One is Europe's most influential consumer country, and the other is the EU's largest economy in terms of political and economic volume. Since announcing its entry into the European market in 2018, as the most famous Chinese smartphone manufacturer and a challenger to Apple, OPPO has been making efforts to establish a foothold in these two developed countries.
However, despite its ambitious plans, OPPO has recently decided to withdraw. According to 36Kr, OPPO plans to shrink its mobile phone business in the UK and Germany, retaining only a small number of employees to handle basic operations. This move is expected to take effect in mid-2023. The company's operations in other European countries, such as Italy, Finland, Spain, and France, are still ongoing. It is speculated that OPPO's failure in the patent war with Nokia in Europe forced the company to ultimately withdraw from the region.
OPPO (Source: OPPO Official Weibo)
Looking back at the history of Chinese high-tech enterprises going global, the smoke of war over patents has never dissipated.
· Chinese Companies Plundered by Patent Wars
OPPO's patent nightmare began in 2018, shortly after it entered the European market. Like most Chinese smartphone manufacturers, OPPO does not have the ability to develop communication baseband chips from scratch. Its R&D patents mainly focus on algorithmic technologies such as video coding, fast charging, image processing, and artificial intelligence. Although OPPO has stepped up its efforts to reserve patents in the 5G communication base station, terminal, and network segmentation fields in recent years, completing a total of 4,600+ global patent applications and claiming 2,000+ 5G standard patents with ETSI, it still suffered a hidden loss in the most critical and inconspicuous basic network terminal equipment patents.
In 2018, in order to obtain a ticket to enter the European smartphone market, OPPO signed a patent licensing agreement with Nokia, the former king of the feature phone era and a Finnish telecommunications giant. The agreement mainly covered 4G communication-related technology patents and was valid for three years, until June 2021. The two sides negotiated randomly on old patent content and new 5G-related patents. However, during this process, Nokia demanded an exorbitant fee of EUR 3.0 (USD 3.3) per device for 5G standard essential patents from OPPO. Based on this calculation, the 5G patent cost per device is about EUR 40.0 (USD 44.2). OPPO believed that this price was unacceptable, so the two sides parted ways. As a result, Nokia launched a patent infringement lawsuit against OPPO in Germany from July 2021, involving 4G LTE and 5G standard essential patents (SEP). Nokia has claimed all along that OPPO refused its "fair and reasonable" offer for renewing the patent agreement. OPPO, on the other hand, stated that the licensing fee proposed by Nokia was extremely unreasonable.
Not only OPPO but also vivo, Lenovo (CHINESE: 联想）, OnePlus (CHINESE: 一加）, and even Apple and Samsung, all of which were active in going global, have fought patent litigation battles with Nokia, which treats patents as a cash cow. For Chinese companies, it is difficult to win against these well-prepared multinational communication giants. In 2016, Qualcomm sued Meizu for patent infringement in China, but Meizu struggled and ultimately settled the case in defeat. Since March 2022, due to the failure to reach an agreement on patent licensing, Nokia has launched multiple global patent lawsuits against vivo. As of now, the two sides are in a stalemate. In terms of geographical distribution of cases, Nokia's lawsuits against vivo are concentrated in India, Indonesia, China, and Germany.
However, some Chinese smartphone manufacturers can find ways to avoid patent disputes or take the initiative in patent wars. One approach is the Huawei (CHINESE: 华为) model, which holds the largest number of 4G and 5G standard essential patents in the world and is a superpower in the communications industry. This communication giant, which has always attached importance to intellectual property rights, began to launch attacks around the world in 2016. Coupled with Huawei's announcement of a maximum 5G patent license fee of USD 2.5 in 2021, downstream manufacturers have a basis for industry charging standards. Therefore, Nokia has suffered a lot from Huawei, and the final outcome is usually a settlement and mutual authorization. Another approach is the Xiaomi (CHINESE: 小米) model of "if you can't beat them, buy them." In 2017, Xiaomi signed a multi-year patent licensing agreement with Nokia, which included cross-licensing in mobile network standard essential patents. In addition, Xiaomi acquired some important patents from Nokia (said to be related to routing technology). However, this model is difficult to replicate nowadays, and not every manufacturer can afford it. Moreover, Nokia, which relies more heavily on patent licensing fees for income than ever before in the 5G era, is almost using all means possible to maintain its revenue streams.
