5G – The patent game.

Updated version. Original mistakenly identified only one working chipset in commercial handsets. RFM is aware of two.  

Patent counting is very misleading.

• A report at the RISE conference in Hong Kong lays claim to China’s superiority in 5G due to the fact that it has more 5G related patents than anyone else.
• However, reality tells a different story which underlines the perils of using patent counting as a measure of value.
• A report by the South China Morning Post and Abacus (see here) highlights the flow of innovation in apps from China to the west but also lays claim to superiority in 5G.
• This is based on a patent count where China has 3,400 5G related patents, South Korea 2,051 and US 1,368.
• This suggests that China is the leader in 5G with South Korea in second place.
• This is at odds with reality where the only working commercial 5G handset radio chips are from Qualcomm and Samsung which one will find inside every Chinese and South Korean device.
• If patent counting was a reliable measure, then there should have been plenty of Chinese and South Korean 5G radio chips but there are not.
• The reason for this is that not all patents are created equal where some are worth hundreds of millions and many are worth nothing.
• In order to understand this, one can broadly classify patents into two categories.
  • First, Standard Essential Patents (SEPs): These are patents that have to be used in order to be compliant with a standard such as 5G.
  • As a result, it is much easier to prove infringement for SEPs but at the same time, the holder is bound by the principle of Fair, Reasonable and Non-Discriminatory (FRAND) licensing.
  • This basically means that one has to licence the patent to anyone that wants it and must do so fairly and not take advantage of the fact that companies building products have to infringe the IP to implement the standard.
  • This is what Qualcomm’s current case with the FTC is all about.
  • Second, Implementation patents: These are patents which are not essential to any particular standard and stand on their own merits in terms of the value they deliver.
  • They are much harder to prove infringement for but critically there is no requirement to licence nor is there a limit on the licensing fee that can be charged to use it.
  • Furthermore, injunctions may be sought as a remedy for infringement.
• The best way to understand how patents differ in value is to use the example of a house.
• A SEP would say that the house has to have windows.
• The implementation patent would then determine what the windows are made of, what shape they are, whether they open and so on.
• The patent that says windows are made of glass is extremely valuable but the patent that says the windows are made of pressed steel clearly is not.
• This is why merely counting the patents that each country has filed related to 5G is meaningless.
• The beauty of patent counting is that its easy to understand and easy to carry out.
• The problem is that it has led an arms race whereas many patents as possible are filed as possible meaning that finding the good quality IP becomes like looking for a needle in a haystack.
• Qualcomm pulled out all the stops to get 5G working (like it did for 3G and 4G) and as a result, has got to market first and therefore may have created a good portion of the really valuable implementation patents.
• This was also instrumental in its defeat of Apple in their long-running licencing battle (see here)
• Consequently, I don’t think that the real technical expertise in 5G is to be found in Asia and that this patent count provides an unrealistic picture of the landscape in 5G.
• I still think that the take-off of 5G is going to take longer than many expect due to the lack of real use cases that distinguish it from 4G (see here).
• However, in that light, Qualcomm is the one I would look at for an investment in 5G if I was going to make any at all.