Sanctions-hit Huawei demands royalties from Japanese companies

Chinese telecom giant seeks new revenue to offset sales decline

China's Huawei to trying to forge a path forward amid U.S. sanctions that have effectively cut access to American technology.

TAKAHIRO SHIBUYA, Nikkei senior staff writerJune 18, 2023 01:20 JST

 

TOKYO -- Huawei Technologies is seeking licensing fees from roughly 30 small to midsize Japanese companies for the use of patented technology, Nikkei has learned, signaling the sanctions-hit Chinese telecommunication giant's growing reliance on such revenue.

A source at Huawei's Japan unit revealed that "talks are currently underway with about 30 Japanese telecom-related companies." The telecom manufacturer is believed to be stepping up royalty collection in Southeast Asia as well.

It is highly unusual for a major manufacturer to directly negotiate with smaller clients regarding patent fees. Huawei is facing an increasingly tough business environment as U.S. sanctions stemming from data security concerns have made it difficult to sell products overseas.

Huawei is seeking fees from manufacturers and others that use components called wireless communication modules. Sources at several Japanese companies said businesses as small as just a few employees to startups with over 100 workers have received requests from Huawei.

Requested payment levels range from a fixed fee of 50 yen (35 cents) or less per unit to 0.1% or less of the price of the system.

"The level is on par with international standards," said Toshifumi Futamata, a visiting researcher at the University of Tokyo.

Huawei holds a high share of so-called standard-essential patents that are crucial to using such wireless communications standards as 4G or Wi-Fi.

Equipment made by other companies compatible with those standards also use Huawei's patented technology. This means if Huawei demands it, many companies using related internet-connected devices will have to pay patent royalties.

Even Japanese companies that do not use Huawei products could incur unexpected expenses. Furthermore, many small and medium-sized companies are unfamiliar with patent negotiations, raising concerns about signing contracts with unfavorable terms.

"Depending on the content of the contracts, it could lead to data leaks for Japanese companies," Futamata warned. "They need to enlist lawyers and other experts for help to avoid signing disadvantageous contracts."

Contracts that include authorization to access the communication module's software pose risk of data leaks, Futamata added.

Negotiations over telecommunications technology patents are generally conducted between major equipment manufacturers. Such negotiations are time-consuming and selling their own products is far more profitable.

But Huawei's profit has plunged as U.S. sanctions have cut its access to American technology and goods. Without access to Google's Android, for example, it has struggled to sell devices overseas. Growing U.S.-China tensions have prompted Japanese companies to avoid adopting Huawei products.

As patent royalties are not subject to trade restrictions, this could be a source of stable income for Huawei.

Huawei has established an intellectual property strategy hub in Japan to oversee its IP business in the Asia-Pacific region, including Singapore, South Korea, India and Australia.

Japanese automaker Suzuki Motor agreed with Huawei by the end of 2022 to license standard essential patents related to 4G communications technology used for connected cars.

More Japanese companies could face payments demands from Huawei. Wireless communication modules using Huawei's patented technology are indispensable for connected Internet of Things (IoT) networks, according to Tokyo-based research company Seed Planning. The technology is being adopted in autonomous driving, automated factories, medicine, power and logistics.

https://asia.nikkei.com/Business/Telecommunication/Sanctions-hit-Huawei-demands-royalties-from-Japanese-companies