The war to lead the 5G regime is on. But there is a lot of twist to the plot – how many patents one holds, how many essential ones, and how well can they be bought or sold?
By Pratima Harigunani
5G is not a new technology landscape. It is a new geographical construct altogether. If you have been running, winning, or losing the races in telecom and its adjacent industries, none of that horsepower will matter anymore. An ocean is starting from here on. You would need assets that work not on land but in the seascape. Anything will do, to begin with – a raft, a canoe, a steamboat, and eventually (if you can get to that) a motor beast or a ship. Suddenly having good car engines is irrelevant. You need something else. And that something else is coming from patents and innovations made for the 5G world.
Dr. Tim Pohlmann, Managing Director IPlytics GmbH augurs that the next industrial revolution will see increasing technological convergence as connectivity technologies are gradually integrated into mechanical products. “We will also see the increasing importance of 5G in industries where connected cars, smart factories, smart homes, smart meters, and even smart medical devices will rely on 5G connectivity.”
And all that is going to be driven a lot by how 5G innovations happen and get used. “Soon most industries, where connectivity matters, will heavily depend on standardized and often patented standards, which are developed in open, consensus-based, standards-development organizations (SDOs). Understanding the 5G patent landscape allows one to understand the technology leadership positions for technology that will be integrated into almost any connected device,” he adds
Anyone who can create, or has, these innovations will cruise ahead. Anyone who can sell them or buy them with a smart strategy will get extra inches too. But how to know whether one is talking about wood that matters on the water or just paint that looks good from the shore? And more importantly, how much will it cost – as R&D money, as litigation money, and also the extra load on a customer’s wallet that finally bears the burden of these industry handshakes and battles? We will get to that. But first, some numbers.
“Essentiality is an important factor. The relevance is even higher for a 5G era where every industry gets affected by innovations and patents.”
Muzammil Hassan, Head – IP Licensing and Commercialization Department, GreyB
The pecking order
When we look at the patent tanks of the current industry, the largest six companies command the majority of patent families. Yes, 65% of the declared standard-essential patent families, and the remaining 35% was seen held by approximately 70 entities. Note that as per ETSI, 18,887 patent families were declared as SEP as of 26 November 2019. And GreyB’s analysis (done with Amplified) found that 10,763 patent families had at least one alive granted patent as of 30 June 2020. These were the basis of its essentiality check analysis.
Reports vary – but not too much – when it comes to the top spot of who holds the most patent muscle. Huawei shows the most declared 5G patents (3,007 patent families) and next come Samsung (2,317) and LG (2,147 patent families). Nokia shows up with 2,047 patent families, with Ericsson (1,678) and Qualcomm (1,125) in the 5th and 6th place as per GreyB. Incidentally, Nokia had declared more core 5G SEPs than Ericsson and Qualcomm.
Another analysis (IPLytics) which considers all patent declarations published at ETSI up to 1 February 2021 also shows that the top 10 companies own more than 80% of all granted 5G patent families. It gets skewed even more when we think how the top 20 own more than 93% of all 5 G-granted patent families. There are some 100 independent companies, which have declared ownership of at least one 5G patent. However, when we think of big patent owners, the number can be counted on fingers and the names are not hard to guess.
In terms of granted patents as well as pending applications at all worldwide patent offices, Huawei tops the pack with a share of more than 15.39%. Qualcomm is close, with 11.24%, ZTE is next with 9.81%, Samsung with 9.67%, and Nokia with 9.01%. However, Nokia with 15.29% and Samsung with 15.10% exhibited the largest EPO/USPTO-granted 5G family portfolio. Qualcomm and Huawei show high ranks when only considering patent families that have not been declared to previous generations.
What’s hard to ignore is that when we look at top companies that have submitted 5G-relevant contributions Huawei, Ericsson and Nokia come out the strongest, and then we see names like Samsung, Qualcomm, and ZTE. The top three standard developing companies have collectively submitted over 55% of all approved and agreed 5G contributions.
Can you see the pattern already? It is the top six names everywhere. Over 80% of patents running the 5G standard are dominated by six companies. The industry is still skewed towards companies with big pockets and big legacies.
According to Nokia Technologies President Jenni Lukander, “Connectivity technologies continue to transform the way we live and work as 5G becomes mainstream. Nokia plays an important role in powering this next wave in the digital revolution. For more than 30 years, we have defined fundamental technologies used in virtually all mobile devices and taken a leadership role in technology standards-setting. As a result, we have been ranked among the top in several independent third-party studies for our 2G, 3G, 4G, and 5G patents that have been declared essential for cellular standards.”
“Recently an independent study by PA Consulting concluded that Nokia is No.1 for ownership of granted patents that the researchers found essential to the 5G Standard instead of simply relying on patent holders’ own raw patent declaration numbers,” she adds.
“SEP owners will request royalties for SEPs and recent patent litigation in the auto industry shows how lucrative the SEP licensing market is.”
