Huawei turns to patents for a lifeline – including in the US

BEIJING – Chinese telecoms giant Huawei is turning to patents for a lifeline as the company seeks to carve a path into advanced chip technology – a prized technology the US is trying to cut off from China.

In 2022, Huawei announced that it had signed more than 20 new or expanded licensing agreements for its patents. The company said most of the requests were with automakers for 4G and LTE wireless technology.

Alan Fan, Huawei’s global intellectual property chief, said Mercedes-Benz, Audi, BMW and at least one US automaker were among the licensees. He said that he is not able to tell which American company it is.

Huawei has more on the way – and filed a record number of patent applications with the US in 2022, more than 11,000, according to IFI Claims Patent Services. Their analysis shows that less than half are typically approved each year.

But the number of patents filed means Huawei ranked fourth in the number of patent grants in the US last year, IFI said. samsung first then IBM And TSMC,

“The US is still a huge market that everyone wants to be a part of,” said Mike Bycroft, chief executive of IFI. “They want to make sure that when they’re developing those technologies that they’re protecting those IP [intellectual property] American market rights to the European market.”

According to IFI, in the past two years, Huawei’s US patents have increased the most in areas related to image compression, digital information transmission and wireless communication networks.

The US government put Huawei on a blacklist in 2018 that restricted its ability to buy from US suppliers. Until October 2022, the US made it clear that no American should work with Chinese businesses on high-end semiconductor technology.

Huawei’s revenue fell for the first time on record in 2021, and sales in the consumer division that includes smartphones fell nearly 50% to 243.4 billion yuan ($36.08 billion).

For Huawei, there’s the potential to recoup a bit of that revenue from licensing its patents to other companies.

Alex Liang, partner at Angie & Broad in Beijing, explained that ceasing operations in certain business areas allows the company to realize patent revenue that previously existed mainly on paper.

“Huawei’s situation is similar to that of Nokia when the first generation iPhone came out,” Liang said. ,Nokia was losing market share faster than Apple and a lot of their patents are no longer [had] to obtain a license in exchange for another license to protect their phone business.”

Nokia generated 1.59 billion euros ($1.73 billion) in sales from patent licensing last year, about 6% of its total revenue. The company said that in 2022 it signed “more than 50 new patent license agreements across our smartphones, automotive, consumer electronics and IoT. [Internet of Things] Licensing Program.”

Nokia and Huawei extended their patent licensing agreement in December. Huawei also announced licensing deals with South Korea’s Samsung and China’s Oppo.

“As far as I know, Huawei is aggressively pursuing monetization of its patents,” Liang said.

“It is one of the most important [key performance indicators] in their IP department, if not the most important yet,” he said.

“So any other companies that share technology sectors with Huawei — such as telecommunications, phones, IoT, automobiles, PCs, cloud services, and so on — should all be wary that a giant patent monetization player is in their respective pools.” Jumping and will make a splash.”

Huawei has pushed back at the idea that it is building a business in patent monetization.

The company’s IP chief Fan said his department is “a corporate function, not a business entity,” and that it redirects royalties to research departments that filed patents to fund further research.

“We actively support patent pools and similar platforms that license patents not only to us, but also to other innovators,” Fan said in a statement.

The company previously said it expected $1.2 billion to $1.3 billion in revenue from the licensing of its intellectual property between 2019 and 2021. Huawei didn’t break out specific figures, and only said it met its intellectual property revenue expectations for 2021.

A business of that size would still be a small fraction of the company’s total revenue. Huawei said in December that it expected revenue of 636.9 billion yuan in 2022, little changed from a year earlier. Cloud and connected cars are other business areas the company has sought to develop.

“Huawei has been floundering since the end of its handset business,” said Paul Triolo, senior vice president for China and technology policy lead at Albright Stonebridge Group. “I don’t think they had a choice in terms of increasing their licensing revenue.”

“The question is what do they do for 6G [in] Five years?” he said. “Are they still going to play a patent game? They can’t really manufacture the equipment. If they can’t locate a piece of semiconductor in terms of moving forward, they’re stuck.”

Still, Huawei said it would spend 22.4% of its 2021 revenue on research and development, bringing total category spending over the past decade to more than $120 billion.

Some research is in semiconductor manufacturing. According to a disclosure late last year on the China Intellectual Property Administration website, Huawei has applied for a patent in the highly specialized area of ​​lithography technology used to make advanced chips.

“It’s important in the sense that each individual piece of a complex technology like EUV [extreme ultraviolet] It’s not that difficult to make progress on it,” Triolo said. “Turning that into a commercial system at a commercially promoting scale is a huge, huge task.”

At the moment, Netherlands-based ASML is the only company in the world that can make the extreme ultraviolet lithography machines needed to make advanced chips.

Triolo said that not only did it take ASML 30 years to develop the EUV on its own, but the company also had the advantage of unrestricted access to thousands of suppliers and international industry groups. “What China really lacks is these international associations.”

But he did not rule out the possibility that China’s national champion could help Beijing build its own semiconductor industry.

“Huawei has a very capable group of engineers,” Triolo said. It is “probably a five to seven year process to build something commercially viable – only if everything goes well, if there is enough funding. The Chinese government has to step in here.”

Other Chinese companies are also pouring resources into intellectual property.

IFI’s ranking of companies and their subsidiaries’ global patent holdings showed several Chinese giants in the top 15, including the state research organization Chinese Academy of Sciences.

The data shows that appliance companies Midea and Gree have also ranked high globally, among the South Korean and Japanese giants.

“The growth in Chinese innovation has been clearly visible for a long time,” said Bycroft, CEO of IFI. “Why shouldn’t we expect China to be innovating today like everyone else? Like Japan, like Germany, everyone is in the game. It’s not just America”

— CNBC’s Arjun Kharpal contributed to this report.