Xiaomi and Huawei in Patent Dispute: Is Litigation the Best Way to Protect Innovation?

　　In early July, the State Intellectual Property Office announced that Xiaomi initiated a request for invalidation of Huawei’s patent titled “A Screen Locking Method and Mobile Terminal”, which will be reviewed on July 21. According to public information, patent oral examination refers to the invalidation party and the invalidation party verbally explaining their views and reasons for the validity of their patents in court.
　　In fact, in addition to Huawei and Xiaomi, in recent years, with the gradual maturity of 5G standards and disputes over communication technology patents, domestic mobile phone manufacturers have increasingly realized the importance of patent reserves and technical strength. A reporter from Nanduwan Finance and Economics found that, counting past communication patent battles in detail, domestic manufacturers Xiaomi, Huawei, OPPO, etc., also had protracted patent litigation with communication giants such as Qualcomm, Ericsson, and Nokia. Overall, most of the litigation In the end, they all came to reconciliation.
　　What is the commercial purpose of enterprises continuously initiating patent litigation? What is worth thinking behind the dispute is whether the patent dispute is protracted, whether it is an effective way of competition, and whether it is beneficial to enterprise innovation?
Litigation is to gain the initiative in negotiations?

　　In this patent dispute between Xiaomi and Huawei, Huawei sued Xiaomi first. According to the “Announcement on the Acceptance of Administrative Rulings of Major Patent Infringement Disputes” published by the 02nd edition of the National Intellectual Property News, the State Intellectual Property Office accepted the case of Huawei suing Xiaomi for patent infringement on January 17. Xiaomi then filed an invalidation request against one of Huawei’s patents.
　　What is an invalidation declaration and is it common in the industry? Gao Jinghe, a lawyer from Bank of China (Shenzhen) Law Firm, analyzed to a reporter from Nanduwan Finance and Economics that when companies face patent infringement lawsuits or it is difficult to bypass patent blockades, they often choose to seek breakthroughs through invalidation requests. An invalidation request can be used as a strategic means to influence the other party’s patent layout or negotiation strategy. In order to remove obstacles to research and development and reduce the risk of infringement in the later stage, companies often choose to take the initiative to invalidate the patents of their competitors; The patent is filed for invalidation, so as to achieve the effect of putting pressure on the opponent or drawing salary from the bottom. In addition, there is another situation where an enterprise wants to carry out patent licensing or cooperation with the invalidated party, but the two parties have differences on licensing fees or other conditions, and the enterprise may also increase its bargaining power through invalidation requests.
　　In response to this dispute, Xiaomi responded: “The two parties are actively negotiating on patent licensing; China’s intellectual property protection system provides a variety of resolution mechanisms, including administrative and judicial mediation. It is important to resolve licensing issues through third-party mediation mechanisms. Industry practice; Both Huawei and Xiaomi believe that intellectual property licensing and cooperation are conducive to promoting innovation and public interest, and believe that mediation is an effective channel to help achieve licensing. Both parties seek to utilize a variety of mediation mechanisms while continuing to actively negotiate , to assist the two parties to reach an agreement.”
　　However, Huawei has not yet responded. However, regarding the purpose of Huawei’s patent litigation, some people familiar with Huawei have analyzed that Huawei’s prosecution of patent infringement against manufacturers is more for the purpose of taking the initiative to negotiate.
High patent fees lead to profit pressure

