products for sale to device makers, for example.
However, Huawei has been hit hard by US-led sanctions, with its profits cut in half for the first quarter of 2023, and may be considering any means at its disposal to make up for the shortfall.
Earlier this year, Washington put a halt on all American technology export licenses to Huawei, depriving it of a range of key smartphones components from US manufacturers such as Qualcomm. The US has also been leading a campaign to have Huawei technology blocked from the telecommunications networks of its allies in Europe and elsewhere, which has had a devastating effect on its bottom line in countries such as the UK.
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The move could have worrying implications if Huawei intends to expand this apparent targeting of small to midsize companies to other regions. Nikkei states that the company is believed to be stepping up royalty collections in Southeast Asia as well as Japan.
The US may also be a target. Earlier this year, Alex Liang, a partner at AnJie Broad’s Beijing office, told CNBC that he believed Huawei was “aggressively pushing for the monetization of its patents.” Liang added: “It is one of the most important KPIs of their IP department, if not yet the single most important.”
In 2022, Huawei filed a record number of patent applications with the US – 11,000, according to numbers provided by IFI Claims Patent Services.
We asked Huawei if the reports were accurate, and if this was a strategy the company intended to pursue more widely, but it did not immediately respond.
The issue of patents relating to technical standards is an area that the European Commission is keen to address. In May, it published its proposals on a licensing framework for SEPs intended to bring greater transparency to SEP portfolios and allow for better ways for parties to agree on FRAND (fair, reasonable and non-discriminatory) terms for licensing of SEPs.
This legislation has already met with some criticism, partly because it is claimed it would penalize patent holders making infringement claims outside of Europe by limiting access to EU courts. However, it would not necessarily protect EU companies against royalty claims by Huawei as the rules will apply only to standards published after its entry into force.
Huawei is also apparently not the only company hoping to squeeze device makers for license fees; Brit chip designer Arm is said to be seeking to shift its business model so as to charge device makers a license fee based on the value of the end device, as The Register reported previously, in order to bring in more cash.
The moves could mark the start of a worrying trend for IP holders to try and milk more revenue from license fees at every level of the supply chain, a trend that would inevitably translate into higher prices being paid by buyers. ®
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