Huawei charges royalties to smartphone makers using its 5G technology

GUANGZHOU, China – Huawei will pay smartphone makers royalties for use of its proprietary 5G technology as the Chinese tech company aims to open a new revenue stream even as other parts of its business have been hit by US sanctions.

The company said it will charge “a reasonable royalty percentage of the handset’s retail price, and a per-unit royalty cap” of $ 2.50 for smartphones that can connect to 5G and previous generations of mobile networks.

This price is lower than that of some of Huawei’s competitors, including the Finnish telecom company Nokia.

Charging royalties on key patents related to cellular technology could help Huawei offset at least some of its revenue from other parts of its business, such as smartphones, as a result of US sanctions.

Huawei has charged royalties to companies such as Apple in the past

It is the task of the standardization bodies to create them. Companies such as Huawei, Nokia, the Swedish telecom giant Ericsson, the American chip manufacturer Qualcomm and many others contribute to the standard development process.

In doing so, these companies devise technologies that they then patent. The patents, which are critical to the standards of 4G or 5G, for example, will be considered a “standard essential patent” or SEP.

For example, if a smartphone maker wants to release a 5G handset, they will likely have to use the SEPs from one or more of these companies. In return, these companies can charge a royalty fee.

It is a practice that has been around for a long time.

Deciding what is and isn’t a SEP can be tricky and can lead to high-profile disputes between two parties.

Huawei has 3,007 declared 5G patent families, the highest of any company in the world, according to an analysis by intellectual property research organization GreyB. Patent families are a group of the same or similar patents filed in different countries.

GreyB estimates that about 18.3% of those Huawei 5G patent families are SEPs in use, more than any other company.

The other main patent holders are the South Korean firms Samsung and LG Electronics, Nokia, Ericsson and Qualcomm.

Huawei’s $ 2.50 ceiling in smartphone maker royalties is at the lower end compared to its rivals.

In 2018, Nokia said the license fee for its 5G SEP portfolio will be capped at 3 euros ($ 3.58) per device. Ericsson said it will charge $ 2.50 to $ 5 per device.

Huawei has charged corporate royalties for its 4G patents. The Chinese company estimates it will receive approximately $ 1.2 billion to $ 1.3 billion in patent license revenues between 2019 and 2021.

In the past, Huawei has not been very aggressive on royalties or lawsuits. But that could now change.

“The reason for this is primarily Huawei’s position in the world, in many countries Huawei has had to deal with the sale of their products,” said Muzammil Hassan, head of the licensing and commercialization of intellectual property at GreyB.

Huawei has been hit by a number of sanctions by the US, accusing the company of being a threat to national security. Huawei has repeatedly denied this claim.

But in 2019, the Chinese phone maker was placed on a US blacklist called the Entity List, which blocked US companies from exporting certain technology to Huawei. Last year, Washington decided to shut down Huawei from major chip deliveries.

These actions have caused Huawei’s smartphone shipments to drop.

Meanwhile, a number of countries such as the US and Australia have effectively blocked Huawei equipment from joining their respective 5G networks.

There are now signs that Huawei is becoming more aggressive in intellectual property disputes. Last year, Huawei filed two lawsuits against Verizon because the US carrier infringed patents of the Chinese telecom giant.