· Nokia's "Patent Troll" Evolution History
In 1998, Nokia overtook Motorola to become the world's largest mobile phone manufacturer with the highest global market share. By 2007, Nokia's market share had soared to a staggering 51%. However, within a few years, the former mobile phone giant sold its most profitable business unit, shrinking its market share by 16 times at a cheap price to Microsoft. Nokia may have lost its most lucrative business unit, but its years of experience in the telecommunications and communication equipment field helped the company find another cash cow in patents, enabling it to thrive in the 4G and 5G mobile internet era.
As a communication equipment manufacturer, Nokia relied heavily on mergers and acquisitions to collect patents. In 2006, Nokia and Siemens formed a joint venture called Nokia Siemens Networks (NSN). In 2010, NSN acquired Motorola's wireless business unit for USD 1.2 billion. In 2013, Nokia acquired 100% of Nokia Siemens Networks and renamed it Nokia Networks. In 2016, Nokia acquired Alcatel-Lucent's global business for EUR 15.6 billion (USD 17.3 billion). In 2017, Nokia surpassed Ericsson to become the world's second-largest communication equipment manufacturer at that time.
Through continuous business mergers, Nokia became the world's second-largest communication equipment manufacturer at one point and obtained 658 5G standard essential patents (as of the end of 2022), ranking sixth in terms of quantity. The current Nokia inherits the bloodlines of many communication companies, such as Motorola, Alcatel, Lucent, Bell, Siemens, and others, who were all leaders in the communications industry at the time.
As its technical research and development capabilities were unable to compete with emerging Chinese communication equipment manufacturers (such as Huawei and ZTE), Nokia turned its focus to revenue generated from patents. According to Nokia's financial report, its subsidiary, Nokia Technologies, responsible for patent licensing business, has seen continuous revenue growth in recent years, soaring from EUR 534 million (USD 591 million) in 2012 to EUR 1.65 billion (USD 1.83 billion) in 2017. The direct consequence of Nokia's high dependence on patent income is that its strategy in patent litigation has become increasingly aggressive.
From 2017 to 2019, Nokia filed lawsuits against Apple, Daimler, and Lenovo worldwide, earning considerable profits from these lawsuits. Meanwhile, to facilitate litigation, Nokia transferred its patent assets to newly established affiliated companies that specialize in litigation on Nokia's behalf as the patent owner. These companies are also known as "third-party patent trolls" or "patent raiders." For example, a company named Vringo once used patents to coerce ZTE, and its attack targets were mostly Nokia's direct competitors. Therefore, it is widely regarded as one of Nokia's private NPEs (non-practicing entities).
If we only look at Nokia's 5G patent quantity ranking, many downstream mobile phone manufacturers feel that its contribution does not warrant such a high patent licensing fee. According to data from Iplytics, as of 2021, the top five companies with the most 5G patents are Huawei (15.39%), Qualcomm (11.24%), ZTE (9.81%, CHINESE: 中兴通讯), Samsung (9.67%), and Nokia (9.01%). Therefore, Nokia's 5G patent quantity is only about 60% of Huawei's. In terms of contribution ratio, Huawei's contribution rate to 5G standard proposals is 17.58%, while Nokia's contribution rate is 10%, which means that Nokia's contribution rate is only 56% of Huawei's. As the author mentioned earlier, Huawei's maximum licensing fee per device is USD 2.5. Therefore, Nokia's EUR 3 (USD 3.3) 5G licensing fee per device is at least 1.3 times that of Huawei's.
Why does Nokia have the confidence to sue and win despite its weak 5G research and development capabilities? This is mainly due to the compatibility-first nature of the telecommunications industry. Although everyone is now using 5G phones, the communication baseband must also be compatible with 2G/3G/4G functions to ensure normal phone usage. Therefore, in the patent-heavy telecommunications industry, the leading smartphone manufacturers are also the leaders in the number of patents. Nokia has accumulated a large number of basic technology patents for mobile phones through research and development and mergers. Although most of the 2G and 3G patents have expired, most of the 4G and 5G patents are still valid. Many of these patents are standard-essential patents and basic patents for mobile phones that are impossible to bypass in research and development and manufacturing of smartphones.
For example, many years ago when Nokia manufactured mobile phones, it applied for early patents including "Mobile communication device with camera," "Communication terminal," "Selection of data transmission method," "User equipment, cellular radio network, and location update method," and "Selection of data transmission method," which correspond to the most basic functions of mobile phones today, such as taking pictures, data transmission, and location. Without these basic functions, smartphones would become e-waste, but Nokia has long owned these patents exclusively and has initiated multiple lawsuits to besiege industry giants worldwide and force them to pay "protection fees" through the method of plucking feathers from a flying goose.
