Having been targeted in trade sanctions, Huawei has started to find alternative revenue sources by collecting patent royalties from manufacturers in the Asia-Pacific region. Japanese stakeholders are most worried about Huawei using the royalties as bait to get access to data from IoT sensors, which may endanger national security, according to a Nikkei report.
Huawei Central, the external communications website of Huawei, said the company is ramping up efforts to manage its patent royalties in the global markets by collecting patent fees from manufacturers and other companies that use wireless communication modules. The patent payment model proposed by Huawei follows a fixed fee of JPY50 (about US$0.35) or less per device or to charge at a rate of 0.1% or less of the device price.
According to the Nikkei report, the 30 Japanese companies that were requested by Huawei to pay royalties ranged in size from new start-ups with a few employees to companies with a total of about 150 employees, all of which were small enterprises that typically lack legal personnel and litigation experience, and did not even know which of their technologies were related to Huawei's 4G and Wi-Fi patents.
Nikkei said the claim of Huawei is less than JPY50 per unit, or less than 0.1% of the system price, which is a reasonable level in the international market, but usually, this kind of royalty claim is aimed at the big communication equipment manufacturers, not SMEs. Those small firms have lower revenues and can afford to pay little, thus the claim cost is relatively high and is not cost-effective.
Huawei's demand for royalties from SMEs may reflect the difficulty in its operations, as countries such as Europe and the U.S. have not only banned Huawei's equipment from participating in future telecom infrastructure tenders but even demanded existing equipment to be phased out earlier than planned, causing Huawei to lose cash flows both from equipment sales and maintenance revenues.
But the company's patent royalties are not being targeted for sanctions. Thus Huawei is trying to create new sources of revenue from royalty claims. But since the company's patent portfolio has been cross-authorized for use with other big telecom companies, it would be difficult to ask those telcos to pay extra money.
So Huawei is looking elsewhere for royalties. In 2022, Japanese automaker Suzuki Motors reached an agreement with Huawei to obtain the authorization of standard essential patents related to 4G communication technology for connected cars. And now Japanese SMEs have become Huawei's targets. Although the royalty fees asked by Huawei for each unit are low, if the SMEs are in IoT-related fields, they may still have to pay lots of money because of the huge number of wireless sensors used for IoT.
Huawei Central said it has established an intellectual property strategy center in Japan to oversee its intellectual property business in the Asia-Pacific region, including Singapore, South Korea, India, and Australia. "In the future, more Japanese companies may face payment requirements from Huawei," said the Huawei Central weblog. "Wireless communication modules using Huawei's patented technology are indispensable for connected IoT networks, which are being used in areas such as autonomous driving, automated factories, medicine, electricity, and logistics, according to Tokyo-based research firm Seed Planning."