Dr. Tim Pohlmann, Managing Director, IPlytics GmbH
Essential is quintessential
Now let us ask if these patents have some real business value at the end of the day? In other words, we are talking of essentiality. GreyB Services Head of IP Licensing and Commercialization Department Muzammil Hassan help us understand this. According to him, not all patent declarations talk about this aspect. Companies just declare patents in the common industry standard consortiums like 3GPP, and there is negligible mention of essentiality.
“That is what we wanted to understand in our reports, with manual checks on some parameters. We made both the reports – one in May 2020 and another with updates that came out last month – with this intent. We saw how litigations were happening on licensing of patents. We wanted to do a quality check on what is actually essential and that’s a pain point in the industry. The first report found that one in four patents were essential and this level went up to 27% in the updated report. We understood the patent and went through the concept, mapped it with 5G specifications. Essentiality is an important factor – because standards ultimately freeze everything. The relevance is even higher for a 5G era where every industry gets affected by innovations and patents,” Hassan says.
If we look at the PA’s Independent 5G Essential IPR Report, we see that 90% of all the patents were deemed potentially technically essential to 5G, and related to the physical layer and the radio access network (RAN) technologies. Here, the incumbents from previous generations of wireless telecoms were at the top, including Nokia, LG, and Samsung. Ericsson and Huawei came north when considering all patent families declared to European Telecommunications Standards Institute (ETSI), including ones with only patent publications and unpublished applications. What’s noteworthy though is the significant variation in the average quality of each company’s patents – consider how most 5G SEPs are essential to both 5G New Radio/New Core (NR/NC) and LTE (Rel.15+), some patent holders have a much higher percentage of patents essential to 5G NR/NC.
So, just whipping up or buying any patent will not suffice. They have to be ‘standard essential’. In fact, GreyB has found a correlation between declarations and essentiality. Companies with solid SEPs can demand and earn lucrative royalties. No wonder then that the number of 5G SEPs is constantly increasing – and so is the importance of standardisation data such as technical contributions and interoperability blueprints. Now juxtapose these drifts to how the industry is dealing with headlines and struggles of a different stripe – thanks to these closets of patents.
Cornell University Professor Aija Leiponen is an expert in business economics and in particular 5G. She underlines the way the patent process works and how it affects everything next. “Software that underlies most digital innovations has also undergone fundamental changes in its intellectual property right regime. Until the 1980s, software was primarily protected by copyrights or trade secrets, although a few patents, primarily for software embedded in physical devices, had been granted,” she points out.
We know what 5G means – and all that it will spell out – new-age last-mile applications, IoT revolution, connected cars, smart factories, faster cat videos, and whatnot. But all that hinges on how the core technology is shaped, and how soon. It is a mint-fresh technology after all. So whoever is able to crack the IP part will get the best foothold in this market.
What is intriguing is how fast these footprints are changing. The IP edge may not necessarily come out of a player’s own research backyards. They can be acquired in an inorganic way. They can lead to a lot of money going into IP shopping or litigation. That’s just the surface part of these questions. Once we go deep into the honeycomb, it could easily turn into a maze of new questions.
“In 2020, we filed patent applications for more than 1,500 inventions. Our patent portfolio includes around 20,000 patent families, of which the vast majority will still be in force through 2030.”
Jenni Lukander, President, Nokia Technologies
Competing, shopping, and wrestling
Of late, media reports underline worries that Huawei has started demanding 5G royalties from makers like Apple and Samsung. Just think of how big the market is – sales of devices using 5G could be as huge as USD 668 billion globally in 2026 (up from USD 5.5 billion in 2020, according to Allied Market Research). And now think of the moolah that can be hunted by just claiming patent muscles.
There is no doubt that patent and licensing fees are more than first-mover advantages. They can spell a lot of money when we look at the track record of how IP owners have traded these rights in the market.
A lot goes in here. Arguably, ETSI’s intellectual property rights (IPR) policy states holders of SEPs must be prepared to grant licenses under fair, reasonable, and non-discriminatory (FRAND) terms and conditions – but the determination of proper FRAND conditions is what makes the industry prone to court-cases and market-sparring. The disputes over patents are only expected to escalate as companies fight for some elbow room in this northward-bound and explosively growing market. Plus, one keeps wavering on the good old debate as to whether patents incentivise innovation or work as stifling innovation-tax.
It is fascinating to see the geographical hue that this space has acquired in just a year. So far, and in many back-of-the-envelope-calculations, we have seen how the Chinese company Huawei has been ruling the declared 5G portfolio. The ones in the neighborhood are also close in rankings – the usual names from South Korea and Asia. Even in terms of standards contributions, Huawei is responsible for most 5G contributions, followed by Ericsson, Nokia, Qualcomm, and ZTE.
