In the patent war with Chinese companies, why did Nokia suddenly stop fighting?
[Text/Observer.com Lu Dong]
On February 5, Observer.com learned from vivo that the company reached a global patent cross-licensing agreement with Nokia, which covers the standard essential patents of both parties in 5G and other cellular communication technologies. Once the agreement is signed, the parties will close all pending litigation in all jurisdictions.
This means that vivo has become another Chinese mobile phone brand after OPPO to settle a patent dispute with Nokia.
Xu Xianwen, general manager of vivo's legal affairs department, said that he is very pleased to have reached a global patent cross-licensing agreement with Nokia, which reflects the respect and recognition of the value of each other's cellular standard technology patents, and will also help build a healthy industry environment.
In the past two years, Chinese mobile phone brands such as OPPO and vivo have had patent disputes with Nokia, mainly because they have not reached an agreement on Nokia's patent offer. In June last year, vivo told the Observer that the company believed that Nokia had not fulfilled its obligation to provide reasonable licensing on the basis of the principle of 'FRAND' (fairness, reasonableness and non-discrimination), and the two sides could not reach an agreement for the time being.
OPPO says something similar. In June 2021, OPPO failed to reach an agreement on a renewal agreement after its license agreement with Nokia expired. As a result, Nokia launched dozens of infringement lawsuits against OPPO in many countries around the world before the expiration of the previous agreement and on the first day of expiration, trying to pressure OPPO to accept the patent offer, and then OPPO launched counterclaims in many countries.
Nokia's C-end mobile phone business was divested as early as 10 years ago, but as an old communications giant, the company has a large number of patent resources. Nokia has officially disclosed that the company's patent portfolio is the result of more than 140 billion euros of R&D expenditure, including more than 20,000 patents, of which more than 6,000 patents are related to key 5G technologies.
At the same time, Chinese mobile phone brands have gradually accumulated considerable patent resources after the 3G era.
For example, vivo revealed that by the end of 2023, the company has deployed 25,000 patent applications in more than 70 countries and regions around the world, including 6,000+ 5G communication standard patents. OPPO also said that by the end of 2023, the company has deployed 5G communication standard patents in more than 40 countries and regions around the world, and has completed a total of 5,900+ global patent applications.
In the case that all parties have a large number of patent layouts, it has become an industry practice to conduct patent cross-licensing, which can help both parties reduce R&D and production costs, shorten product development cycles, and accelerate innovation.
Nokia office building
But patent cross-licensing is clearly not a priority for Nokia, and the company still wants to continue to increase its revenue through patent licensing, and even keeps increasing its offer. Last year, Feng Ying, OPPO's chief intellectual property officer, bluntly said that Nokia's asking price for 5G-related patents was too high to bear, "If Nokia's fee standard is followed, mobile phone manufacturers cannot make a profit." ”
At the expense of going against industry practices, what are Nokia's own considerations?
Some experts in the communications industry have given the Observer an example of a patent dispute between a Japanese company and a Chinese company. He mentioned that communication companies generally cross-license patents, but the problem with companies like Panasonic is that the company has some patent accumulation in 2G/3G/4G, etc., but it does not make mobile phone products now, so it basically does not need to cross-license patents. On the other hand, most of the patents of Chinese companies are now concentrated in the field of 5G, and the early patent accumulation is relatively small, which is another difficulty in cross-licensing patents with companies like Panasonic.
Nokia's considerations may be similar to Panasonic's. Now that Nokia no longer has a mobile phone business, cross-licensing patents with Chinese mobile phone companies may not be Nokia's primary goal.
From a revenue perspective, Nokia's performance has become more and more dependent on the patent licensing business in recent years, especially in terms of net profit. In fiscal 2021, Nokia's patent licensing business accounted for only 5.7% of revenue, but net profit accounted for 40%, and in fiscal 2022, Nokia's patent licensing-related revenue accounted for 1.595 billion euros, increasing the proportion of revenue to 6.4%, and the gross profit margin reached 99.7%.
Seeing this astonishing gross profit margin, it is no longer difficult to understand why Nokia is fighting patent wars with Chinese companies around the world.
Judging from a series of recent developments, Nokia's attitude on patent disputes seems to have softened somewhat. Since the beginning of January, Nokia has signed 5G patent cross-licensing agreements with Chinese mobile phone brands such as Honor, OPPO and vivo.
After more than two years of stalemate in the patent war, why is Nokia willing to settle again?
This may still be analysed in two ways.
The first is the performance perspective.
The Observer.com inquired about the financial report and found that in fiscal year 2022, Nokia's entire business achieved growth, with total revenue increasing by 12%. In the past fiscal year 2023, three of Nokia's four main businesses declined, of which the patent licensing business was 1.085 billion euros, a year-on-year decline of 32%.
Previously, Nokia had expected full-year net sales in 2023 to be between 23.2 billion and 24.6 billion euros, but in the end, the company's full-year revenue was only 22.3 billion euros, down 11% year-on-year.
Screenshot of Nokia's financial report
In its announcement in January this year, Nokia mentioned that its financial estimates for fiscal 2023 fell short of its targets due to "patent licensing renewals have not yet been completed", and net sales, operating margins and cash flow did not meet previous expectations.
According to this, some market analysts pointed out that Nokia is in a very difficult situation in terms of both the patent licensing business that constitutes the basic market and the so-called main business, and investors are losing patience and confidence in Nokia. This may be one of the reasons why Nokia has returned to rational asking prices and abandoned its aggressive global litigation strategy.
And then from the legal level.
In early December last year, the First Intermediate People's Court of Chongqing Municipality issued a judgment in the case of OPPO v. Nokia SEP royalty dispute, and the judgment confirmed the global fair, reasonable and non-discriminatory (FRAND) rate of Nokia's 2G-5G SEP: for 5G multi-mode mobile phones, the single license fee is US$1.151 per unit in the first region of the world, and US$0.707 per unit in the second (Chinese mainland) and third regions. For 4G multi-mode handsets, the license fee for a single unit in Zone 1 is $0.777 per unit, and for a single unit in Zones 2 and 3 is $0.477 per unit.
This judgment is also the first time that a Chinese court has rendered a global rate judgment on a SEP lawsuit. The judgment also established for the first time that the mobile phone industry's 5G standard cumulative rate is 4.341%-5.273%. According to this ruling, regardless of the proportion of multi-mode systems, the upper limit of 5G patent fees charged for a $200 pure 5G mobile phone is $10.55.
Zhang Guangliang, a professor at the Law School of Chinese University and a researcher at the International Intellectual Property Research Center, believes that the recognition of the 5G standard industry cumulative rate in this case has broken the dilemma of calculating the 5G SEP (Standard Essential Patent) license rate, provided a game-breaking change for the application of 5G technology, and has important reference value for the entire 5G+ related fields.
The verdict may also be a key factor in promoting Nokia's settlement with a number of Chinese companies. With the end of the war with Nokia, it is believed that it has also cleared some patent obstacles for the globalization of Chinese mobile phone brands such as OPPO and vivo.