Huawei turns to patents for a lifeline — including those in the U.S.

BEIJING – Chinese telecommunications giant Huawei is revising its patents for a lifeline as the company pursues a path forward in advanced chip technology – a technology the US is trying to squeeze out of China.

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

Mercedes Benz, Audi, BMW and at least one US carmaker are among the licensees, said Huawei’s head of global intellectual property, Alan Fan. He said he couldn’t say it was an American company.

Huawei has another path – and filed a record of more than 11,000 patent applications with the US in 2022, according to the IFI Claims Patent Service. The analysis shows less than half are usually approved each year.

But the number of patents it filed means Huawei ranked fourth last year for the number of patents in the US, the IFI said. Samsung first, followed by IBM and TSMC.

“The US is still an important market that everyone wants to have a part of,” said IFI Chief Executive Mike Baycroft. “They want to make sure that when they develop the technology they protect that IP [intellectual property] rights for the US market for the European market.”

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

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

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

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

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

“Huawei’s situation is similar to Nokia’s when the first generation iPhone came out,” Liang said. “Nokia quickly lost market share to Apple and many patents no longer exist [had] to be licensed in exchange for another license to protect the telephone business.”

Nokia generated 1.59 billion euros ($1.73 billion) in sales last year from patent licenses – about 6% of total revenue. The company says that by 2022, it will sign “more than 50 new patent licensing agreements in smartphones, automotive, consumer electronics, and IoT. [Internet of Things] license program.”

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

“As far as I know, Huawei is aggressively pushing for patent monetization,” Liang said.

“This is one of the most important things [key performance indicators] the IP department, if not already the most important one,” he said.

“So other companies that share technical areas with Huawei – such as telecommunications, phones, IoT, cars, PCs, cloud services, etc. – should all be wary that giant patent monetization players jump into their respective pools and make a splash.”

Huawei rejects the idea of ​​building a business on patent monetization.

The company’s IP chief Fan said the department is “a corporate function, not a business unit,” and that royalties are diverted to research departments that file patents for further research funding.

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

The company previously said that it expects $1.2 billion to $1.3 billion from intellectual property licenses between 2019 and 2021. Huawei did not break down specific figures, and only said that it has met expectations from intellectual property for 2021.

A business of that size will still be a small part of the company’s overall revenue. Huawei said in December that it expects 2022 revenue of 636.9 billion yuan, little changed from a year ago. The cloud and connected cars are other business areas the company is developing.

Huawei has “turned around since the demise of the handset business,” said Paul Triolo, Senior Vice President for China and Technology Policy Leader at Albright Stonebridge Group. “I don’t think they have a choice in terms of boosting licensing revenue.”

“The question is what to do for 6G [in] five years?” he said. “Are they still going to play the patent game? He couldn’t make the equipment. They seem to be stuck if they can’t figure out the semiconductor piece about moving forward.

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

Some research is in semiconductor manufacturing. Huawei has filed for a patent in the field of specialized lithography technology used to make advanced chips, according to a disclosure late last year on the website of China’s Intellectual Property Administration.

“It is important that every piece of technology is as complex as EUV [extreme ultraviolet] it’s not difficult to sort out progress,” said Triolo.

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

Not only did it take ASML about 30 years to develop its own EUV, but the company benefited from unrestricted access to thousands of suppliers and international industry groups, Triolo said. “What China lacks is this international consortium.”

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

“Huawei has a group of highly qualified engineers,” Triolo said. It’s “probably a five-to-seven-year process to build something commercial – only if everything goes well, if there’s substantial funding. The Chinese government has to step up here.”

Other Chinese companies are also pouring resources into intellectual property.

The IFI ranking of global patent companies and their subsidiaries shows several Chinese giants among the top 15, including the state research organization Chinese Academy of Sciences.

Appliance companies Midea and Gree also ranked high globally, among heavyweights South Korea and Japan, the data showed.

“The rise in Chinese innovation has been seen as empty for a long time,” said IFI CEO Baycroft. “Why don’t we expect China to innovate now like everyone else? Like Japan, like Germany, everyone is in this game. Not just the US”

– CNBC’s Arjun Kharpal contributed to this report.