　　Why are mobile phone patent battles so common? This is related to the large cost of patents in mobile phones. A person in the intellectual property field revealed to a reporter from Nanduwan Finance and Economics that a mobile phone has more than 100,000 patents. If all patent fees are paid according to the requirements, the cost of the mobile phone will increase greatly.
　　In addition, according to a previous report by the research firm Strategy Analytics Emerging Device Technology Research Service, 5G mobile phones will bring nearly US$20 billion in global patent usage benefits to patent holders every year in 2025, while Ericsson, Nokia and Qualcomm Three companies will account for the vast majority of the proceeds from the use of these patents.
　　This also means that domestic mobile phone manufacturers not only face lawsuits from domestic counterparts, but also face the risk of patent lawsuits from foreign communication giants in order to expand overseas markets. Taking Xiaomi as an example, Liu Zhen, General Manager of the Legal Department of Xiaomi Group, said in an interview with a reporter from Nanduwan Finance and Economics that since Xiaomi started its internationalization in 2014, it has been facing relatively large challenges related to intellectual property rights, handling dozens of lawsuits every year. . Intellectual property rights as an industry issue in the past few years has a lot to do with geopolitics, and these changes also bring additional risks.
　　In the context of continuing to expand overseas markets and having to “fight hand-to-hand” with the patents of foreign communication giants, Xiaomi needs to pay high patent licensing fees. Based on past annual reports, prospectuses and other public data, Xiaomi has paid at least 35 billion yuan in patent licensing fees in the past eight years.
　　Year after year of paying high patent fees, combined with high expenditures for new car-making businesses and insufficient demand for mobile phone products, Xiaomi has faced pressure on profitability in recent years. The 2022 financial report shows that during the reporting period, the company achieved a total revenue of RMB 280 billion, a year-on-year decrease of 14.7%; adjusted net profit was RMB 8.5 billion, a year-on-year decrease of 61.4%. At the same time, the gross profit margin of Xiaomi’s mobile phone business is also the lowest among the three major businesses, falling from 11.9% in 2021 to 9%. The other two businesses, IOT, consumer products, and Internet services, are 14.4% and 71.8% respectively.
Under the predicament, Huawei urgently needs patent “recovery”

　　In recent years, facing operating pressure, Huawei has also begun to accelerate the pace of patent rights protection. Yu Chengdong, executive director of Huawei, CEO of terminal BG, and CEO of smart car solution BU, previously said about patent infringement: “Some companies are copying our designs, including some of our patents, and they don’t pay us patent fees after using them. It is also said that it is their own patent, and some things are even copied directly.”
　　It is reported that Huawei is a large patent reserve in the world. Huawei has ranked first in the world in the number of Patent Cooperation Treaty (PCT) applications for five consecutive years, of which nearly 7,000 will be filed in 2021, setting a record high in PCT history. As of the end of 2021, Huawei holds a total of more than 45,000 valid authorized patent families (over 110,000 pieces) worldwide, of which more than 90% are invention patents.
　　Through patent licensing, Huawei’s patent revenue has continued to grow in recent years. Huawei has previously disclosed that between 2019 and 2021, Huawei has obtained approximately US$1.2 billion to US$1.3 billion in patent licensing revenue from around the world. In December 2022, Huawei has also signed patent cross-licensing agreements with OPPO, Samsung, Nokia and other manufacturers, which is bound to drive further growth in Huawei’s patent revenue.
　　Especially in recent years, Huawei has continued to be suppressed. In 2021, Huawei’s annual revenue will be 636.8 billion, a sharp drop of 28.6%. Under the predicament, it is even more necessary to “recover blood” from patent income.
　　For enterprises, positive feedback of innovation results can be obtained through patent licensing fees. Fan Zhiyong, director of Huawei’s Intellectual Property Department, said that mutual recognition of the value of intellectual property among enterprises can promote the positive cycle of “investment-reward-reinvestment” in high-value standard technology research, improve the sustainable innovation capability of the industry, and provide consumers with more Competitive products and services.
The “win-win” behind the dispute is the key

　　The patent dispute between Xiaomi and Huawei has also sparked thinking behind the scenes: In similar patent disputes, is there a better way for the two parties to reach a settlement?
　　In Gao Jinghe’s view, due to the characteristics of technical standardization and product complexity in the field of communication technology, patent disputes often involve multiple subjects and multiple patents. In this case, simply solving the problem through litigation or invalidation request may cause both parties to spend a lot of time, energy and money, and it is difficult to achieve a satisfactory result. Therefore, in similar patent disputes, the two parties can consider adopting some more flexible and cooperative ways to explore and try to achieve mutual benefit and win-win results, such as sharing and utilizing patent resources through cross-licensing or joint development, and through Establish patent pools or join patent alliances to reduce patent costs and risks.