Huawei – Nowhere to run pt XVII.

Patent counting is not an indication of reality. 

• The notion that the number of patents that one holds is a refection of one’s contribution to a technology is deeply flawed and in the case of Huawei, most of the evidence points to the contrary.
• Hence, I don’t think that having a large patent count is going to help alleviate the serious problems that Huawei currently faces.
• A 2019 GreyB study assessed the 5G patent pool (see here) and found that Huawei holds the most 5G-related patents (13,474), ahead of Qualcomm (12,719), Samsung (9,299), Ericsson (8,116), LG (7,694) and Nokia (5,554).
• The researchers then assessed which patents they deemed to be essential and concluded that of the 12,002 patent families that were declared to be essential to the 5G standard, only 1,658 met their criteria.
• Of these 1,658, Huawei holds 19%, Samsung 15%, LG 14%, Nokia 12%, Qualcomm 12% and Ericsson 9%.
• This is being taken as an indication that Huawei, Samsung and LG control the standard and that the older players who controlled the IP for generations 1 to 4 are dropping away in terms of their relevance.
• The key here is how the researchers determined what is essential and what is not.
• GreyB’s stated methodology for this is as follows:
  • “We determined essentiality for each patent family as a Core SEP or not by checking any specifications declared to be relevant by the patent holder to the SEP and compared the specific sections of these to compare overlap of the patent claims with those sections. If partial or no overlap was found, we then broadened our comparison to the wider group of all other specifications to repeat this process”
• My best estimate of what this means is that GreyB compared the claims against the 5G standard and where there was overlap between the claim and the standard, this was deemed to be essential.
• The problem with this analysis is what I have long called “the seats and drinks trolley problem”.
• This issue also came to light in 2007 and 2008 when Nokia and Qualcomm were fighting tooth and nail over 3G IP and patent counting was used to de-emphasise Qualcomm’s contribution to the standard.
• Patent counting is fundamentally flawed and the best way to understand this flaw is to use the analogy of an aeroplane.
• In order for a passenger aeroplane to fulfil its function (transporting people) it requires engines, ailerons and wings but also seats and drinks trolleys.
• Hence the IP for all of these items will be deemed essential to the standard.
• However, the IP for the engines, ailerons and wings is much more essential than the seats and the drinks trolleys because the aircraft is still able to fly without seats and drinks trolleys.
• It is this distinction that I think that this analysis has missed and why I suspect that the Asian companies are over-represented in the SEP count.
• This is for two reasons:
  • First, similarities to 4G: 5G is actually very similar in many ways to 4G and was only created as a separate standard in order to reduce latency and optimise transmission at millimetre wave frequencies.
  • For example, 5G uses the same OFDM coding system that 4G does meaning that the overlap is far greater with 4G than 4G had with 3G and so on.
  • Hence, a lot of the core IP that allows the 5G standard to “fly” is very similar to 4G and may even be replicated.
  • In the 4G patent count, Huawei and Samsung, in particular, have a much smaller share raising the question of how they came from so far behind in a similar standard to lead 5G.
  • One answer could be that they have developed IP that looks more like seats and drinks trolleys rather than engines and consequently, their contribution is less valuable than it appears.
  • Second, Apple: in the most recent patent war, Qualcomm and Apple were engaged in by far the most bitter dispute until Apple suddenly caved in and agreed to pay Qualcomm’s fees and use its 5G chips (see here).
  • I am pretty certain that Apple would have sourced its 5G chips from anywhere else if it would have allowed it to have a working 5G solution for the millimetre wave spectrum that is being used by a number of US carriers.
  • This would have allowed it to carry on fighting Qualcomm and still have a working 5G product for the USA.
  • The fact that it felt it had to use Qualcomm is a strong indication that when it comes to working product, Qualcomm (and I suspect Nokia and Ericsson) has a much stronger position in 5G than this study gives them credit for.
• Hence, I am far from convinced that this study is an accurate reflection of reality.
• Non-self citations (number of times a patent is cited by others) is an alternate method to measure a patent’s value but I have not seen a study of this done for 5G and this method is also beset with issues albeit less than straight patent counting.
• Hence, I don’t think patent numbers will help Huawei much when it comes to its struggles with US (and increasingly the West) as it will have to prove that its IP really is essential which is easier said than done.
• 2020 and 2021 look like they will be extremely difficult years for Huawei as revenues both at home and overseas are at great risk.
• However, if there is a reconciliation between the USA and China at a high level resulting in the promised (but increasingly unlikely) phase II trade deal then much of this would go away.
• This is an increasingly unlikely outcome meaning that Huawei may quickly become a Chinese company selling Chinese products for Chinese users in China only.
• Nokia and Ericsson are in the front line to benefit.