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

BEIJING — Chinese telecommunications giant Huawei is looking to patents as a lifeline as the company seeks to carve its way into advanced chip technology — the prized technology the United States is trying to cut off from China.

In 2022, Huawei announced that it had signed more than 20 new or extended license agreements for its patents. Most were with automakers, for 4G and LTE wireless technology, the company said.

Mercedes Benz, Audi, BMW and at least one US automaker were among the licensees, Huawei’s global head of intellectual property Alan Fan said. He said he was unable to say which American company.

Huawei has more on the way — and filed a record number of more than 11,000 U.S. patent applications in 2022, according to IFI Claims Patent Services. Their analysis showed that just under half are generally approved each year.

But the large number of patents filed helped Huawei rank fourth last year in terms of the number of patents granted in the United States, the IFI said. Samsung was the first, followed by IBM And TSMC.

“The United States is still a big market that everyone wants a piece of,” said IFI chief executive Mike Baycroft. “They want to make sure, when they develop these technologies, that they protect these IPs [intellectual property] rights for the American market for the European market.”

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

The US government blacklisted Huawei in 2018, which limited its ability to buy from US suppliers. In October 2022, the United States made it clear that no American should work with Chinese companies on high-end semiconductor technology.

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

For Huawei, licensing its patents to other companies has the potential to recoup some of that revenue.

Alex Liang, a partner at Anjie & Broad in Beijing, pointed out that having ceased operations in certain business areas allows the company to realize patent income that previously existed mainly on paper.

“Huawei’s situation is similar to Nokia’s when the first-generation iPhone came out,” Liang said. “nokia was rapidly losing market share to the benefit of Apple and many of their patents are no longer [had] to obtain a license in exchange for other licenses in order to protect their telephony business.”

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

Nokia and Huawei extended their patent license 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 pushing for the monetization of its patents,” Liang said.

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

“So all other companies that share technical areas with Huawei – such as telecommunications, phones, IoT, automobiles, PCs, cloud services, etc. — all need to be wary of a giant patent monetization player jumping into their respective pool and making a splash.”

Huawei pushed back on the idea that it was building a business in patent monetization.

The company’s head of intellectual property, Fan, said his department is “a corporate function, not a business unit” and that it redirects royalties to the research departments that filed the patents to fund research. additional research.

“We actively support patent pools and similar platforms, which grant patents not only for us, but also for other innovators at the same time,” Fan said in a statement.

The company previously said it expects $1.2 billion to $1.3 billion in revenue from licensing its intellectual property between 2019 and 2021. Huawei did not break down specific numbers and only said it had met its IP revenue expectations for 2021.

A company of this size would still represent a tiny fraction of the company’s overall turnover. Huawei said in December it expects 2022 revenue of 636.9 billion yuan, little change from a year ago. The cloud and connected cars are other business areas the company has sought to expand.

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

“The question is what are they doing for 6G [in] five years?” he said. “Are they still going to play the patent game? They can’t really craft the equipment. They’re kind of stuck if they can’t understand the semiconductor part in terms of the future.”

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

Part of the research focuses on the manufacture of semiconductors. Huawei has filed for a patent in the highly specialized field of lithography technology used to make advanced chips, according to a disclosure late last year on China’s Intellectual Property Administration website.

“It’s important in the sense that every piece of complicated technology like EUV [extreme ultraviolet] It’s not that hard to make progress,” Triolo said. “To turn this into a large-scale trading system that can boost trading is a huge, huge task.”

Currently, the Netherlands-based ASML is the only company in the world capable of manufacturing the extreme ultraviolet lithography machines needed to manufacture advanced chips.

Not only did it take ASML about 30 years to develop EUV on its own, but the company also enjoyed unlimited access to thousands of international suppliers and industry groups, Triolo said. “What China really lacks are these international consortia.”

But he did not rule out the possibility that the Chinese national champion could help Beijing develop its semiconductor industry.

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

Other Chinese companies are also investing resources in intellectual property.

The IFI’s ranking of global patents held by companies and their subsidiaries showed a number of Chinese giants in the top 15, including state research body Chinese Academy of Sciences.

Appliance companies Midea and Gree also ranked among the South Korean and Japanese heavyweights, according to the data.

“The rise of Chinese innovation has been visible for a long time,” said Baycroft, CEO of IFI. “Why shouldn’t we expect China to innovate today like everyone else? Like Japan, like Germany, everyone is in this game. United”

– CNBC’s Arjun Kharpal contributed to this report.