Qualcomm and Intel are the few US exceptions and companies like NTT Docomo are the operator exceptions in these pecking orders. That means a lot of the patent muscle belongs to a certain geography and to players that are not necessarily hands-on as Telcos. It is reassuring to think here that most patents maybe just recently filed and that many of the declared 5G patents could be granted at some point in the future.
“Until 1980s, software was primarily protected by copyrights or trade secrets, although a few patents, primarily for software embedded in physical devices, had been granted.”
Dr. Aija Leiponen, Professor, Cornell University
Yet, revenues matter. Reportedly, in 2019, Nokia raked in significant revenues from patent and brand licensing while litigation disputes like the Samsung-Ericsson IP battle and the Apple-Qualcomm long war can be into millions.
Lukander tells that since the year 2000, Nokia has invested over Euro 130 billion in R&D (Euro 4.1 billion in 2020 alone). “In 2020, we filed patent applications for more than 1,500 inventions. Our patent portfolio includes around 20,000 patent families – each family being composed of several individual patents, of which the vast majority will still be in force through 2030. As of January 2021, Nokia has declared over 3,500 patent families as essential to the 5G Standard.”
“Powered by world-renowned research from Nokia Bell Labs, the company has been the forerunner in defining the fundamental technologies for the 5G era. We are driving standardization efforts to meet consumer, enterprise, and industrial requirements not addressed in previous cellular standards, and we are constantly anticipating future needs by innovating new applications enabled by 5G.”
What is also interesting is how the part about standards gets significant here. These are documents that specify technology specifications and requirements, to ensure certainty that the processes, devices, and systems adhering to them will perform reliably. They entail User Equipment (UE), Radio Access networks (RAN), and core networks. Now that’s again where it becomes important that the patent one claims as important are proved essential and relevant to standards. That is where Standards-Essential Patents (SEPs) enter the scene.
They are emerging as key lenses through which the IP-acquisition market assesses its bets. They are the underpinnings that help to commercialize technology and ensure its interoperability and interchangeability so that customers get more choice, manufacturers get a level-playing field and players get a fair competition. Also on the rise is the complexity of calculating the worth of SEPs (again, a place where essentiality kicks in), the costs for determining connections between standards and patents; and the need for self-declaration for SEPs. Companies might have to expend even greater effort and money on creating or guarding or selling or buying these routes inside the new hives.
Leiponen points out that a newer feature of the US patent system is the Patent Trial and Appeal Board (PTAB). Since the major revision of patent legislation in America Invents Act (AIA) of 2012, other patent holders or third parties can challenge the validity of a new patent through Post Grant Review or Inter Partes Review processes. These new procedures were instituted to reduce the number of patients with dubious (not sufficiently novel or non-obvious) claims. “They give the competitors of an inventor an opportunity and an incentive to show that the invention is obvious or too incremental beyond the state-of-the-art in the technology field.”
Pohlmann warns that it is crucial for any IP professionals across all industry verticals to understand that SEPs are infringed when implementing 5G standardized technologies. “SEP owners will request royalties for SEPs and recent patent litigation in the auto industry shows both how lucrative the SEP licensing market is and how the smartphone wars have been shifting to the auto industry, with a potential to spill over into other industries (e.g., home appliances, manufacturing, and energy).”
Fix the tilt
So far, a lot of patent pools were reigned by the Big Cheese, the cartels, or specific regions. Now is the time when innovators from other regions and segments can rise and shine – countries like India have the iron all hot to strike with the hammer of IT skills, creative brain-pools, and a high mathematics quotient. We might have missed the bus of R&D when patents were all about lab estate, deep pockets, and silicon muscle. Now it could be different, as some experts encourage and hope. Now would be a great moment to learn to walk on water. Can we make room for all the money and advantage that a good 5G spot will bring? Shouldn’t we?
Hassan injects hope that the imbalance in the industry is gradually being addressed. “Other companies – beyond the top six – are stepping up their game. The ecosystem is evolving. But we cannot forget the financial and technical barriers that usually work in favor of the top six. Because now 5G is going to be about repercussions in almost every industry you can think of – from automotive to healthcare to work-from-home solutions to IoT – everything. If you use 5G in your products and services you will have to pay for a patent and licensing to aggressive companies and giants- and that will trickle into the price you charge from your customers in some way. So patents can also mean expensive products and services if the scenario remains the way it is now.” He cites a recent example of a battle between Daimler and Nokia – with injunctions that ran into huge losses to the automotive major.
“We do a lot of work fighting patent trolls and bad patents. Overall, the software industry is a great example of an industry that has thrived in spite of patents, not because of them,” says Rebecca Jeschke from the Electronic Frontier Foundation.
The bottom line: Patents are the pillars of innovation and progress for any industry. They should not turn otherwise – into roadblocks and heavy price-tags.
Meanwhile, the silent and not-so-silent battles over 5G patents keep getting more strong and interesting. It’s Season Sea, of a more gory Game of Thrones.