Nokia was not as arrogant as it is today at the beginning. Early industry conventions and practices involved cross-licensing, where patent holders share technology with each other, and patent fees are offset, which is conducive to the development and prosperity of the industry. For example, Nokia has agreements similar to those between Huawei and Apple. However, Nokia no longer produces any phones, and its patents have lost the meaning of cross-licensing. When the cash cow becomes a good thing, this becomes an important motivation for the former telecommunications giant to dare to tear its face with its peers.
Due to patent fee issues, mobile phone manufacturers such as Apple, BlackBerry, HTC, vivo, and even automotive manufacturers such as Daimler and Toyota have been sued by Nokia multiple times. Most of these patent disputes end in settlements, with the other party paying patent fees, which has made Nokia's use of its patent stick repeatedly successful.
· What Countermeasures Are Chinese Manufacturers Taking in the 5G Era?
Chinese smartphone manufacturers, who hold a large number of 5G-related patents, are not idle either. Countersuits and litigation are common approaches. However, the final outcome often depends on multiple factors, such as the novelty and universality of the patents, the location of the litigation, and the number of patents held by both parties.
5G Base Station
In the game with overseas terminal manufacturers, OPPO has had some victories worth learning from. In 2021, OPPO ended a two-year patent war with Japanese LCD display giant Sharp. Not only were Sharp's infringement claims in the 3G, 4G, and WiFi fields rejected by the local Japanese court, but also OPPO successfully reached a settlement with Sharp by leveraging its years of patent accumulation in the fast charging field and precise control of overseas antitrust laws. Although its litigation with Nokia in Europe was ruled against, OPPO still forced Nokia to withdraw its appeal against affiliated company OnePlus (another Chinese smartphone brand), and the European Patent Office declared some of Nokia's appealed patents invalid. Moreover, due to Nokia's frequent patent trolling, the industry giants such as Google and Apple are planning to unite and fight back against NPE's huge harm to the communication industry, as Google has pointed out in a statement.
On the government regulatory level, Chinese government departments in charge are also controlling the abuse of intellectual property. Previously, it imposed a high penalty of CNY 6.1 billion (USD 890 million) on Qualcomm for charging unfair high patent licensing fees, bundling non-standard patent licensing without justification, and attaching unreasonable conditions in baseband chip sales. In the case of Nokia, in June 2022, the Anti-Monopoly Bureau of the State Administration for Market Regulation launched an investigation into Nokia and other companies' 5G SEP patent licensing fees and sales bans. It is currently investigating the pricing of 5G SEP licensing fees and sales bans. In addition, China has been vigorously promoting the construction of international SEP internationalization in recent years, striving to have more say in SEP patent licensing.
What methods can overseas brands try when they are being extorted by overseas companies for patents? EqualOcean has summarized several key points for reference:
Firstly, it is necessary to strengthen the patent reserve of relevant technologies to have the possibility of countermeasures in future legal litigation. Having enough industry patents will make opponents willing to sit down for settlement and seek cross-licensing.
Secondly, by reporting the company's brand through news media, increasing its visibility, and deepening cooperation with other major companies in the local industry, seeking their legal protection or even launching industry support.
Finally, if the litigation takes place overseas, the company may consider launching a countersuit domestically, seeking support clauses in domestic laws, and requesting regulatory authorities to provide the protection that domestic enterprises deserve.
At this critical stage, the ESG2023 "the US Sub-Forum" will be held in Shenzhen on June 2, 2023. EqualOcean will invite the representatives of academic institutions and investment institutions, as well as company leaders, from the International Studies Institute of Fudan University, Sun Yat-sen University, Jinan University School of International Relations, Gaorong Capital, Vision Plus Capital, FreeS Fund, ZWC Partners, Source Code Capital, Niu Technologies, TikTok, SHEIN, NEIWAI, miHoYo, Tuya, MINISO, Dreame, Ecovacs, WYBOTICS, Lifen, and UniUni.EqualOcean analysts will also release the US Report 2023 at the US Sub-Forum, summarizing business opportunities and best practices for expanding into the US market in the new stage. Click the link to apply and scan the QR code below to learn more about ESG2023.