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The US-based network equipment maker says that Huawei is charging “grossly excessive” fees for use of their intellectual property (IP)
This week, ADVA Optical Networking has revealed it is suing Huawei Technologies, arguing that the Chinese giant is using its dominant position in telecoms IP to exert undue influence over the market.
The case, brought before the Texas Eastern District Court, alleges that Huawei is charging extortionate prices for the use of its patents, as well as asking ADVA to pay for patents that are not required by international standards.
Huawei is required to licence its IP to companies on a fair, reasonable and non-discriminatory (FRAND) basis, as per the International Telecommunication Union (ITU)’s technological standardisation process.
ADVA claims that Huawei has failed to follow these FRAND obligations and has also infringed on ADVA’s own patents.
In the filing, ADVA describes Huawei’s strategic approach to IP as a ‘conspiracy’, accusing the company of working in tandem with its ‘worldwide affiliates’ and the Chinese government “to wrongfully dominate and control the market for telecommunications equipment”.
Huawei is the one of the largest patent holders in the world, with only IBM, Samsung, and Taiwan Semiconductor Manufacturing Company (TSMC) holding more patents as of 2022. Many of these patents are related to image compression, digital information transmission, and wireless communication networks, especially 5G mobile technology.
Indeed, this patent domination has become a major source of revenue for Huawei at a time when its smartphone and network equipment businesses have been largely hamstrung by US trade sanctions.
Huawei reportedly made between $1.2 billion and $1.3 billion in patent revenue between 2019 and 2021 and since then has only increased its R&D efforts.
In the company’s latest financial results, Huawei’s CFO Meng Wanzhou revealed that the company had spent $23.2 billion on R&D in 2022, roughly a quarter of the company’s total revenue.
Led by Huawei, Chinese companies were reportedly behind 65% of standard essential patent filings to the European Telecommunications Standards Institute (ETSI) last year, a fact that has not gone unnoticed.
“I’m strongly urging and encouraging companies to file and file and file patents… Chinese companies are doing it a lot,” said European Commissioner Thierry Breton last month, noting that the European Union’s competitiveness in the connectivity sector could be under threat.
Nonetheless, earlier this year, Huawei’s global intellectual property head, Alan Fan, said that his department was “a corporate function, not a business unit” and that the company was not looking to aggressively monetise IP. He noted that any royalties made from the company’s patents was funnelled back into R&D.
In closing, it is worth noting here that while patent licencing can certainly generate significant revenue for companies like Huawei, it is ultimately a matter of quality over quantity.
For example, Huawei’s largest rivals, Ericsson and Nokia, both have smaller patent portfolios than Huawei, but routinely generate higher licencing revenues; Nokia reportedly earned €1.5 billion from patent licencing in 2021, while Ericsson took home €900 million in 2022.
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