Implications of Huawei's Patent Infringement Case Against Xiaomi and the SEP Market

In January 2023, the Chinese State Intellectual Property Office accepted the case filed by Huawei against Xiaomi for infringing its four patents. Two of them are Standard Essential Patents (SEP) on 4G or LTE, but the total four patents are:

• Method and device for sending control signaling
• Method for feeding back Acknowledgement/Negative Acknowledgement (ACK/NACK) information during carrier aggregation, base station, and user equipment
• Method and devices for obtaining panoramic images
• A lock screen method for mobile devices

In response to the case, Xiaomi has declared that negotiations are underway for a patent license agreement between the two parties, with an emphasis on promoting innovation and the public interest through IP licensing. With a portfolio of over 100,000 patents of 40,000 patent families, Huawei is a major player in the telecom industry. According to ABI Research, Huawei has declared more than 7,000 5G SEP families as of the end of 2022, the highest among its competitors.

Prior to the lawsuit against Xiaomi, Huawei had entered into a cross-licensing agreement that included 5G technologies with its main domestic rival in handsets, OPPO. As of the end of last year, Huawei's head of IP department stated that it had signed or renewed more than twenty license agreements, including some with major global manufacturers such as Samsung, OPPO, Nordic, and several Chinese firms. The company has already licensed patents used in 350 million 5G handsets and 15 million connected cars. Under Huawei's previously announced license scheme, each 5G smartphone could be licensed for a 5G SEP royalty cap of US$2.5. For comparison, Avanci, a joint patent pool, charges US$20 per vehicle for its 4G automotive program. As a result, these licensing agreements could be worth approximately US$1 billion to Huawei.

Huawei has stated that IP licensing is not intended to be a primary source of revenue or viewed as a business, but rather a means to cover some of the costs associated with Research and Development (R&D) and filing patents. Although Huawei has made significant progress in IP licensing, with previous patent licensing revenue totaling around US$1.2-1.3 billion from 2019 to 2021, it still falls far short of the company's R&D expenses, which are approximately US$22 billion per year.

ABI Research predicts that Huawei will continue negotiating IP licensing agreements both domestically and overseas.  In 2022, the company newly declared over 2,000 5G SEP families, with 65% filed with WIPO, 19% in Europe, and only 15% in China, according to ETSI Intellectual Property Rights’ (IPR's) online database, analyzed by ABI Research. This suggests that Huawei may seek additional 5G IP licensing outside China. Other Chinese firms, such as ZTE, OPPO, CATT, vivo, and Xiaomi, are also entering the SEP competition. In 2022, three-quarters of newly declared 5G SEP came from the region, indicating a growing emphasis on patent strategies by Chinese mobile supply chain companies to prepare for the expanding 5G market in the future. In addition to Chinese companies, Apple declared nearly 300 5G SEP families last year, with most registered with WIPO, indicating a similar strategy to that of other leading 5G smartphone vendors.

It is important for the supply chain to be aware of the rising trend of SEP competition and prepare with coordinated strategies. Furthermore, since the completion of Rel-17 in March 2022, nearly 8,000 new SEP families have been declared to Rel-17 Technical Specifications, representing 80% of the total declared, indicating a rapid response from mobile technology patent owners and intense competition in the 5G SEP market.