After slugging it out in the law courts for years, Huawei and InterDigital have agreed to roll back the legal artillery. Announcing a licensing deal this week, the Chinese equipment maker and US patents owner have abandoned all existing litigation. A peace treaty would have held attractions for both companies.
Their war started in 2012, when the Chinese equipment maker accused the patents owner of charging too much for 2G, 3G and 4G intellectual property. Siding with Huawei, a court in Shenzhen, where the company is headquartered, subsequently declared that InterDigital's royalties should not exceed 0.019% of the price of a Huawei product.
InterDigital, unsurprisingly, thought that was laughably low. Its recently published rates start at 0.4% for 3G technology, rising to 0.6% for the new 5G standard. For a $500 smartphone, compatible with 3G and 4G, as well as Wi-Fi and HEVC (a video compression standard), InterDigital would expect a per-unit royalty of $1.15.
Hostilities persisted. Just last year, Huawei asked legal types in Shenzhen to rule that InterDigital was charging too much for 3G, 4G and 5G patents. InterDigital retaliated by filing a claim in the UK, accusing Huawei of violating five patents for those technologies.
The case had not been resolved when the warring companies this week announced their ceasefire. It means they will drop the rate-setting case that Huawei initiated in Shenzhen, plus InterDigital's UK proceedings. Under a new licensing agreement, Huawei will pay to use InterDigital's 3G, 4G and 5G intellectual property, as well as patents for Wi-Fi and HEVC. That deal runs until December 2023.
Regulatory filings indicate the deal is worth about $40 million to InterDigital in annual revenues. Under a previous agreement it was collecting about $68 million a year from the Chinese vendor. Alongside the details of its recently published rates, InterDigital promises discounts for companies signing long-term agreements or making upfront payments. Lower rates can also apply when there are "special market considerations," which could mean business in so-called emerging markets. Huawei may feasibly have qualified under all of these criteria.
Why now? Fighting Huawei in China, where court decisions typically favor Chinese firms, was proving costly for InterDigital, which last year recorded net profit of about $21 million on revenues of $318 million. It would have calculated, too, that Huawei's handset business outside China is in jeopardy as a result of US sanctions restricting its access to Google's software. Huawei itself has acknowledged that US measures wiped about $10 billion off international handset sales last year. Yet Chinese patriotism has buoyed smartphone sales at home. This tilt toward domestic sales would have made InterDigital more willing to negotiate discounts.
Huawei can also claim a good outcome. For one thing, it cuts payments to InterDigital by roughly $28 million, compared with its earlier agreement. If it can salvage its smartphone business in western markets, it will pay rates that InterDigital would regard as low. The risk to InterDigital seems relatively small. Post-COVID-19, China and Chinese companies will be out of favor across much of the western world. But Huawei's current PR offensive shows it is not ready to give up.
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— Iain Morris, International Editor, Light Reading